The Multidimensional Crisis and Inclusive Democracy, Takis Fotopoulos (2005)
Chapter 2:
Forms of modernity
The marketisation process that was initiated by the emergence of the market economy made apparent the contradiction between the requirements of the market economy and those of society. This contradiction was due to the fact that, in a market economy, labour and land had to be treated as genuine commodities, with their free and fully developed markets, whereas in fact they were only fictitious commodities. It was the same contradiction that led to a long social struggle, which raged for over a hundred and fifty years, from the Industrial Revolution up to the last quarter of the twentieth century, between those controlling the market economy, (i.e. the capitalist elite controlling production and distribution) and the rest of society. Those controlling the market economy (with the support of other social groups which were benefiting by the institutional framework) aimed at marketising labour and land as much as possible, that is, at minimising all social controls aiming at protecting labour and land, so that their free flow, at a minimum cost, could be secured. On the other hand, those at the other end, and particularly the working class that was growing all this time, aimed at maximising social controls on labour (not so much on land before the emergence of the Green movement), that is, at maximising society’s self-protection against the perils of the market economy, especially unemployment and poverty.
It was the outcome of this social struggle that determined in each historical period the nature and main characteristics of modernity. The controversial issue however is what was the conditioning influence of “objective” versus “subjective” factors, as regards the final outcome of this struggle. For Marxists, objective factors like changes in technology play a crucial role in this outcome, if they do not determine History itself (“in the last instance”). On the other hand, for supporters of the autonomy/democratic tradition like Castoriadis subjective factors, like the “social imaginary”, play an equally crucial role leading to an indeterminate outcome. There is no doubt of course that “objective” factors were at work during the entire history of the market economy system, although not in the rigid sense assumed by the Marxist “science” of the economy (“laws/tendencies” of the falling profit rate, “phases of accumulation” and the like), but rather in the general sense of the “grow-or die” dynamic of the market economy. But, although such objective factors could explain the motives and actions, particularly of the economic elites, the eventual economic and social outcome of the ensuing social struggle has always been both indeterminate and unpredictable, as Castoriadis rightly points out. Still, as it would be wrong to overemphasise the role of “objective” factors in the history of the market economy at the expense of the “subjective” factors, it would be equally wrong to do the opposite and overemphasise the role of the “subjective” factors at the expense of the objective ones. Instead, this book is based on the hypothesis that it is the interaction between equally important “objective” and “subjective” factors which condition historical development ―an interaction which (unlike the Marxist “dialectical” relationship) always leads to indeterminate outcomes.
In this problematique, we may distinguish three forms that modernity took since the establishment of the system of the market economy: liberal modernity, statist modernity and neoliberal modernity.
Liberal modernity
Once the transition from socially controlled markets to a system of self-regulated ones was effected at the end of the eighteenth century (the institutioning of the physical mobility of labour in England in 1795 was a crucial step in this transition) the conflict between those controlling the market economy and the rest of society started in earnest. Thus, almost immediately, a political and industrial working class movement emerged and, as a result of its pressure, factory laws and social legislation were introduced. However, all these institutional arrangements were incompatible with the self-regulation of the markets and the market economy itself. This incompatibility led to a counter-movement by those controlling the market economy in England, which ended up with the taking of legal steps to establish a competitive labour market (1834), the extension of freedom of contract to the land (between 1830 and 1860) and the abolition of export duties and the reduction of import duties in the 1840s. In fact, the 1830s and the 1840s (not unlike the 1980s and the 1990s) were characterised by an explosion of legislation repealing restrictive regulations.
During the period of liberal modernity, which barely lasted half a century between the 1830s and the 1880s, the grow-or-die dynamic of the market economy led to an increasing internationalisation of the market economy, which was accompanied by the first systematic attempt of the economic elites to establish a purely liberal internationalised market economy in the sense of free trade, a “flexible” labour market and a fixed exchange rates system (Gold Standard). The movement towards free trade reached its peak in the 1870s, marking the end of the system of privileged trading blocks and restricted commerce that characterised the growth of the colonial empires in the pre-1800 period. Although universal free trade was not attained during this time since, at the end, only Britain and Holland adopted free trade policies, for a brief period in the 1860s and the 1870s the world came close to a self-regulating system, as envisaged by classical economic theory.[1]
However, this first attempt failed and liberal modernity collapsed, as it did not meet the necessary condition for a self-regulating market economy, namely, the universalisation of open and flexible markets for commodities and capital. Clearly, such markets were not feasible in a period in which big colonial powers like England and France were still exercising almost monopolistic control over significant parts of the globe at the expense of rising non-colonial powers (like the USA) or smaller colonial powers (like Germany).[2] Therefore, the failure of this first attempt for internationalisation was inevitable, as it was indicated by the fact that the economic elites at that time were purely national, unlike the present situation in which a transnational economic elite has emerged ―a necessary condition for the development of a truly internationalised market economy.
