The Demise of Democratic Capitalism

I had the good fortune recently to follow up on a Montreal newspaper article that made reference to Wolfgang Streeck’s book, Buying Time: The Delayed Crisis of Democratic Capitalism (London: Verso, 2014), which is also available in the original German (2013) and in the 2014 French version (Gallimard) that I bought. It turned out to be one of the best political economy books I ever read, and inspired me to also read a couple of Streeck’s recent contributions to the New Left Review, “The Crises of Democratic Capitalism” from 2011 (a sort of preview of his later work) and his 2014 article, “How Will Capitalism End?”. Not to mention several reviews of his book, that I found on the Internet, as well as a short description of his European Union controversy with Jurgen Habermas, to which he also referred in the “Postface” of his book.

Streeck is an economic sociologist from the neo-Marxist Frankfurt School of political economy, which for him means that it is completely impossible to comprehend anything about the economy as long as it is understood from the orthodox, “homo economicus” perspective, as a discipline entirely separate from sociology or political science. For Streeck, anyone who attempts to analyze economic activity in this way, as the product of rational self-interest in an a-historical vacuum, independent of the evolution of the conflict between opposing political and social forces, is incapable of arriving at any conclusions that are applicable to the real world. The only results that the so-called classical and neoclassical economists can develop are variations on their own subjectivist utopia.

Streeck’s analysis of the evolution of modern capitalism, particularly in the Western world and Japan, begins with what he calls the “democratic capitalism” that developed during the “thirty glorious years” (1945-1975) after the Great Depression and the Second World War. During that very peculiar period, also corresponding to the hottest part of the Cold War, two normally incompatible phenomena, capitalism and democracy, succeeded in coexisting for a short time. That is when industrial capitalism and the Keynesian welfare state managed to purchase social peace, in a small portion of the world, by promising, and largely delivering, higher incomes to working people as well as higher profits to major investors. 

This highly unstable coalition of social forces, however, began breaking down during the inflation crisis of the 1970s. By the end of that decade, the capitalist world’s most important investors, along with their political and intellectual allies, decided that they had had enough of tolerating the statist Keynesian strategy and switched to ultra-individualist, Hayekian neoliberalism instead. Thus began the entire neoliberal onslaught that has gathered momentum over the past four decades, a largely successful return to nineteenth-century, social Darwinist, laissez-faire and “the iron law of (very low) wages” combining such policies as free trade, financial deregulation and the wholesale export of industrial jobs from the “first world” (North America, Western Europe and Japan) to selected parts of the previously underdeveloped, “third world”.

But instead of the promised results of continuing prosperity for everyone, the revival of Gilded Age vulture capitalism has only caused the return of an enormous income gap between the social classes, as well as the 2008 financial crisis and the never-ending stagnation that still plagues the entire world economy nowadays. In the meantime, the nominally communist “second world” of the USSR and its Eastern Europe satellites gradually imploded, leaving behind only a de-industrialized, raw material exporting Russian Federation whose economic profile nowadays is closer to that of the still underdeveloped part of the old third world, rather than the newly industrialized section.

Following Friedrich von Hayek’s prescriptions for an end to “serfdom” (Hayek’s word for democratic state intervention into a “pure” economy), that was largely ignored when first proclaimed back in an article written in 1939 and a book published in 1944, the neoliberal counter-revolution finally got under way during the inflation crisis of the 1970s. Declining rates of growth had made it impossible to satisfy the demands of financiers to maintain high rates of profit while simultaneously lowering taxes on rich people’s incomes, without ignoring the demands of workers to maintain both high rates of employment and continuous salary increases. (Streeck does not blame first-world inflation on OPEC’s massive increase in exported petroleum prices in 1973, as do most other observers, nor does he mention the possible inflationary effect of many large industrial firms in Great Britain and the USA refusing to sufficiently depreciate investments rendered technologically obsolete by industrial innovation in competing countries, such as Germany and Japan.)

