Neo-liberalism begins to crack

by Joseph Green
(from Communist Voice #19, Dec. 8, 1998)

. The world economic crisis that began in East Asia in 1997 has been spreading from one country to another. It has not just devastated the livelihood of dozens of millions of people, but it is beginning to shake the faith of the world bourgeoisie in neo-liberal, free-market economics. Since World War II, the world bourgeoisie has swung back and forth between periods of massive extension of the state sector in various countries and periods of privatization. The long swing to free-market fanaticism in the 1980s and 1990s was bound eventually to lead to a swing of the pendulum back in the other direction; and the growing economic difficulties are the agent spurring on this change.

. So far, there are only small cracks in the neo-liberal orthodoxy, but already it underlines a major issue facing workers and left-wing activists. To fight against capitalist exploitation, it is not sufficient to condemn neo-liberalism. If the working masses are not to be made to pay and pay for solving the capitalist crisis, they must not take protectionism and government regulation as socialistic or even pro-people in itself. Instead they must distinguish between government regulation in general, and measures that benefit the masses. Only the organization of the working class for class struggle can bring real progress, and this struggle must be directed both against the free-market fanatics and against the bourgeois plans to regulate the economy for their own profit.

. This lends importance to the analysis of the state-capitalism of the past. If the left-wing movement sees the old social-democratic economies in Europe as "socialist", or the more developed state-capitalism that existed at one time in Eastern Europe and the late Soviet Union as "communist", it will end up supporting one or another section of the bourgeoisie. It will support a form of capitalism that prepared and strengthened the ruling classes that would later implement the great privatization wave of the 80s and 90s. This issue of Communist Voicecontains a number of articles analyzing the Stalinist form of state-capitalism and showing that it contains within itself the seeds of the free-market bourgeoisie.

The neo-liberal era

. Let's examine these points more closely. The economic and political collapse of the former Soviet bloc and the economic growth in Western Europe, the U.S. and East Asia were among the events convincing most of the world bourgeoisie of the profitability of extreme free-market economics. The long post-World War II expansion was supposed to prove that capitalism could overcome its internal problems. The high rates of development in East Asia were supposed to show that even developing countries could solve their problems by simply embracing the world market.

. Yet this economic expansion has gone along with intensified exploitation, as capitalism always does. The gap between rich and poor countries has been growing. The accelerated plunder of world resources has given rise to an unprecedented level of environmental devastation. If the memory of the 1930s has faded in the most advanced industrial economies, hundreds of millions of people in the "developing world" have experienced utter devastation and misery at every economic downturn. But so long as the system as a whole grew, the world bourgeoisie was content with it. Indeed, the driving of the working class of whole countries into sweatshops could only be good for its profits.

The crisis of neo-liberalism

. But the irony of history is that East Asia, once the showcase of capitalist economics, was also the place where the present world overproduction crisis broke out in 1997. Since then, it has been spreading from one country to another. This year it has brought yet another catastrophic decline to Russia; it has threatened Brazil and Latin America as a whole; and a recession is expected in the U.S. and Canada next year. This crisis is not only devastating the livelihood of millions upon millions of people, but it is beginning to upset the belief of the world bourgeoisie in neo-liberalism.

. Faced with the most astonishing economic crisis since the Great Depression, there are already proposals here and there to abandon the rigors of free-market fanaticism. The tremendous harm done by IMF prescriptions in East Asia in 1997, when IMF-imposed austerity policies helped turn financial panics into total disasters, has also helped discredit neo-liberalism. Some of the leading lights of neo-liberalism are preoccupied trying to prove that neo-liberalism really isn't responsible for the wreckage.

. All these cracks in neo-liberalism are actually very small, very mild, and are mostly readjustments more than anything else. Only in an era when capitalist profit-seeking has enthroned ultra-dogmatic laissez-faire principles could the advocacy of a few government controls, or of some deficit spending appear as bold, radical departures. Many or all of the departures from neo-liberalism being timidly put forward were actually the old bourgeois orthodoxy: the East Asia economies grew up on government regulation while it wasn't so long ago that the G-7 bourgeoisie looked to Keynesian government deficits as a way of overcoming economic slowdowns. Moreover, few of these modifications in neo-liberalism are yet being taken. Malaysia actually did implement controls on currency and investment, but there has been more posturing than action in Russia so far. Neo-liberalism isn't dead; and the IMF is still continuing to sacrifice countries on the altar of free-market orthodoxy.

. But these small cracks in neo-liberal orthodoxy are signs of things to come. If the economic crisis were to vanish and general growth resume, then the neo-liberal orthodoxy might rule for another decade or two. But in the turbulent times facing us, the small cracks won't go away. On the whole, the bourgeoisie is still sticking to neo-liberalism with a single-mindedness worthy of a better cause, but its only loyalty is to profits and exploitation.

