Written By: - Date published: 8:00 am, July 22nd, 2018 - 46 comments
Categories: benefits, capitalism, class war, Deep stuff, democracy under attack, economy, Economy, election 2017, Financial markets, grant robertson, infrastructure, jacinda ardern, jobs, Keynes, labour, Politics, poverty, socialism, welfare - Tags: karl marx, matthew hooton
The polls are great. Top work. But I’m getting worried about the entropy of this government already. Matthew Hooten and Karl Marx agree with me.
Governments usually start with a whiz and a bang and gradually subside from there. We forgot to start.
Even Prime Minister Helen Clark, while democratizing New Public Management with bunches of partially-elected Boards, still launched the huge Growth and Innovation Framework, and other initiatives expanding the reach of public policy into investment capital through Kiwisaver and NZSuperfund.
But with this Ardern-led government, we started with lots of tax transfers, unguided and incoherent engagement with major capital, and yet even with major expansive engagements with real estate capitalism they are running out of steam.
Back in the day I could roll out my Adorno and my Habermas pretty easily. Now it’s getting a bit rusty, but in this moment we need to step back and get the big mental machinery rolling again.
In 2008 or ’98 or ’78, after every good crisis-scale economic throat-clearing, Marx gets rolled out to explain how the system will fuck itself up. Today our national pathologies are more chronic than thanatic.
Since the late 1970s, median household income in New Zealand, adjusted for inflation, has stagnated for the bottom 60 percent of the population, even as income for the richest New Zealanders has soared. Corporate profits are at their highest levels since the 1960s, yet corporations of any note are taking those profits offshore rather than reinvesting them locally. We remain one of the very, very few states left in which democracy is active and hasn’t been massively hollowed out and replaced with technocratic elites who plane across the globe unbounded much by time or border. We still vote.
Thanks for voting, but in New Zealand you can fill the Temuka Memorial Hall with the people who own 75% of the country and still have the back four rows of seats empty.
Karl Marx, of course, would not be surprised. He predicted that capitalism’s internal logic would over time lead to rising inequality, chronic unemployment and underemployment, stagnant wages, the dominance of large powerful firms, and the creation of an entrenched elite whose power would act as a barrier to social progress. Eventually, the combined weight of these problems would spark a general crisis. Yet somewhere between crisis and revolution, Karl Marx and Matthew Hooten diverge; revolution just ain’t happening.
Marx believed the revolution would come in the most advanced capitalist economies. Instead, it came right out of the energised proletariat in Russia and China. There, communism ushered in authoritarian government and economic stagnation. Social democrats like myself from developed economies treated our regular crises as a kind of necessary perpetual binge-purge cycle. But today, as developed economy incomes get skinnier and more malnourished, the winners instead are distended versions of militarized states freed from previous Marxist capture, namely: Russia and China.
Despite the genocidal disasters of the Soviet Union and the countries that followed its model, Marx’s theory remains one of the most perceptive critiques of capitalism ever offered. Better than most, Marx understood the mechanisms that produce capitalism’s downsides and the problems that develop when governments do not actively combat them, as they have not for the past 40 years. Marxism is still useful in part for making sense of New Zealand today.
What makes Marx acutely relevant today is his economic theory, which he intended, as he wrote in Capital, “to lay bare the economic law of motion of modern society.” And although Marx, like the economist David Ricardo, relied on the flawed labor theory of value for some of his economic thinking, his remarkable insights remain.
Marx believed that under capitalism the pressure on entrepreneurs to accumulate capital under conditions of market competition would lead to outcomes that are palpably familiar today. First, he argued that improvements in labour productivity created by technological innovation would largely be captured by the owners of capital. “Even when the real wages are rising,” he wrote, they “never rise proportionally to the productive power of labor.” Put simply, workers would always receive less than what they added to output, leading to inequality and relative immiseration.