Since inflation negatively affected investor income much more than it did worker income, at least for those workers initially protected by strong trade unions, the investor class came up with the monetarist strategy for doing away with inflation altogether. Beginning in 1979 and continuing until 1989, high prices and high wages were completely eliminated by a massive, fourfold  increase in central-bank interest rates, and much stronger state-supported repression of industrial strikes. The monetarist juggernaut resulted in an unprecedented debt crisis, affecting every person or institution that had borrowed any money beforehand, but particularly affecting all levels of government. Massive levels of unemployment were then substituted for the higher prices of the previous decade, with the wholesale transfer of no longer protected industrial jobs from high-wage nations to low-wage nations.

Just to make sure that the over-generous governments of the 1945-1975 period would soon be obliged by their enormous debt load to stop supporting ordinary peoples’ welfare, the increasingly powerful neoliberal movement managed to convince all first world governments, no matter what their official political profile (liberal, conservative, ex-socialist, former communist, etc.) to acquiesce to their demands for much lower taxes on rich people’s incomes. Those unprecedented “fiscal expenditures”, accompanied by a world-wide epidemic of often illegal tax evasion, then led to an unending series of government cut-backs in every spending envelope that did not directly benefit large financiers. To be sure, tax cuts for the rich were cynically billed by neoliberal politicians as an attempt to entice investors to provide more jobs for the unemployed, but the main effect of that electoral ploy was to greatly inflate the overall number of broken electoral promises.

According to Streeck, this entire process has now changed the former first world into an international consolidation, or austerity, state in which all ordinary people (the Staatsvolk, or general citizenry) have had to forego any democratic influence on government whatsoever. By gradually eliminating all internal opposition to its policies, the austerity state has been using ordinary citizens’ money to bail out the world’s leading financiers (the Marktvolk, or people who control the market) whenever they get into trouble, most especially during the 2008 financial crisis and its ongoing sequel. The reference to “buying time” in the title of Streeck’s book is that first the inflation crisis, then the debt crisis and finally the austerity state were the three consecutive strategies that the Marktvolk concocted to so far postpone the arrival of another great depression, or something very similar.

Streeck’s extremely detailed analysis of this entire process includes dozens of examples of strategic political maneuvers in favor of austerity from the USA and Japan, but particularly focuses on political-economic events occurring inside the European Union, and even more especially inside the somewhat smaller euro zone. He also compiled a long series of charts and graphs outlining the evolution of the most important economic indicators from most of those countries (including Canada and Australia), over the past several decades, to buttress his argument.

Streeck demonstrates how in every single country involved, as well as at the international level, in each of the several hundred extremely vicious economic policy conflicts between social justice and market justice that have broken out since 1975, the market people have always won. In every case, every first world government and every international institution involved has been obliged to protect the profits of “the market” (i.e., leading financiers) from the social demands of ordinary citizens (as consumers, taxpayers, union members, unemployed workers, welfare recipients, pensioners, etc.).

Directly or indirectly, every single government program favoring the vast majority of the population has had its former budget cut way back in order to bail out the first world’s most important bankers and industrialists. In the most recent example, the Greek crisis, none of the Greek governments have been allowed to use any previously-existing economic nationalist methods for solving such crises, such as protectionism, monetary devaluation, capital controls or surtaxes on millionaires. None of the rich people, inside Greece or outside Greece, who caused the crisis in the first place, must be allowed to suffer, only ordinary Greeks must be forced to pay, over and over again, in order to clean up the entire neoliberal mess.

In other words, the enormous gap that now exists between income levels in the Western world and Japan, quite similar to the one that used to exist during the first and second industrial revolutions (1780-1880 and 1880-1930), was brought about by internationally organized political action in order to eliminate the slight narrowing of that same gap that had occurred during the Keynesian interregnum, the so-called “thirty glorious years”. Neither the temporary, revisionist Keynesian strategy nor the more orthodox Hayekian one just happened as a result of ordinary economic activity, they were (as always) organized by social and political forces operating simultaneously both inside and outside the strictly economic sphere. With the onset of the Hayekian counter-revolution, the world’s leading nominal democracies have been obliged to abandon the democratic capitalist strategy of the previous period and to return to a rigid straitjacket of “market” (private-capitalist) control over everything that moves, similar to the gold standard society that existed prior to the Great Depression of the 1930s.

