Understanding The US Political Crisis - Part 2

The Creation Of The Modern Bourgeois Social Democratic State

In every developed capitalist economy, the state accounts for between 40-50% of economic activity. Despite all the sound and fury in the 1980's about shrinking the size of the state by the 'Neo-Liberal” regimes in the US and UK, that proportion barely changed. In reality, the depiction of Neo-Liberalism as defined by a shrinking of the state was a myth. Neo-Liberalism did not involve a drawing back of the state from intervention in the economy. The modern, capitalist economy could not continue to function if it did. Neo-Liberalism simply represented a change in the basis of that intervention. Where previously the capitalist state intervened in the economy via Keynesian fiscal policy, the change was towards intervention via Friedmanite monetary policy. The reason for that change, and its consequences for the different fractions of capital will be discussed later.

If we look at the breakdown of that state expenditure the extent to which it is dominated by welfare expenditure becomes apparent.

Total Spending	$6.5 trillion
	Pensions	$1.2 trillion
	Health Care	$1.3 trillion
	Education	$1.0 trillion
	Defense	$0.8 trillion
	Welfare	$0.5 trillion

Source:US Public Spending

A look at the breakdown of the budget in other countries would provide a similar picture.

Total Public Spending in the United Kingdom Central Government and Local Authority -5yr -1yr   Fiscal Year 2014   +1yr
	Public Pensions	£144 billion
	National Health Care	+ £130 billion
	State Education	+ £89 billion
	Defence	+ £47 billion
	Social Security	+ £113 billion
	State Protection	+ £32 billion
	Transport	+ £19 billion
	General Government	+ £14 billion
	Other Public Services	+ £83 billion
	Public Sector Interest	+ £50 billion
	Balance	+ £-1 billion
	Total Spending	= £719 billion

Source: UK Public Spending

In other words, these budgets demonstrate why these states can be legitimately described as “Welfare States”. If every capitalist economy has come to create such Welfare States, and they have had such states for at least a century, then Marx's method tells us that they have done so, because such developments fulfil some useful function for capital; they must meet the interests of capital, because in a capitalist society, it is the interests of the capitalist class that are represented, and advanced by its state.

Marx and Engels demonstrated that workers could not raise their
 living standards beyond what was in the interests of capital
 accumulation.  Wages would never rise beyond what
competition between capitalists would drive them when demand for
labour-power was high, and the best Trades Unions could do when
 the demand for labour-power was low, was to stop wages falling too
 far below the Value  of Labour-Power.  Marx demonstrated in Capital
and in his debates with Weston that for so long as Capitalism
 persisted, any concessions won by workers that did not
 themselves benefit capital accumulation, would quickly be taken back.

As Marx and Engels demonstrate, at specific, extremely conducive times, workers might be able to win some concessions from capital. For example, when the demand for labour-power is very high, during a period of economic boom, workers might be able to obtain wages that are higher than the value of labour-power, but such concessions are quickly reversed. The very fact that wages rise, encourages capital to look for ways of replacing labour-power with machines, or more efficient methods. If wages rise, and thereby reduce profits, that very fact slows down the rate of capital expansion, which in turn reduces the demand for labour-power, which leads to falling wages.

Although workers real wages rise that is because the continual and rapid increase of productivity, that capitalism brings about, means that the use values (food, consumer goods etc.) that workers need to buy, to reproduce their labour-power, become ever cheaper in real terms, so a given level of wages will buy more of them. In fact, precisely because capitalism does continually produce more and more of these use values, it is in the interests of capital, in general, that real wages do rise, so that these commodities can be sold. Similarly, capital can then move on to producing ever new types of commodities to sell to workers, and thereby raise the rate of profit, and its ability to realise surplus value.

The first National Insurance scheme was introduced in Prussia
in the 1820's.  Bismark, in his state capitalist, industrialisation of
Germany, adopted the same model in the interests of developing
German industrial capitalism.  Marx and Engels opposed it, because
it meant stealing the workers own social insurance funds,
from their Friendly Societies, and putting them under the control of
the Capitalist State.  Engels, in his Critique of the Erfurt Programme,
makes clear that such a policy could not be supported, because it
represented "State Socialism".

If the development of these welfare states, of the introduction of things such as state education – which arose in the US long before there was any sizeable working-class, let alone powerful labour movement, capable of imposing its will – or of National Insurance – which arose in Prussia in the 1820's, again long before there was any sizeable working class, or powerful labour movement - were merely the result of being forced on a reluctant capitalist class, by workers, then as soon as the power of the workers weakened, that state would simply have rolled back the concessions, in the same way that capitalist employers reduced wages.