. Of course, it is not concern for the masses which will motivate the bourgeoisie to modify neo-liberalism. The bourgeoisie isn't going to relent because of the hundredth or thousandth article showing that the gap between rich and poor has been growing; the bourgeoisie rejoices in that gap. It backs neo-liberalism precisely because that gap is growing. It is only when faced repeatedly with economic disaster that threatens it as well as the poor that the bourgeoisie will take notice.

. Today the American bourgeoisie still doesn't believe that crisis will touch it. The stock market dip upset it, but now that the stock market is going back up the scare is receding. As even establishment economists talk of a coming "slowdown" in the American economy in 1999, the bourgeoisie can see no further than the latest rebound of the stock market. The Federal Reserve repeatedly drops interest rates, the magic numbers in the stock market go up, and the ruling class finds that all's right in the world. Let Indonesia starve; let Thailand starve; let Mexico starve; let Russia starve; the richest world bourgeoisie doesn't care. But the crisis won't stop there. It is when economic difficulties threaten the U.S. and other G-7 countries, and continue to do so for a period of time, that the world bourgeoisie will start a major shift of policy.

. The capitalist economy is inherently anarchic and uncertain. But whether the world crisis spreads to the U.S. this coming year, as many economists believe, or whether there is a temporary pause in the progress of the crisis, one thing is clear. The new millennium is going to begin on a bumpy economic road. Sudden financial panics, economic zigzags, sudden crises engulfing this or that country, the ruining in a few weeks of economic advances that developed over years and years, and economic uncertainty is the legacy that the 20th century is going to bequeath to the 21st century.

. Moreover, aside from the overproduction and financial crises facing the world economy, environmental problems are also mounting up on a world scale. Free trade cannot deal with global warming, the devastation of the world's forests, the over-fishing and polluting of the world's oceans, the possible flooding of some island nations, and other major problems. True, the bourgeoisie will not be convinced by the reports of scientists: it can always hire scientific hacks to reassure it, and it will take comfort from the number of times that environmental nightmares didn't materialize. It will take a few catastrophes before the bourgeoisie takes environmentalism that seriously. But eventually it will be turn towards global regulations of some sort, and even, perhaps, to some very strict ones. But far from this bringing a utopia, the bourgeoisie will tailor its measures so as to preserve its domination of the masses and its fat profit margins; and it will pay attention to one environmental problem only to create another. It will even defend its squeezing of the masses as an environmental measure. The struggle against the bourgeoisie to preserve the livelihood and environment of the masses and to stop the devastation of the earth will not be over, but only have changed its form.

From neo-liberalism to what?

. But what will a swing away from neo-liberalism mean? Does it mean the abandonment of capitalism? Not at all. As the 20th century comes to an end, the working class movement faces massive disorganization. There is little if any organized challenge to the hegemony of the bourgeoisie. In this situation, despite the mass anger which will arise, what is coming will at first be a swing of the policy of the world bourgeoisie, not its overthrow.

. Moreover, the exploiters can and will use the need for regulation to justify cutbacks and restrictions on the working masses. To oppose this, the workers and activists will need to have a critical assessment of bourgeois state regulation. There will be many struggles of the working masses against the harsh conditions being forced on them and for policies in their favor. To carry out these struggles effectively and merge them into a class-wide struggle, the workers must build up an independent class movement, and not rally behind the state-capitalist section of the bourgeoisie. With regard to state regulation, the working class must maintain a critical position, supporting only policies which favor the masses, and realizing that there will be a constant struggle over the formulation, application, and administration of state policies. There will always be a struggle against tyrannical forms of state regulation, because even when some democratization is achieved, the state remains linked by a thousand threads with the monopoly bourgeoisie so long as capitalism exists. Thus, in order to utilize the bankruptcy of neo-liberalism to reorganize a socialist movement of the proletariat, there has to be opposition to bourgeois policy in all its forms, and not just in its free-market form.

. The world bourgeoisie itself has swung back and forth on economic policy. Monopolization has proceeded rapidly during the last century, and it has often taken the form of developing state regulation and state monopolies. Particular periods of state regulation include the rapid development of German capitalism prior to World War I, the massive development of state regulation in all the major belligerent countries during World Wars I and II, and a world wave of state regulation following World War II. For decades, the bourgeoisie and even world bourgeois economic institutions such as the World Bank and various UN commissions supported government intervention and large state sectors in Western Europe and in various countries of the third world. Meanwhile the new bourgeoisie that arose in the Soviet-bloc countries based its power on the state-sector and developed the most extensive form of state-capitalism that has yet existed.