Nowadays, however, in spite of market forces in every state having politically defeated every possible kind of internal opposition from the trade unions and political parties that used to oppose their will during the previous period, the first world’s most important bankers, merchants and industrialists have not been able to find their way out of their own self-inflicted investment quagmires. Since 1975, in spite of repeated victories over all their social enemies, they have become increasingly incapable to get what they consider to be a decent return from their capital. Instead, they have been suffering once again from what Marxists call the inherent tendency for the rate of profit to fall (a concept initially developed by David Ricardo), as a particular market, or combination of markets, becomes saturated by intense competition over time.

Since the 2008 world financial crisis in particular, each of the most important private financial institutions has been sitting on an enormous pile of accumulated capital, unwilling to invest most of it, either for fear of not realizing a sufficient rate of profit, or for fear of letting some rival vulture capitalist capture it instead. As Streeck pointed out in his New Left Review article on the end of capitalism, it is as if all those investors need to live in a world of adversity and opposition to their system, like the one that existed during the period of democratic capitalism and the hottest part of the Cold War, in order to provide the aggregate demand necessary to maintain high rates of profit.

Having won total hegemony over all opposing forces, and having succeeded in commodifying labor, nature and money all over the world, much more than ever before, capitalism is left with no external sources of profit to exploit. As a result, even though no one nowadays seems to have any idea of what might replace the capitalist system, it seems that in the absence of growth, there can be no real increases in the rate of profit, and without constant increases in profit, there can be no private capitalism.

Personally, I do not know of anyone else who has done such a superbly good job of explaining exactly what has been happening to first-world economic development since 1945, and I highly recommend having everyone read Streeck’s extremely well-constructed book and his equally intriguing articles. But I would also like to add a few personal observations, none of which take away from anything that Streeck has accomplished.

(1) In the first place, I think that Streeck’s “democratic capitalism” bears a fascinating resemblance to US communist leader Earl K. Browder’s revisionist approach to American politics during the second phase (1941-1945) of the Second World War. At that time, the Roosevelt government was much more inclined to move toward real democracy than at any other time in US history, then or since. Influenced by the recent experience of the Great Depression, by the rise of the Congress of Industrial Organizations (CIO) and by the war-time alliance with the USSR against fascism, the US government thought for awhile that capitalism could not be saved unless it made a number of very unusual concessions toward working people and the welfare state.

That was when Browder started pushing his idea that “communism is twentieth-century Americanism”, an anti-Marxist, ultra-revisionist point of view that reflected his view that capitalism and democracy had become really compatible after all because the state was finally willing to adopt a middle position between the social classes. In reality, his vision had no chance of surviving because it was not only unacceptable to most American millionaires and their political allies, as everyone found out later on, but just as unacceptable to Stalin and the totalitarian, state-capitalist government of the USSR, where “communism” was only meant to be a useful propaganda slogan. Nevertheless, Browder’s idea does seem to have been a rather obsessive interpretation of some of the concessions to the “inferior classes” that the democratic capitalism that Streeck writes about often practiced, not only during the war, but also during the thirty years after 1945.

But even though Streeck’s interpretation of events between 1945 and 1975 was not as stridently revisionist as Browder’s vision, I still think that the concept of “democratic capitalism” has to be understood within its historical context. The kind of Keynesian capitalism being practiced in the first world during that time had as much to do with meeting the communist (state-capitalist) threat as it did with internal relations between the social classes inside the capitalist states. It was also the same period in which most of those governments rallied around the USA to practice an extremely repressive,  neocolonialist strategy not only against world communism (the Berlin crises, the Korean War, the Cuban crisis, the Vietnam war) but also against the entire third world (most of Asia, Africa and Latin America), with a few notable exceptions (Saudi Arabia).

Not to mention the fact that several Western countries, such as Spain, Portugal and Greece, had to put up with pro-fascist dictatorships during that same period, while other regions, such as Italy’s Mezzogiorno (as pointed out in Streeck’s book) and the province of Quebec (not referenced by Streeck), did not participate much in any such democratic capitalism, at least during the first half of that period.

In many ways, democratic capitalism only seemed truly democratic during those thirty exceptional years, in comparison with the much more reactionary attitude toward the “inferior classes” that had been adopted in most parts of the first world before the Great Depression, and the same attitude that has been revived once again with the onset of neoliberalism. Neoliberalism itself, after all, is called “neo-liberal” precisely because it is a return to the economic liberalism, and social Darwinism, that largely dominated the ideological landscape of the major capitalist countries during most of the nineteenth and early twentieth centuries.