At the theoretical and political level, this conflict was expressed by the struggle between economic liberalism and socialism, which constituted the central element of Western history, from the Industrial Revolution up to the mid 1970s. Economic liberalism was the ideology which had as its main aim the justification of the project for a self-regulating market, as effected by laissez-faire policies, free trade and regulatory controls. Socialism, on the other hand, was the ideology which had as its main aim the justification of the project for social control over economic resources in order to cover the needs of all humans (rather than simply the needs of those who can survive competition, as in economic liberalism) and to conserve productive organisation and labour. As such, economic liberalism expressed the interests of those controlling the market economy whereas socialism reflected the aspirations of those at the other end and particularly the working class.
It was the conflict between economic liberalism and socialism, which reflected the two main sides of the social struggle in this period that led ―after a transitional period of protectionism― to a new form of modernity: statism.[3] The considerable strengthening of the socialist movement, as a result of the significant expansion of the working class in the early 20th century, and the parallel weakening of the capitalist elites, as a result of the Great War and the Great Depression, played a decisive role in this development. The statist form of modernity was characterised by a systematic attempt to eliminate the market-based allocation of resources in the East, and a parallel attempt to introduce significant controls over markets to protect labour in the West.
Statist modernity
Statist modernity took different forms in the East and the West. Thus, in the East,[4] for the first time in modern times, a “systemic” attempt was made to reverse the marketisation process and create a completely different form of modernity than the liberal or the socialdemocratic one (which, in a sense, was a version of liberal modernity). This form of statism, backed by Marxist ideology, attempted to minimise the role of the market mechanism in the allocation of resources and replace it with a central planning mechanism. On the other hand in the West,[5] statism took a social-democratic form and was backed by Keynesian policies which involved active state control of the economy and extensive interference with the self-regulating mechanism of the market to secure full employment, a better distribution of income and economic growth. A precursor of this form of statism emerged in the inter-war period but it reached its peak in the period following the Second World War, when Keynesian policies were adopted by governing parties of all persuasions in the era of the socialdemocratic consensus, up to the mid 1970s.
However, statist modernity, in both its socialdemocratic and Soviet versions, shared the fundamental element of liberal modernity, namely, the formal separation of society from the economy and the state. The basic difference between the liberal and statist forms of modernity concerned the means through which this separation was achieved. Thus, in liberal modernity this was achieved through representative “democracy” and the market economy, whereas in statist modernity this separation was achieved either through representative “democracy” and a modified version of the market economy (Western social democracy), or, alternatively, through soviet “democracy” and central planning (Soviet statism). Furthermore, both the liberal and the statist forms of modernity shared a common growth ideology based on the Enlightenment idea of progress ―an idea that played a crucial role in the development of the two types of “growth economy”: the “capitalist” and the “socialist” growth economy (see ch. 2). It is therefore obvious that although the growth economy is the offspring of the dynamic of the market economy, the two concepts should not be confused since it is possible to have a growth economy which is not also a market economy —notably the case of “actually existing socialism”.
Still, as we shall see in more detail below, both forms of statist modernity collapsed: the Western form of statist modernity in the 1970s, when the growing internationalisation of the market economy, the inevitable result of its grow-or-die dynamic, became incompatible with statism, and the Eastern form of statist modernity a decade or so later, when the institutional arrangements (particularly centralised planning and party democracy), which had been introduced in the countries of “actually existing socialism” in accordance with Marxist-Leninist ideology, became a fetter to further growth.
Neoliberal modernity
The emergence of the neoliberal form of modernity can be explained in terms of important structural changes and their effects on the parameters of the social struggle that brought about the collapse of the statist form of modernity in the West. These structural changes were mainly economic, as a result of the growing openness of the commodity and capital markets which followed the expansion of the newly emerged Transnational Corporations (TNCs). At the same time, the internationalisation of the neoliberal market economy coincided with significant technological changes (information revolution) which marked the shift of the market economy into a post-industrial phase and resulted in a drastic change in the employment (and consequently the class) structure of advanced market economies, (because of the decimation of the working class), with significant political and social implications.[6] The combined effect of the drastic change in business requirements and the weakening of the labour/socialist movement was the flourishing of neoliberalism.
As regards the growing market openness, although it is true that, throughout the post-war period, the internationalisation of the market economy was actively encouraged by the advanced capitalist countries, in view ―in particular― of the expansion of “actually existing socialism” and of the national liberation movements in the Third World, still, this internationalisation was the outcome mainly of “objective” factors related to the dynamics of the market economy. It was the market economy’s grow-or-die dynamic and, in particular, the emergence and continuous expansion of the TNCs[7] and the parallel development of the Euro-dollar market,[8] which led to its internationalised form today.
