US Politics and Economics v The UK and Europe - Part 2

There is a fairly obvious difference between the US, and the UK and other European economies where austerian policies have been pursued. That is that the central government in the US is run by the Democrats, a party that represents the interests of big, industrial capital, and does so on the basis of social democracy. The significance of that can be seen by looking at the situation in various states with Republican governments. Those governments have continued to operate on the basis of the need for balanced budgets, even preventing city governments from utilising federal funds for projects, and insisting instead that they cut spending, as Paul Mason, has reported in the past. In fact, it has been the role of these Republican state governments, along with more recent Republican attempts to frustrate the policies of the Federal Government, that can be seen to have caused the slow down in the recovery of the US economy.

Yet, that cannot be the whole story. On the one hand, although Labour introduced a large fiscal and monetary stimulus in 2008 to deal with the financial meltdown, Alistair Darling, set in place his proposals for reducing the budget deficit for future years, that would have entailed cutting Government spending. On the other hand, Germany is run by the Christian Democrats, and yet has not adopted austerian economic policies for the German economy, even if the US and other EU countries believe it should do more to stimulate economic activity. In addition, the social-democratic governments in Spain and Portugal, as well as in Greece, introduced austerity budgets before they were kicked out of office to be replaced by right-wing governments that pursued even more austerian economic policies. In Britain, Labour offers to continue the policy of austerian economic mismanagement, but with a more humanitarian face, whilst Labour Councillors, offer token verbal opposition to the cuts, whilst passively implementing them. 

As Lenin said, “The truth is always concrete.” Anyone seeking some simple formula to apply to explain these phenomena will be disappointed. As Marx’s analysis of the 18th Brumaire sets out in all its texture, the underlying economic and material conditions can provide us with a guide to explain the ideas that guide the actions of these social forces, but there is not some kind of crude, economic, mechanical relationship between them. The actual economic situation in each country is different; the political history and institutions are different; the relationship of forces in each case is different etc. Moreover, there is a significant difference between the US and the EU. The US is a federal state, the EU is not. The US undertook a civil war essentially to assert the dominance of the central state over the individual states. The various political struggles in Europe – including two world wars – ultimately boil down to the fulfilment of the same historical task.

Although, in the US the states retain significant political power, ultimate control rests with the Federal state. In the EU, no central state exists, and power continues to reside with the national states. Although, the EU Commission attempts to act in that matter, it has no legitimacy, and is thereby constrained. The absence of a strong central state, results in the conflicting interests of states overriding the interests of European capital. A good example of that was what happened when the financial meltdown broke out in 2008. Ireland, keen to ensure that funds did not flow out of the country, and keen that they should if possible flow in, unilaterally announced that it would guarantee all deposits in its banks. The consequence was inevitable. Other smaller economies had to jump on board to offer the same guarantee, or risk seeing their banks crippled, as funds fled to Ireland. But, the other consequence was also that when Ireland's banks went bust, because of all the reckless property loans they had given out, the Irish state was committed to compensating all of their depositors, which was a step on the way to the state itself being bankrupted.

It is not that the policy of protecting individual bank deposits was wrong, but that the lack of a central state, of centralised policy making over economic and financial affairs, meant that a rushed decision was made by one of the smallest economies, and thereby forced on to the rest of the economies. The same weakness is what led in subsequent months to the run on the so called PIIG economies, the crashing of their bond markets, sending yields on their sovereign bonds through the roof, and making necessary the various bail-out programmes. Without understanding that background, it is impossible to understand the basis of the austerian policies undertaken in Europe, as opposed to the fiscal stimulus applied in the US. Understanding the policies of the Liberal-Tories in the UK requires a different explanation. But, before that, I want toe examine in more detail the situation in the PIIGs as compared to the US.

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