The Trouble with Capitalism: an Enquiry into the Causes of Global Economic Failure
By Harry Shutt
Zed Books, 1998
238 pages, $36 (pb)
REVIEW BY EVA CHENG
Since the worldwide shift to neoliberal policy in the early 1980s, capitalist apologists have propagated the idea that capital has become so "footloose" and "globalised" that the role of the state has been drastically diminished.
This is in part because they claim that workers' are less likely to win high wages, because bosses can shift their capital overseas rather than meet workers' demands. They also claim that laissez-faire prevails under neoliberalism, reducing state intervention in the economy to an absolute minimum.
The stock market boom driven by the "new economy" hype in the few years to 2000 seemed at the time to be consistent with this propaganda line. But the 2001 US recession largely changed that.
However, since the 9/11 terrorist attacks on the US, the efforts to "sell" how great capitalism is have been much reduced because there is no longer such need. Instead, President George Bush's US regime is explicit in its agenda to use military might to protect the interests of US capitalists and their imperialist empire.
Under Bush's war drive, it is no longer easy to conceal the bourgeois state's role as guardian of capitalists' interests. Harry Shutt's The Trouble with Capitalism puts forward a convincing case, based on pre-1998 evidence, that the state's role as capitalists' "guardian angel" has not diminished, despite two decades of privatisation.
Shutt takes a historical approach to show that the bourgeois state has softened the bumps of the recurring capitalist booms and busts, from their start in the 1830s and 1840s. He points out that a state-provided social welfare system first appeared in the First World in the aftermath of the 1873 stock market crash. State ownership of key industries and utilities, he goes on, started in Britain after World War I.
Shutt points out that even before British economist John Keynes' successful advocacy in the late 1930s of comprehensive state intervention to mitigate the negative consequences of the "business cycles", more varied forms of vigorous state intervention had been introduced in the "industrialised world". US President's Franklin Roosevelt's 1933 New Deal package and state bailout of troubled financial institutions are key examples.
For the ensuing four decades, Keynesian policy, under which the state used "deficit financing" to soften some of the social consequences of capitalism, was widely practised in the First World. For example, mass unemployment was mitigated by providing social security. State spending was designed to keep the economy afloat, despite workers' inadequate spending power.
The US's Marshall Plan to facilitate Europe's reconstruction after World War II, says Shutt, is also an expression of such Keynesian effort that had become urgent because of the Soviet Union's appeal as an alternative to the crisis-ridden capitalism.
Shutt draws out two central contradictions of capitalism — the inevitable "surpluses" of both capital and labour, which can cause problems. Under no other economic system would an abundance of labour and a high capacity to produce things, cause poverty and collective misery.
Shutt outlines how the Keynesian approach appeared to lose appeal after the long post-WWII boom ended in 1973, but was in reality still being practised, though in modified manner, under the official policy of "monetarism" and "free market" economics.
Shutt spells out how London's and Washington's proclaimed adherence to monetarism was bogus. For example, from 1984 to the early 1990s, when monetarism was supposed to be in full swing in these countries, US net public debt actually increased from 25% to 40% of GDP.
"...despite a long ideological tradition of opposition in principle to government interference in the working of the free market, it is beyond dispute that the development of capitalist enterprise has always been crucially dependent on significant state intervention", says Shutt.
Sweeping privatisation around the world seems to be proof that the state's role is shrinking. But Shutt argues that privatisation was basically an attempt by the state to provide a new investment outlet for capital, to ease the worsening capital glut.
The state, in fact, has gone to great length via many other "corporate welfare" measures to boost the "rate of return" of capital (by finding more productive places for capital to be invested) while it does only the minimum to address the "surplus labour" (unemployment) problem, according to Shutt. The former often involves outright manipulation of the financial markets.
Shutt has a good understanding of the "nitty-gritty" aspects of the capitalist markets and can relate his argument to ongoing market practices. For example, he argues that the removal of the ban on share buybacks in the early 1980s was a measure to prop up market asset prices, which will benefit capital owners. The increasingly widespread abolition of capital gains tax, he explains, serves a similar purpose. The formation of "real estate bubbles", a common phenomenon in many capitalist countries periodically since the 1980s, Shutt contends, is another capital-friendly tactic to keep tradeable asset prices strong.
Despite a clear and elaborate articulation of the fundamentally pro-capital bias of the state, Shutt stops short of explaining this dynamic in class terms. He never names the state categorically as a bourgeois state. He prefers to use obscure terms such as "the dominant social and economic groups", "the higher income groups" and "wealthy individuals", and put a quotation mark around the adjective "class" on the rare occasions when he used the term.
Shutt also seems to deny the existence of imperialism. He calls the principle of self-determination that the oppressed nations demanded during the post-WWII decolonialisation process "hollow" and disapproved the "artificial" formation of many small Third Word nations. He advises such nations (as well as the industrialised countries) "to give up their notional independent sovereignty in return for progressive integration into a functioning world community based on representative institutions". Even if this fanciful set-up is put into practice, is there any realistic chance that the existing oppressor nations wouldn't continue to run the show?
Despite the limitations, however, this book is a useful exposition of the strong role that the state continues to play in propping up capitalism and helps debunk a key myth propagated by the pro-corporate globalisation apologists.
From Â鶹´«Ã½ Weekly, December 8, 2004.
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