(2) My second comment about Streeck’s book is that he does not have much to say about economic nationalism as an important ideology in all the countries he mentions. This is in spite of the fact that he constantly references many of the instruments (protectionism, monetary devaluation, capital controls, etc.) that economic nationalists have always advocated using, since way back in the days of Friedrich List and his immediate successors, not only in Germany, but also in Great Britain (J. B. Byles), the USA (Henry C. Carey), Japan (Yukichi Fukuzawa), and a number of other countries, including Canada (Isaac Buchanan). Back in 1991, I completed a doctoral thesis on economic nationalism as an ideology in central Canada between 1846 (when the British Empire adopted free trade) and 1885 (when the government-subsidized Canadian Pacific Railroad was completed). As the Canadian example (and a large number of other examples) indicate, full-blown economic liberalism was not entirely hegemonic, even in the industrial-capitalist world, prior to the depression of the 1930s.

While reading Streeck’s book, and even when trying to take into account the enormous historical and geographical differences between his subject and my own, I was struck by the extent to which some of the points of view being expressed in the debates between economic nationalists and economic liberals during the nineteenth century resembled those being expressed in the debates between the Keynesians and the Hayekians a century later. Streeck’s analysis, however, has a much more class-based, sociological focus than most of what the economic nationalists had to say back then, although I was a bit surprised by a certain similarity between some of the categories Streeck uses (Staatsvolk versus Marktvolk) and some of those used a long time ago by Canada’s Isaac Buchanan, who thought that modern society was divided between “labor-power”, the power of producers, and “money-power”, the power of financiers.

(3) My third comment has to do with my own political activity in Quebec during the 1980s. In those days, I supported the sovereignty movement of the Parti Québécois against the Canadian federalism of the (federal and provincial) Liberal Party. In that monetarist period of history, I thought that the avowedly Canadian economic nationalism and anti-Americanism of federal liberal leader Pierre Trudeau was being considerably undermined by his kowtowing to the Bank of Canada’s support for the British and American monetarist assault on inflation. So I threw in my lot with the so-called Quebec separatists, thinking that they would be pushed toward economic independence from global neoliberalism by their own goal of Quebec semi-independence (Quebec sovereignty in economic association with Canada).

My hopes and expectations in that undertaking were initially rewarded when I read Quebec finance minister Jacques Parizeau’s 1981 budget speech, in which he thoroughly denounced the “docteurs Diafoirus de la politique monétaire” for their ill-advised attempt to eliminate inflation by quadrupling interest rates in the entire Western world. In other words, Parizeau was comparing the monetarists with quack medical doctors in seventeenth-century France (a reference to one of Molière’s plays), who killed off their patients rather than curing them by using totally inappropriate methods such as bowel purging and bloodletting.

Shortly thereafter, however, the enormous debt crisis brought on by the monetarist response to inflation resulted in a huge increase in provincial government debt. In 1982, Parizeau decided to cut salaries by 20% for the several hundred thousand provincial employees in Quebec, at least temporarily, in a bid to save money. Those were the same salaries that the PQ government had allowed to increase significantly back in 1979, when they were trying to get the same employees to support the unsuccessful 1980 Quebec referendum on sovereignty-association. Quebec sovereignists had been quite upset back then when some of the public-sector unions, under Marxist-Leninist influence, decided to take a neutral stand during the first referendum.

In 1982, Parizeau also put an end to the indexation for inflation of the same employees’ pension plans, a situation that lasted from 1982 to 1999 and still has a negative effect on payments to pensioners nowadays. He did not, however, put an end to any of the recently adopted provincial tax cuts to investors, such as his own Stock Savings Plan. In 1983, when the PQ government also adopted Bill 111, rendering illegal even official Quebec union protests against the unilateral wage and pension reduction, I decided that I had to give up my membership in the PQ. Their enthusiastic support for North American free trade also helped to dash my hopes for a more radical Quebec-nationalist response to monetarism, and to neoliberalism in general, than Trudeau’s Canadian-federalist response.

