Journal of Socialist Theory

Critique Notes 54

The next Critique Conference will be on the Saturday 26th February 2011 at the London School of Economics. The title is Stalinism and its Destructive Legacy. For further details see the Critique website, The last issue of Critique, on the Crisis, will be published as a hardback book in April 2011, by Routledge. Readers are urged to get their libraries to buy it.

The Politics of the Crisis

The establishment political scene of the next few years looks the darkest that it has since the sixties. With the expected defeat of the Democrats in the November 2010 US congressional elections, austerity programmes will become almost universal in developed countries. At the same time, Sarkozy's expulsion of the Roma population in France, with its direct appeal to racism, appears increasingly common. The underlying racism in relation to President Obama of much of the right, and the anti-immigrant, anti-Mexican mood of the republican right makes for an ugly future. The irrationalism of the Tea-Party and the Republican right in the United States has taken the Bush period a step forward or backward, depending on one's starting point. One has only to look back at the last Great Depression-1929-40- to see the tendencies inherent in the politics of a system in structural crisis.

At a purely superficial level, one can argue that the terminal crisis of social democracy has made parliamentary type politics highly unstable. As some have put it: 'The centre cannot hold'. A policy of limited concessions cannot work. Paul Krugman has made the point many times that Obama needed to spend a lot more money, build up the infrastructure etc. He is, of course, a liberal, not even a socialist, and yet his advice is going unheeded. The fact is that even his programme could not be implemented without going beyond his own political 'comfort zone', to use contemporary language. Only the government has the resources, the long term approach, and the ability to take on so-called risky projects to end the structural crisis and there is no question that the alternating political parties of the so-called centre are opposed to bigger government. The surplus capital held by the wealthy has to be put to good use, rather than being held in the form of money and clearly such appropriation would be vehemently opposed. Keynesians and social democrats are not, therefore, proposing viable solutions.

Not surprisingly the right can see that the so-called centre-left is without a programme and that the only viable alternative is genuinely left wing. They are afraid that governments might be forced to move leftwards under popular pressure. Instead they are, therefore, proposing an unreconstructed, if utopian, capitalism. The ideology is well expressed in the Lex Column of the Financial Times, its star financial advisory section:

"The 1987 version of Wall Street was meant to expose the ills of materialism. Instead, it provided a surprisingly astute guide to how capitalism can work best. Investment bankers now await the film's 2010 version with eager anticipation.

For all its ills, economies that leave markets to follow Gordon Gekko's greed-is-good mantra - borrowed from Ivan Boesky's "greed-is-healthy" - still generally support a higher standard of living than those with hard-left ideologies. Chasing the bucks weeds out inefficient operators. Sometimes society is best served by liquidating a dysfunctional company.

What politicians and regulators forgot over the ensuing two decades is that fear is also good - at least while it stays the right side of unreasoning panic. Markets deliver great results if greedy investors live in fear that taking one risk too many could cause them to lose everything. This is not true if greedy investors believe they will be bailed out from losing bets.

For markets to work best for everyone, every banker must be, in the words of another Wall Street character, "just one trade away from humility".[1]

Leaving aside the dubious assumptions made in the article, the Lex writers have stated in the starkest possible form the underlying basis of the super-austerity programmes now being proclaimed in various countries in the world, most particularly in Europe. There is a definite logic to the argument, Even if it is derided by more erudite apologists for capitalism, one cannot read the epic and definitive story of the takeover of RJRNabisco by KKR without coming to the same conclusion, from the inside, as it were. It is true that the KKR finance artists were motivated by more than just money. Status and the simple pleasure of playing and winning the game were clearly important. Nonetheless, the drive to get more money and still more money was inherent in leveraged buy-out operations in the eighties and nineties and in their evolved form of private equity after 2000.[2]

Accumulate, accumulate and accumulate- that is the essential drive of capital. Capital is necessarily self-expanding value and the money-makers are the human instruments of that drive, as it were. Whatever weakens that drive weakens capitalism. It is not in fact an isolated ethical issue- as if there is a group of people with a separate morality, much like the Ferengi, a particular Star Trek planetary nation, whose motto was Greed is good. Those in charge of companies have to act in that way if they want to survive.