Thus, the restrictions imposed by the state on the markets during the statist period meant that the labour market was not free to determine the levels of wages and employment according to demand and supply conditions, as a market economy requires. The result was the crisis of the early 1970s which, contrary to the usually advanced view, was not mainly due to the oil crisis but to the fact that the degree of internationalisation of the market economy achieved by then was not compatible anymore with statism. This was because:
The nation-state’s effective control of the economy had become almost impossible in the framework of an increasingly free movement of capital (and commodities) across borders. Although international trade openness increased significantly in the post-war period, the lack of financial openness allowed governments to follow independent economic policies. However, as soon as the development of euro-currency markets significantly reduced the effectiveness of controls on financial markets, multinational corporations saw their power to undermine those national economic policies, which were incompatible with their own objectives, effectively enhanced;
The expansion of statism itself had certain built-in elements leading to inflation and/or a profitability squeeze, which, both, were particularly troublesome within the competitive framework that the internationalised market economy has created. Such an element was the rapid rise of state spending ―to finance the expansion of the state’s social and economic role― which often was faster than the rise of state revenue leading to an inflationary financing of the resulting budget deficits. An even more significant element was the fact that employers, in order to minimise the impact on profits due to “excessive” wage rises (i.e., wage rises exceeding the rises in productivity), successfully passed a significant part of the increased labour cost on to the consumers under the pretext of the oil crisis. However, the growing internationalisation of the economy and the intensified competition which followed it made the passing of “excessive” wage rises on prices increasingly difficult.
Therefore, the “stagflation” crisis of the 1970s became inevitable once governments, to reduce the inflationary pressures created by the above trends and the oil crisis, embarked on traditional deflationary policies. These policies not only did not reduce inflation but also further enhanced short-term unemployment, on top of the long-term unemployment which has already accelerated as a result of the expanding information revolution.
In this context, the neoliberal movement which flourished in the 1970s was not simply expressing the Right’s inevitable backlash to the collapse of the New Left, after the aborted uprising of May 1968 ―as Left analysts often argue. In fact, the rise of the neoliberal movement mainly expressed the need of the economic and political elites to fight statism, in view of the economic problems (inflation and then stagflation) that the incompatibility between statism and growing internationalisation was creating ―something that offered them also the opportunity to reverse the balance of power against them that statism had established.
Thus, the political program of the neoliberal movement, which rose first in the academia (Chicago school, resurrection of Hayek and so on) and then among the Anglo-American political elites, mainly expressed the new requirements of the economic elites, in view of the aforementioned changes in the objective conditions. In contrast to the Liberal Old Right that was founded on tradition, hierarchy and political philosophy, the neoliberal New Right’s credo was based on the belief of economic “democracy” through the market, as well as individualism,[9] in the sense of the citizen’s liberation from “dependence” on the welfare state. Ironically, the main demand of the New Left for self-determination and autonomy was embraced by the neoliberals and was reformulated by them, in a distorted form, as a demand for self-determination through the market!
So, when the neoliberal movement came to power, first in Britain and the USA and later on all over the advanced market economies and beyond, (in the form mainly of the present “social-liberal” i.e. centre-left governments) it introduced a series of structural changes that simply reflected the change in the “objective” conditions, i.e. the parameters of the market economy and the corresponding changes in the requirements of the elites controlling it. In other words, the arrangements adopted by the economic elites to open and liberalise the markets, mostly, institutionalised (rather than created) the present form of the internationalised market economy. In fact, the opening and liberalising of markets was simply part of the historical trend of marketisation which I mentioned above to minimise social controls over markets, particularly those aiming to protect labour and the environment, that interfered with economic “efficiency” and profitability.
Thus, first, as regards the institutionalisation of the opening of markets, commodity markets were in a process of continuous opening throughout the period following the second world war both at the planetary level (GATT rounds of tariff reductions so that TNCs could easily move commodities among their subsidiaries) and the regional level (European Economic Community [EEC], European Free Trade Area [EFTA], North American Free Trade Agreement [NAFTA], Southern Cone Common Market [MERCOSUR], the Association of Southeast Asian Nations [ASEAN] Asia-Pacific Economic Co-operation [APEC]. Also, capital markets, which were in a process of informal opening throughout the 1970s, were formally opened in Britain and the USA at the end of the decade when capital and exchange controls were abolished, followed by the rest of the world in the 1980s and the 1990s .