In 1986, I published a two-part history of economic nationalism in Quebec in a conservative magazine called “L’Analyste”, that I distributed at a conference on nationalism sponsored by the same magazine, attended by many Quebec politicians and business leaders, both federalist (such as finance minister Marc Lalonde) and sovereignist (such as business mogul Pierre-Karl Péladeau). But by that time, support for both economic nationalism and for social democracy, in Canada as well as in Quebec, were very much on the decline. It seems to me now, following Streeck’s analysis, that the events in which I was involved back then should really be considered as just a small part of the entire first world’s switch from the Keynesian post-war strategy to the neoliberal, Hayekian strategy that has been gradually imposed since 1975.

(4) My fourth comment has to do with Streeck’s occasional reference to scarce resources becoming increasingly scarcer under the tight-fisted rule of the Hayekian forces, and thus adding an ecological element to the danger of letting those forces control the entire world. Strictly speaking, talk about scarce resources is not scientifically accurate, since each new technology is always accompanied by its own particular natural resources. Petroleum, for example, was only a waste product when coal was king during the first industrial revolution, before the US market for kerosene was started up in 1859. Nowadays, all the fossil fuels would also become considerably less important to the world economy if anyone ever got around to discovering any really efficient substitute, such as how to peacefully produce nuclear fusion power, whose raw materials (hydrogen isotopes like deuterium and tritium) are not at all scarce in nature.

Unfortunately, today’s neoliberal governments, like the one currently ruling Canada, have included authoritarian control over government scientists as part of their desire to hide any information that any one of their numerous ecological enemies might want to use against them. As a result, it has become increasingly unlikely that any major new discoveries will get to see the light of day as quickly as they used to in the past. This means that Streeck’s occasional use of the term “scarce resources” is not a very important problem within his overall analysis, since all natural, and human, resources are indeed bound to become scarcer under the Hayekians’ increasingly obscurantist leadership.

(5) My final comment on Streeck’s analytical work has to do with his debate with leading German philosopher Jurgen Habermas about what people who are fundamentally opposed to neoliberalism ought to be doing nowadays to save whatever is left of democracy from the almost complete victory of financial totalitarianism. In the conclusion to his book, Streeck left the impression that so far as the European Union is concerned, the most realistic strategy would be for national governments to reassert their democratic independence from the supranational, unelected bodies such as the European Central Bank that have completely taken over that part of the world during the past several decades.

For that comment, he was lambasted by Habermas for advocating “small-state nostalgia”, as opposed to Habermas’s own desire to democratize the entire European Union, by imposing a much more developed, European-wide, social policy than the feeble attempts to do so that were already made in the past. In Streeck’s “postface” reply to Habermas, he acknowledged that the traditional nation-state may not be the most appropriate vehicle for opposing supranationalism, but emphasized his conviction that trying to democratize the entire European Union nowadays has become a completely utopian project, unrealizable in today’s political conjuncture.

Personally, I do not see any particular political force active today, capable of achieving any kind of genuinely democratic transformation of Europe, or any other part of the world. In North America, leading politicians such as Hillary Clinton in the USA (for the Democrats) and Justin Trudeau (Pierre-Elliott’s son) in Canada (for the Liberals), are supposedly engaged in electoral battles to save the middle class from complete destruction at the hands of the same kind of totalitarian neoliberalism that now controls most of Europe. But no independent observers really believe that such mainstream politicians are truly sincere about opposing the stranglehold of the very same financiers that their parties have always supported in the past, and who have always supported them in return. Even the imperial foreign policy of these theoretically centrist politicians does not seem terribly different from that of their right-wing counterparts.

To be sure, in domestic policy the Republican candidates in the USA are not even trying to save the middle class from anything, since they all firmly believe in the neoliberal fantasy according to which libertarianism is just a modern synonym for democracy. Which is just one more upside-down opinion that they share with the ultra-Hayekian Conservative Party that has governed Canada for the past nine years. Canada’s third force, the formerly socialist New Democratic Party, spends most of its time nowadays trying to reassure all business leaders, not just manufacturers, that they have nothing whatsoever to fear from them. For its part, the province of Quebec, in the aftermath of the 1995 second referendum defeat, has fallen under the almost complete control of a nominally liberal, pro-austerity government. Its main opposition comes from a weak remnant of the Parti Québécois under the leadership of Pierre-Karl Péladeau, whose recent endorsement of social democracy is a lot less convincing than his previous, union-busting career as a middle-sized financier.