The questions raised are profound and the issues have been extensively canvassed in Critique. There is no doubt that capitalism raised productivity hugely over the course of the several centuries in which it has been dominant. It is in the nature of a capitalist system, given its competitive ethos which rewards the most productive enterprises, and so the owners of those enterprises, that productivity must increase over time. Equally, it is also true that state intervention within capitalism, which reduces competition, whether through nationalisation or through state protection or some other means will tend to reduce the rate of innovation. (This does not mean that an alternative system is not possible, but that it has to be a truly new system, not beholden in any way to capitalism itself, with a superior and more human incentive system.)

Social Democracy and liberal concessions to the working class did raise the standard of living of the majority of the population in the developed countries but it blunted the incentive system through full employment, a limited equalisation of pay, and paved the way for demands for workers' control over their enterprises and institutions. Capitalism necessarily malfunctioned and social democracy lost even its limited goal.

In this context, with the new austerity, there is a return to arguments for increased taxation of 'the middle class' and the rich. In principle, socialists of most stripes agree on the abstract desirability of such measures. The right replies that it cannot work because it reduces managerial incentives and fails to provide the necessary confidence in investors. The problem here is that capitalists, in a capitalist system, are not going to invest unless they are sure to make a profit. They will remove their capital from a country where taxes are higher in order to place it in a country where taxes are lower or non-existent, if it is possible. There is no way of plugging all the loopholes permitting tax avoidance. As one economist put it: "payment of taxes by the rich is a voluntary act". Whatever stands in the way of accumulation necessarily causes capitalism to malfunction. That does not mean that capitalism does not work when there is a substantial public sector, only that it works less well, with periodic threats to its stability. It can, of course, be more humane, as a result, as various articles and books have demonstrated in the case of social democratic Sweden.

In an increasingly Orwellian world, regimes, like that of the UK, are talking of a fairness which amounts to removing benefits from the better off or middling sections of the working class, on the grounds that such benefits are unfair to those who are worse off. The same fairness decrees that large families, whose breadwinners need state subsidies, ought not to get more than smaller families. It is not surprising that self-defence would blind the rich to the inhuman nature of government measures, but it is amazing that they should think that ordinary people would not see through its Orwellian nature.

The fact is that both government parties and oppositions, conservative and liberal/Keynesians, have no solution. Although conservatives want to cut more than their counterparts they agree with them on the need for growth. Their difference is marginal, in the size of the public sector. Both sides agree on the importance of the market and limiting the public sector. It is clear that the private sector is not investing for growth, and few believe that things will change in the immediate future.

A Confidence Trick

Both Keynesians and non-Keynesian orthodox economists believe in the importance of confidence, a term which is never defined. It appears as a mystical term which seems to apply to millions of unknown and uncontrollable investors, existing in the ether. Money available for investment, in relevant amounts, is only held by a very few under capitalism, whether they directly own the money or control it. The issue is usually obfuscated by economists talking of pension funds, whose money is attributable to the pensioners themselves. However, such pensioners usually have little if any say on the nature of the investments themselves. Shareholders of insurance companies etc. are also drawn into the deceptive analysis of the issue. The fact is that only large scale shareholders have any influence on the policy of the big corporations, such as insurance companies. Even in the case of bondholders, there a few large investment corporations such as that of Pimco, which has holdings of over 1.1 trillion dollars of bonds. Its CEO, Bill Gross, has made regular headlines with his statements as to which bonds are worthwhile and which are 'toxic'.