Second, once the opening of markets was institutionalised, the uninhibited flow of capital and commodities across frontiers required the parallel liberalisation of all markets, i.e. the minimisation of social controls that have been imposed in the past (particularly in the statist period), as a result of the struggle to protect human labour and society itself from the market. Therefore, although the labour markets were not opened (so that the exploitation of cheap local labour, particularly in the South, could continue) their liberalisation was also necessary for the advantages of opening the commodity and capital markets to be fully utilised. The main changes introduced to liberalise the markets and minimise social controls on them were the following ones:
The liberalisation of the labour market with the explicit aim to make it “flexible”, so that the cost of production would be minimised. Thus, many important controls have been eliminated (for instance, the state commitment to full employment has been abandoned and job security in the ex nationalised sector was abolished), while other controls have been drastically amended in favour of employers (e.g., controls on unfair dismissal, controls on trade unions etc) with the explicit aim to make labour more amenable to market conditions (“hire-and-fire culture”). In fact, however, the real aim has been “to turn labour into a commodity ― not only in the way wages and conditions are set, but also the way labour is managed in the workplace”.[10] The indirect effect of these changes was that the structural unemployment created by technological changes was not offset by effective state action and it was left to the market forces instead to sort out the unemployment problem. At the same time, neoliberal policies have also contributed directly to the rise of unemployment, through their effect in restricting the state sector. As a result, unemployment has become massive, whereas poverty and inequality have also grown in proportion with the deregulation of the labour market. Thus, unemployment in the “Group of 7” more advanced market economies (USA, Japan, Canada, Germany, France, Britain, Italy) more than doubled between 1973 and 1999.[11]
The liberalisation of capital markets through the lifting of exchange and other controls. This has increased the opportunities for tax evasion, eroded the tax base required for the financing of the welfare state, made capital flight much easier and ―more important― made impossible any kind of indicative planning and effective control of domestic aggregate demand, as it allowed huge amounts of money to move around in search of speculative gains, effectively undermining the ability of governments to follow macro-economic policies that would significantly diverge from those of their competitors.
The setting up of international rules by the WTO (which succeeded the GATT) that would make trade as free as possible, through the minimisation of the ability of national governments to impose effective controls to protect labour and the environment.
The privatisation of state enterprises, which not only “liberated” more sectors of economic activity from any effective form of social control but also gave the opportunity to TNCs to expand their activities in new areas. A side effect of massive privatisations was to enhance the “individualistic” character of this form of modernity compared with the mildly “collectivist” character of statist modernity.
The drastic shrinking of the welfare state so that the expansion of the private sector in social services can be facilitated ―at the time of writing, a Treaty to extend the freedom of trade to public sector services (Gats) is being discussed by the WTO and,
The redistribution of taxes in favour of high income groups, which was made possible because of the drastic reduction of the tax burden on the economic elites as a result of the shrinking of the welfare state and other economic policies supposedly aiming to create incentives, but in fact enhancing further the concentration of income and wealth.
[1] A. G. Kenwood and A. L. Lougheed, The Growth of the International Economy, 1820-1980 (London: George Allen & Unwin, 1983), p. 74.
[2] TID, pp. 17-21.
[3] Statism may be defined as the period of active state control of the economy and extensive interference with the self-regulating mechanism of the market aiming at directly determining the level of economic activity.
[4] TID, pp. 75-79.
[5] TID, pp. 21-33.
[6] See Takis Fotopoulos, “Class Divisions Today: The Inclusive Democracy Approach”, Democracy & Nature, vol. 6 no. 2 (July 2000), pp. 211-252.
[7] An indication of the fast expansion of TNCs is the fact that whereas sales by foreign affiliates of transnationals accounted for 30 per cent of total sales in the early 1970s, this figure has gone up to more than 40 per cent in the 1980s, Basic Facts About the United Nations (UN Dept. of Public Information, 1989), p. 10.
[8] The Euro-dollar market provided a regulation-free environment where US dollars (and later other strong currencies like the yen, mark etc.) could be borrowed and lent free of any US regulatory and tax requirements. The growth of this new market, which simply reflected the growing needs of transactional corporations, was instrumental in the later lifting of exchange and capital controls, which were put under severe strain, throughout the 1970s, particularly in Britain where the Euro-dollar market originated. [For a description of the gradual lifting of capital controls in UK under market pressure see Will Hutton, The State We’re In (London: Jonathan Cape, 1995), ch. 3].
[9] Bosanquet, After the New Right (London: Heinemann, 1983), p. 126.
[10] Hutton, The State We’re In, p. 103.
[11] From an average 3.4 per cent of the labour force in 1973 to 7.6 in 1999. Philip Armstrong et al., Capitalism Since World War II, Table 14.1 and UN, Human Development report 2001, Table 17.