Second, Marx predicted that competition among capitalists to reduce wages would compel them to introduce labor-saving technology. Over time, this technology would eliminate jobs, creating a permanently unemployed and underemployed portion of the population.
Third, Marx thought that competition would lead to greater concentration in and among industries, as larger, more profitable
firms drove smaller ones out of business. Since these larger firms would, by definition, be more competitive and technologically advanced, they would enjoy ever-increasing surpluses. Yet these surpluses would also be unequally distributed, compounding the first two dynamics.
Marx made plenty of mistakes. He had little idea how well the state would refine itself to enable politics to tame markets after crises, putting officials in power who pursued a range of social democratic policies without damaging the economy. He really had no idea how war-accelerated mechanization would expand the entire purpose of the state or enable multi-state mechanisms. The postwar rise of the social compact made it seem as if that Marx was wrong about the ability of capitalist economies to satisfy human needs, at least material ones.
Our postwar boom was uneven to start with, and lingers still in diminished form. It declined with the stagflationary crisis of the 1970s, when the preferred economic policy of Western social democracies — Keynesian state management of demand — seemed incapable of restoring full employment and profitability without provoking high levels of inflation. Sure, Muldoon comes to mind, but so does Holyoake and Holland, Clark and Key, the Todds and the Fletchers and the Goodmans; restoring profitability by curbing inflation, accepting state to large corporation codependence, not particularly strenghtening organized labor, and accommodating unemployment. Brian Easton has written several good tomes on this relationship.
While the rich made bank from the late 1980s, our little country has proved incapable of replicating the broad-based prosperity of the mid-twentieth century. It marked instead in New Zealand a long recovery since the late 1980s characterised by uneven real estate booms, sluggish commodity dependence, and inequality. This sharp divergence in fortunes has been driven by, among other things, the fact that increases in productivity no longer lead to increases in wages in most advanced economies. (What has saved us as we went through these ideological full-waxings was Australia simply absorbing our excess labour during the tough times, providing us with capital to accelerate our boom times, and providing us with customers and markets throughout. Australia is still our actual government).
If the postwar boom made Marx seem obsolete, recent decades have confirmed his prescience. Marx argued that the long-run (remember the long run?) tendency of capitalism was to form a system in which real wages did not keep up with increases in productivity. This insight mirrors the economist Thomas Piketty’s observation that the rate of return on capital is higher than the rate of economic growth, ensuring that the gap between those whose incomes derive from capital assets and those whose incomes derive from labor will grow over time.
What Marx failed to get is the purpose of the modern state; to stabilize society by forming policy around capitalism, to make it more comprehensible, more rational, providing new languages and legislative and frameworks and redistributive structures making it more generous in its ends than just reifying capitalism self. It is a constant task.
Competition and lawlessness has driven down labour’s share of compensation by creating segments of the labour force with an increasingly weak relationship to the productive parts of the economy—segments that Marx called “the reserve army of labour,” referring to the unemployed and underemployed. Here Marxian analysis stumbles in our current state, where headline unemployment is staying low and reduced to pockets among the completely disorganized and the young. Our system is calm because state redistributions are increasing again, and there are no threats or agitators of any note, anywhere.
Wages haven’t risen. Unionism hasn’t increased. The state has not increased the sophistication of its engagement with capital. With the Ardern government, nothing structural has changed at all. Other than through the willfully incoherent Shane Jones, its will to do so is palpably declining by the day.
Business was supposed to be working on the obsolescence of labour. On the high end, the consulting company McKinsey estimates that 30 percent of the hours worked globally could be automated. These losses are still expected to be concentrated among unskilled segments of the labor force. Prior to the election Grant Robertson worried about the same thing, but the economy remains fully ready to absorb them. Here, business worries that the state doesn’t want to engage and doesn’t have a plan for them.