If we translate the word confidence into non-Orwellian language, then it amounts to saying that governments are dependent on the judgment of the capitalist class. If the latter term is not liked then we can talk of those who own and control capital in our society. The question then turns into the question as to what will induce the capitalist class to invest, or, in other words, what is stopping them investing. After all, if capital is not invested it ceases to be capital, so that all those who have money feel compelled to increase their holdings. The drive is even stronger under conditions of inflation where non-investment implies loss.

Clearly, if investment will lead to negative profits or a loss of the capital invested, then there will be no investment. While this might explain why investors do not put money into Greek bonds, it does not appear to explain why they do not invest more into the US or European economies. Profits over the last year have risen and large corporations have lots of money, it appears. Workers have been dismissed on a considerable scale and productivity has risen. Profitability would appear to be positive and yet companies do not want to expand. The cyclical upturn owes more to government investment and restocking of inventories than accumulation.


Why, then, so little investment? This is the issue which both Keynesians and Orthodox economists agree on in calling a question of confidence. What then is the reason why there is a lack of confidence? The question itself is contentious, as it immediately leads into questions of power and control, as indicated above.

Some Marxists insist that the dynamics are caused by a falling rate of profit, even though the empirical evidence lies in the opposite direction at this time. Even if the rate of profit were to be falling, no one asserts that it has reached zero, or is below the rate of interest. Wages have been static or declining, adding to the apparent mystery.

The situation is well described by Mohammed El-Erian, the co-chief-investment officer of Pimco, speaking of an expected move by the US Federal Reserve Bank into quantitative easing:

"By buying securities, the Fed will be looking to "push" others into taking more risk - to push investors to move out on the risk spectrum and buy corporate bonds and stocks; to push banks to use their large excess reserves to make loans; and to push large companies to deploy their record cash balances to purchase equipment and hire people." [3]

The author says that the Fed was compelled to act because of low growth, fears about deflation and the constraints placed on other authorities.[4] It amounts to an attempt to stuff business with so much money that it will have to spend some of it. It is not, however, all that clear that the measure will succeed, since no business wants to lose money, even if it has enough of it already.

The ultimate point is that there has to be an environment of growth. That, in turn, would provide the basis for the capitalist class to be sufficiently confident that it will make money if it invests. Such an environment has been provided after epochal defeats of the working class, the aftermath of World War 2, etc. Clearly, things are much more muddied today, but history is demanding a choice. We are at a turning point today; however, hazy that turning point appears to many.

The former strategies of control are no longer operative. Stalinism no longer plays the same role, the Cold War is over, and finance capital has imploded. Social democracy is effectively dead as a political force.[5] Manufacturing industry has been re-sited in third world countries, particularly China, which is itself unstable.

The way forward for capital is highly uncertain. Their only certainty is uncertainty. The capitalist class itself is less unified than it was twenty years ago. This is partly because of the end of the Cold War which unified Capital under NATO, partly because the leading capitalist country, the United States is itself in decline and partly because the structural differences, as between finance and industrial capital, cannot be contained. The three aspects described operate together in that the leading imperial power no longer has a basis, the Cold War, or its own hegemony, to contain the national and structural differences among countries and within countries. Rather than unity the tendency is towards disintegration at all levels. Whether it is the crisis engulfing the Eurozone or competitive devaluations fissiparous movements are evident.

Ruling Class Guidelines

In the first instance, they do not want to reflate because they do not want to repeat the experience of the sixties and seventies. They are not prepared to allow trade unions to play the crucial roles that they did in that period, nor do they want workers to be so confident of their situation that they would be able to demand a share of control over their plants and institutions. They, therefore, need a high level of unemployment. How high and what the role there should be for trade unions is, however, in contention.

In the second place, the class itself is split, as indicated above. It is divided nationally, between industrial and finance capital, and ideologically and strategically between those who want to go for limited growth and those who want to impose an epochal defeat on the working class. The differences, however, are not always so clear-cut, leading to a policy muddle and even a vacuum from time to time.