. The bourgeoisie that today ruins millions of people in the name of the free-market will feel no compulsion tomorrow squeezing millions of people in the name of state-regulation. The bourgeoisie when it abandons neo-liberalism will be no more progressive than when it embraced neo-liberalism. We have mentioned that the Malaysian government is among those that have imposed restrictions on international speculation. But this government is a thoroughly capitalist government that has repressed the people for decades for the sake of maintaining a "good" business atmosphere for international capitalism, and has recently carried out massive privatization of the economy. It presently attributes the crisis solely to speculation in order to hide the responsibility of capitalism as a whole for the present overproduction crisis. It is also an authoritarian government which denies basic political freedoms. It's typical that Prime Minister Mohamed Malathir, in denouncing international speculators, also descended into anti-Semitism. It's typical that when Malathir fell out with his own protege, the Malaysian Minister of Finance, Anwar Ibrahim, he turned to repression, imprisoning Ibrahim on some flimsy pretexts. The Western leaders who, at the latest APEC meeting in November, denounced the persecution of Ibrahim were, no doubt, monsters of hypocrisy; for years they have never said anything about the repression of the working masses and were concerned now only because they opposed Malathir's present economic controls and backed Ibrahim's continued neo-liberal orthodoxy. But the working masses have had reason for decades to oppose both the economic and political policies of the Malaysian government.

. Moreover, the state regulation of the future will spring up from the soil of the neo-liberalism of today. Even during the height of neo-liberalism in the 80s and 90s, while there has been massive privatization, a foundation for future state regulation has been building up. Neo-liberalism, while eliminating protective legislation and forcing various countries to abandon protectionism, has simultaneously built up a "new world order" of international economic regulation which enforces the neo-liberal dogmas. Never before has the world bourgeoisie insisted on such power for world agencies such as the IMF and such global coordination of the economic strategies. Meanwhile, on the soil of the privatization of government monopolies and removal of government regulations, huge private monopolies are building up, dwarfing even those of the past. The era of "globalization" has been the era of the giant multinational corporation, which typically has a budget bigger than that of many countries in the world. This shows once again that, as Marxism has always maintained, monopoly grows from the very soil of free competition. There has been a cancerous growth of giant world corporations; the crisis, by killing off a number of competing firms, is strengthening this trend to the domination of whole branches of the world economy by a handful of firms. This private monopoly will help provide an economic basis for a swing back to state regulation and some state monopoly.

. This means that, if the left-wing movement is to wage a class struggle against the bourgeoisie and not just champion one bourgeois policy over another, it cannot restrict itself to denouncing free-market policies. There is also the issue of what attitude to the old government-regulated capitalism. The collapse of the most complete forms of state-capitalism in the Soviet bloc (and the fading away of these forms in China, Cuba and other supposedly "communist" regimes which haven't collapsed but which have moved over towards market-capitalism) hasn't eliminated the importance of evaluating the old state capitalism. It is a question that will arise in the early years of the 21th century as the crisis deepens and the world bourgeoisie has to adapt.

State capitalism and the revisionist parody of socialism

. Much of the material in this issue of Communist Voice bears on this assessment of state capitalism. The article on the current Russian crisis shows the complete fiasco that the IMF neo-liberal prescriptions have brought to the Russian economy. But it also traces how the roots of this crisis stretch back to the days of state-capitalism (wrongly called "communism" by the state-capitalist bureaucrats in order to reconcile the workers to it). Indeed, much of the current Russian bourgeoisie comes from the old state-capitalist ruling class. Moreover, the competitive struggle of private interests among the Soviet executives already flourished in the Soviet economy, right under the surface of the overall directives mandated by the central ministries. The way forward for the Russian workers must involve struggle against both the new free-market system and nostalgia for the old form of state-capitalism.

. Another article focuses mainly on the anarchy of production that existed despite the state planning in the late Soviet Union. It is a review of Walter Daum's book The Life and Death of Stalinism. It shows that Daum, while noting the existence of this anarchy, doesn't grasp its theoretical significance and regards the existence of competition among the Soviet executives as a secondary feature of the Soviet economy. He is blinded by the Trotskyist ideology which he holds so zealously to. In fact, the rampant competition in the Soviet economy was one of the best illustrations of the capitalist nature of the Stalinist system; it shows that the Soviet economy was not organized along Marxist lines.

. The article on China focuses on what happened to the peasantry during the privatization of the communes. This is a review of William Hinton's book The Great Reversal: The Privatization of China, 1978-1989. Hinton discusses many of the sorry results of privatization, but doesn't see its roots in the old system. The review shows how it proceeded as the result of forces that built up within the Chinese state-capitalist economy. Moreover, despite Hinton's belief that the development of Chinese national capitalism (as opposed to foreign-lackey capitalism) is impossible, privatization actually amounted to a further stage in its development. Hinton doesn't pay attention to the class differentiation that was growing in the Chinese countryside prior to privatization. If he had, he might have realized that one cannot simply rally supporters of old social situation prior to the great reversal, but must organize an independent movement of the working masses and a new Chinese revolutionary party.

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Last changed on October 17, 2001.