Research by the economist David Autor and his colleagues suggests that the rise of superstar firms may help explain labour’s declining share of national income across advanced economies (do check him up). Through a New Zealand lens, that means a group of massive companies dominated prices and supply chains both to labour, and to their consumers, to near-oligopolistic scale, in nearly every industry. As our own (relative) superstar firms have become more important to our economy, workers have suffered across the board.
Marx’s overall worldview left little room for politics to mitigate the downsides of capitalism. As he and his collaborator Friedrich Engels famously stated in The Communist Manifesto, “The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.” He’s only right because our state appears nearly unwilling anymore to do so.
In the late 1990s, good thinkers like David Porter and David Skilling toiled hard on how to get New Zealand government to re-engage usefully with clusters of industry and with labour, and good hard-headed Ministers like Jim Anderton were up for it. Their legacy here is surprisingly small and uneven (Skilling moved to Singapore, where his thinking is fully simpatico with a really active and empowered state engaging with industry), but that’s mostly because the second term of the Clark government just starved it to death.
Today, the question of whether politics can re-engage local capitalism remains open. Especially in New Zealand, the Labour-led government is doing as little as possible to upset the New Public Management school of Board-dominated governance, with only occasional and limited reforms of existing Ministerial structures. Few boards have been refreshed. Few judges have been renewed. Almost no departments or structures are in train to be altered in any legislative sense (The only new Ministry formed under this government is a very, very small one designed to get the state to dig out men who died in a coal mine – a pretty dark Marxian joke by itself). Measured by the will to engage or tame it, capitalism appears to have overwhelmed our politics, democratic or otherwise. Perhaps the postwar decades of a near-perfect balance for the majority will be seen as fleeting.
Yet this is not the only narrative. An alternative one would start with the recognition that the politics of capitalism’s golden age, which combined strong unions, Keynesian demand management, loose monetary policy, and capital controls, delivered a lot for a long time but could not deliver an egalitarian form of capitalism forever.
Other narratives are possible. The normal state of capitalism is one in which, as Marx and Engels wrote in The Communist Manifesto, “all that is solid melts into air.” This dynamism means that achieving egalitarian goals will require new institutional configurations backed by new forms of politics.
Like all social democratic governments, that is the task this government has yet to set itself, taking all sectors of New Zealand society with it. There’s a strong sense that this government is neglecting capitals’ leaders, displacing the social sectors’ leaders with delayed ‘reviews’, leaving any environmental engagement solely to the leader of a very small support party, and otherwise using budget surpluses to keep the crowds happy by chucking the political equivalent of hot meat pies to the crowd.
National’s solution has been to buttress the welfare state’s redistribution of income with a redistribution of capital assets, so that capital worked for everyone. The Bolger and Key governments selloff of shares of key public assets into the local share market sought to help achieve that. The ‘stakeholder capitalism’ vision was not state ownership but a broad property-owning democracy in which wealth was more equally distributed because the distribution of productive capacity was more equal. The outcome of that set of sales did not achieve this. Nor had it achieved it under Prime Ministers David Lange or Jim Bolger. You can ask them at the Temuka Memorial Hall.
The one massive intervention this government has a chance to really tame is real estate capitalism inherited from Brownlee in Christchurch to Twyford in Auckland. Not the same as engaging across government no sirree, but a pretty damn big sector of our kind of capitalism. HLC is turning into a suburban juggernaut rolling over the bourgeoise niceties enshrined in the Unitary Plan. And yes, it will deliver at scale.
But if a Bernie Sanders or Jeremy Corbyn-type programme were ever to see the light of day in taming markets and revitalizing social democracy for the twenty-first century, it will not be with the politics of the past. As Marx recognized, under capitalism there is no going back.
Here instead under Prime Minister Ardern is a small managerial state with little inclination to become any stronger, no intellectual or ideological framework to decide how to shape and redirect our kinds of capitalism, and – housing excepted – a residual sense that its ambitions are slow and can only get slower.
Sure, we don’t need a vision. Maybe even a plan’s too much to ask. Just clear, hard engagement across government would be a start.