There is third dividing line, which interacts with the other two. It is that of the economic role of the state or of governments. The Conservative Government in the UK and the Republican Party in the United States are determined to downsize the role of central economic administrations. In Marxist terminology the state is the apparatus of repression, or the executive committee of the ruling class. The role of governments as a bureaucracy administering the economy and society is not identical. A capitalist society in transition away from capitalism, but within capitalism, would necessarily find itself increasingly administering the society, as is indeed the case. This is nothing to do with socialism, even if it is its forerunner, but is a result of the decline of capitalism and its replacement by forms of undemocratic societal organisation.

As indicated above, although these forms are indeed necessary, like Central Banks, economic 'planning', national health and education organisations, they do conflict with private enterprise or the free market.

We, therefore, have a ruling class which is divided, in decline and within a system which is malfunctioning. Partly as a result its'theory' has retreated back to its traditional ideology, where ideology is defined in Marxist terms, as false consciousness. At one level, this is obvious, and has been hinted at when referring earlier to Orwellian language. The authors of the propaganda coming from the government and media may not be as cynical as implied when using the term Orwellian and their language may rather reflect a shallowness which unconsciously hides the reality of what they are saying. In other words, they may actually believe their own propaganda. In order to restore the functioning of the system, they believe, it is necessary to have mass unemployment, with a sharp divide between rich and poor. A return to an economy with 'creative destruction' is an optimum solution for them.

The right is basically correct that capitalism, as a system whose telos is to raise productivity, functions best under the conditions that they set out. They have two problems, however. Firstly, such a capitalism cannot be restored. It can no longer exist and is now a reactionary utopia. Bureaucracy, both private and public, monopoly, state intervention in industry and the economy as a whole etc. are necessary features of any modern capitalist economy. In the second place, it was and is an inhumane/exploitative system, for which reason capitalist politicians implemented concessionary measures now built into the system itself, in order to save the system politically. Any attempt to undo them, as part of national and international economy, will lead to global civil conflict, which the right will ultimately lose.

The Background

The right does not see it in this way, however. The end of the Soviet Union, the disintegration of the Communist Parties, the melting away of social democracy and the failure of the far left are taken as the end of the threat of socialism. Capitalism appears triumphant, albeit somewhat flawed at this point, and irreplaceable. The fact that they do not understand history and refuse to comprehend the critique of capitalism is itself a reflection of a declining ruling class in a declining system. It may be said that no ruling class can understand its own vulnerability, but it is more complex than that.

The ruling class, itself, is changing and has changed considerably over the last half century. Top management has been enfranchised by being given huge salaries, as well as shares, so effectively drawing them into the ruling class itself. Although the shift to finance capital was a successful strategy in order to maintain the stability of the system, it disturbed and juggled ruling class hierarchy, giving more status to the men of money rather than property or industry. Descriptions of the contemporary life-history of managers and of firms, such as that provided in the already cited, Barbarians at the Gate,[6] show how industrial firms, in the USA, have been changed, with old families effectively dispossessed, and top management having more command of resources from yachts to private airplanes than the old bourgeoisie. These managers interact closely with finance capital itself. The UK has followed the USA, with some 11,000 people receiving average incomes of around £2.5 million per annum. [7]

"More of our inequality is instead caused by top incomes 'racing away' from everyone else - with incomes at the very top of the distribution growing much faster than those in the middle under Labour. And yet this 'top tail' inequality is precisely the sort which the government claims not to be overly concerned about, and which our tax and benefit system does little to dampen. As Peter Mandelson famously said in 1998, "we (Labour) are intensely relaxed about people getting filthy rich.""[8] In the USA:

The point, here, is not just the question of income distribution, which is well known, but the changing nature of those classed as wealthy or as so quaintly put by the banks- "those of high net worth". [10]These people qualify as members of the ruling class both because they have direct control over aspects of the economy and because they have the means to have such control.