No political activity going on anywhere else in the world seems any closer to advocating genuine democracy. China’s single-party dictatorship under corrupt billionaire control, practicing social neoliberalism inside the country and economic nationalism (flavored with militarism) towards the rest of the world, is light-years away from any of the democratic capitalism that Streeck talks about. India’s nominally democratic political system, inside a feudal society where 97% of the population has to depend on the informal economy in order to survive, is if anything even further away from resembling genuine popular sovereignty or social democracy. Russia’s dependence on raw material exports, its political authoritarianism and its militarist stance toward its former satellites, is hardly any better. Billionaire support for ultra-conservative Islamic barbarism in many Muslim countries, as well as among Muslim minorities in the West, is even less edifying. There is some resistance, such as in Bolivia, to neocolonial, neoliberal control of the non-industrialized part of the former third world, but it does not seem widespread enough to have any real influence on world-wide strategy.

At the moment, the only non-Hayekian ideologies that seem to be emerging all over the world are neofascist movements that have become popular again as a result of ordinary citizens having lost any of the democratic influence that they may once have had over neoliberal-billionaire control of everything political. Dozens of competing nationalist myths and fundamentalist religious fantasies are currently being used by ultra-conservative movements to create competing combinations and permutations of Christian, Islamic, Jewish, Hindu, Sikh, Buddhist, Confucian, Shintoist and pagan forms of fascism, all over the world, in an expanded version of the kinds of racially-oriented nationalist and religious revivals that plagued humanity during the nineteenth century and the first part of the twentieth century.

In a world such as this one, if the Hayekian ideology ever implodes like the nominally communist movement did, those ultra-right-wing, semi-feudal movements could very well end up dividing the world between them, in a series of dystopian, regional wars. At the same time, there does not seem to be any kind of universal political, economic and social alternative force on hand, ready to remove the neoliberal counter-revolutionaries from their positions of almost absolute power. The Hayekian true believers are completely and totally dedicated to their own misinterpretation of economic reality and seem entirely capable of bringing the entire world economy down with them, if pushed to the brink by their own obsessive, but unsuccessful, desire for ever higher rates of profit. Their constant victories over their political enemies, during the past several decades, have given them an extremely strong sense of totally irrational potency.

Like the ultra-Islamic movement, the neoliberal movement has been thoroughly radicalized by its own literal interpretations of the gospel according to Hayek and would probably try to induce economic, social and political chaos all over the world, rather than give up nearly totalitarian control over the countries and the “inferior” social classes that it now dominates. Although Wolfgang Streeck himself, who seems to be an extremely polite and cultivated person, apparently dislikes any kind of psychological categorizations in discussions of this kind, I think that the Hayekian millionaires and billionaires are supremely proud of being at least a hundred times, more often a thousand times and even more often a million times richer, than all the ordinary peons that they so thoroughly despise.

Even with the OECD and the IMF coming out with a whole series of recent studies showing that extreme social inequality is not good for economic growth, the richest Hayekians are too thoroughly ensconced in their positions of Olympian hegemony to voluntarily share their ill-gained wealth with anyone less important than one of their own. Showing that all the world’s leading capitalists will suffer along with everyone else if the world economy falls apart, will probably have no effect on their fortress mentality.

For them, the very expression “all the capitalists” makes no sense, because as their chief wizard Margaret Thatcher pointed out to them several decades ago, social classes do not exist, only large numbers of individuals exist. Each leading capitalist wants to dominate each other leading capitalist as much as he (or sometimes she) wants to dominate any other individual with an inferior annual income. The sadistic desire to dominate is, after all, the reason why those people got rich in the first place and why they want to get even richer in the future, whatever the consequences for themselves, as well as for everyone else.

The only hope for a brighter future would seem to come from some kind of transcontinental alliance between whatever is left of national sovereignty and social democracy everywhere, but that would be a very difficult task to accomplish in today’s world.