Fordist mass production healthcare fulfilled a function
for Capital, but like Fordism it has hit limits.  Despite
huge sums spent on the NHS, it provides poor quality
and efficiency compared with European socialised,
 healthcare.  That is the basis of attempts to introduce
a more European model for healthcare.

But, they didn't. At times, the spending by the state has been reduced, and of course, the capitalist class is always keen to ensure that the money spent by the state is used efficiently, just as it seeks to keep down its own costs of production. That means that where it appears that private rather than state capital can deliver commodities more efficiently, capital will seek to privatise such provision. That is in addition to the attempts by particular sections of capital that stand to benefit from such privatisation, seeking to bring it about. But, that simply demonstrates one area in which the interests of particular sections of capital may come into conflict with the interests of capital in general. There is no reason for capital in general to seek privatisation if it will lead to an increase in its costs, simply to meet the needs of some particular section of capital. But, whilst capital may look for means of delivering state commodities more efficiently, what continues is the very basis of the welfare state, and that is a system of National Insurance and Taxation. The basic principle of the capitalist welfare state remains, whoever provides the commodities of the welfare state, be it state capitalism or private capitalism, the workers will be compelled to pay for it, by the enforced deduction of taxes from their wages, or via consumption taxes. In fact, the creation of Obamacare in the US, is an illustration of the fact that rather than curtailing such a development, it is being extended in those areas, where it is currently not sufficiently comprehensive.

State Capitalist education factories were developed along Fordist
mass production lines, to regulate the production of the supplies
of labour-power it requires.  The more technical capitalist
 production and capitalist society in general becomes, the higher
 level of education that labour-power requires to meet  capital's needs.
  To make the expenditure on education worthwhile, and to ensure
 labour supply is continuous, capital also needs to ensure
 that workers buy and consume minimum levels  of healthcare,
which it provided via similar Fordist healthcare factories.
Obamacare is part of the process of the US catching up with
European Capital in that respect. Big US industrial capital
 lost competitiveness  by having to pay out large sums
 to cover expensive Health Insurance  for its workers.
  It needs healthcare to be socialised on the European model to
 take that burden from its back, and place it on the shoulders
of workers and the middle class.

The reason that these welfare states were developed, is because they met the needs of capital in various ways. Firstly, they regulated the supply of the kind of healthy, educated labour-power that industrial capital required, after it had used up the initial large supplies of available labour-power from the countryside. Secondly, in the latter part of the 19th century, the big industrial capitalists realised that they could only hold political power with the support of the workers, and so they reached a modus vivendi. Capitalism, from the 18th Century had ruled via a political regime based on a bourgeois liberal democracy, where property owners only had the vote and where the big industrial capitalists had to compromise with the landlord class, and with the merchants and bankers that for the previous four centuries had grown up in a symbiotic relation with the landlords. From the 19th Century, as that big industrial Capitalism grew larger and more powerful, its shared interests with the working-class overrode its shared interests with these other exploiting classes, and class fractions. When workers obtained the vote, society moved from being a bourgeois liberal democracy to being a bourgeois social democracy. The modus vivendi that the big industrialists had developed with workers via the mediation of the labour bureaucracy was its fundamental basis.

When workers at the start of the last century tried
to return to the creation of independent, working-class
education, through organisations like the Plebs League
and National Labour Colleges, capital saw it as a threat.
The extension of state education was a means of socialising
workers, and conveying bourgeois ideology.  Capital used its links
with the Trades Union bureaucracy to push forward the
Workers Educational Association as a safe alternative.

That was also the third way by which these welfare states met the needs of capital. They acted as a means of regulating the relations between Capital and Labour in an attempt to avoid the large scale revolutionary outbreaks that had been seen in the previous century in the form of Chartism, the Revolutions of 1848, and the Paris Commune. Any trade union militant has witnessed how this mediating role is performed at factory level by the Trade Union bureaucracy, but a system of bourgeois social democracy at the level of the state simply applies those principles generally. As Marx put it describing the nature of Social Democracy in 1848,

“The peculiar character of social-democracy is epitomized in the fact that democratic-republican institutions are demanded as a means, not of doing away with two extremes, capital and wage labour, but of weakening their antagonism and transforming it into harmony.”

Back To Part 1

Forward To Part 3