Whatever the moral and historical judgment of the old capitalist class, precisely because it had several generations behind it, it was able to take a longer view. It did not have to be part of the frenzied short termist scramble for higher profits. This remains true of German firms such as the often cited 'mittelstand', owned by families, but very evidently also the case with car firms such as BMW. It is still the case, that the Ford family plays a role in the car plant of that name, the Agnelli family in Fiat, and the Peugeot family in the case of Peugeot-Citroen. When the class as a whole is threatened the longer view might involve a more a reactionary and destructive stance, such as that taken by Krupp's and Thyssen when they supported Hitler. In other circumstances, it can be concessionary.

The short-termist considerations of finance capital do not necessarily have the same overall political direction as those of long term capital. Since their capital is fictitious it does not need the state in the same way, nor does it need a location. That has lead in the neo-liberal political direction which has been dominant for the past 30 years. On the other hand, when faced with meltdown they have been prepared to accept a real retreat in order to recuperate. Short-termism in itself permits a wide variety of possibilities, as long as profits are made, however they are made. In addition, given their need to extract profits from over the international economy, wherever it is possible, they have the information and contacts to organise the class itself, a point made in some detail in the classical literature on the subject. Their problem is that there is no rational solution, which does not mean that there cannot be a series of pragmatic ploys, including a series of defensive measures which coincide with the more ideological line of at least one section of big capital.


These notes began by pointing to the dark side in the polarisation of politics and has tried to look at the way in which the bourgeoisie can move. It has argued that such life as is left in liberalism and social democracy cannot provide a solution to the on-going capitalist crisis. For that reason the right appears more coherent by arguing for an earlier capitalism. As the bourgeoisie itself is divided, the demand for a return to 'creative destruction' and a substantial reserve army of labour has won the day, mainly because it has no competitor as a strategy. Finance capital and so-called neo-liberalism are yesterday's strategy. Because the former is a utopian if reactionary strategy, the only way it can obtain a measure of popular acceptance is through an irrationalism which is sometimes entertaining but always horrifying. However, anti-immigrant racism, nationalism and other forms of ethnic hatred cannot provide any kind of basis for right wing policy. Imperialism is not what it was. Nor is there any basis for a major war.


  1. "Wall Street the Movie", The Lex Column, Financial Times, September 25/26 2010, p.26.
  2. Published: September 24 2010 09:54 | Last updated: September 24 2010 16:19.
  3. Bryan Burrough and John Helyar: Barbarians at the Gate: The Fall of RJR Nabisco, Harper-Collins, New York, 2008.
  4. "The Fed feels compelled to experiment" By Mohamed El-Erian Published: Financial Times, London, October 13 2010 13:25 | Last updated: October 13 2010 13:25,, accessed 13/10/2010.
  5. Ibid.
  6. These points have been discussed many times in previous Critique Notes
  7. Bryan Burrough and John Helyar: Barbarians at the Gate: The Fall of RJR Nabisco, Harper-Collins, New York, 2008.
  8. Social Trends 40, 2010, p.67, Table 5.12, Income Tax Payable: By Annual Income, 2009/10.
  9. Reuters, UK Edition, Inequality in the UK: the paradox under Labour JAN 25, 2010 20:04 GMT, ALASTAIR MURIEL -Ali Muriel is a Senior Research Economist at the Institute for Fiscal Studies. The views expressed are his own.- accessed 16/10/2010.
  10. United for a Fair Economy, The Staggering Cost of US Corporate Leadership.
  11. accessed 15/10/2010.
  12. "The Forbes 400 richest people in 1982 had a combined network of $92 billion; by 2006 they owned $1.25 trillion. To make it onto the first in 1982, you needed a net worth of $75m; by 2006 you needed to be a billionaire. A lot more of this money was self-made; inherited wealth made up over 21% of the first list and under 2% of the 2006 roster. And almost a quarter of the 2006 rich owed their fortunes to the finance sector, compared with less than a tenth back in 1982." The Economist, London, "A special Report on the Rich", April 4th 2009 p.4.