Sunday, 10 November 2013

US Politics and Economics v The UK and Europe - Part 5

Why have the Austerian policies of the Tea Party been contained, whilst those same policies have been adopted by the Liberal-Tories in the UK, and imposed on the periphery in the EU? The situation in the US has to be considered over different time periods, and in relation to the situation in different areas.

In the immediate aftermath of the financial meltdown in 2008, it was not Obama and the Democrats who were pushing for a large-scale, Keynesian fiscal stimulus, for the nationalisation of the banks etc. It was George Bush and the republican leadership. It was Bush and his Treasury Secretary, Hank Paulson, that proposed the $750 billion Troubled Assets Relief Programme (TARP).

Of course, as described in Part 4, the predecessors of the Tea Party, the Libertarians like Peter Schiff, whose view that the banks should just be allowed to collapse, I discussed at the time in my post Where We've Been etc. and Senators like Ron Paul, were opposed to state intervention too. But, the reaction of the markets and the pressure from big capital ensured that this opposition was quickly subdued.

There were two important political factors, therefore, when Obama and the Democrats won in 2008. Firstly, in the first few months of the administration, they were simply carrying forward the same set of policies in relation to intervention that Bush and Paulson had introduced. It was difficult for the republican establishment to therefore distance itself from those policies. Secondly, Obama had not just defeated a Republican candidate. He had soundly defeated a right-wing Republican candidate, in the shape of John McCain, who had deliberately chosen as his running mate Sarah Palin, who was seen as a means of appealing to that Libertarian wing of Republicanism.

Under such conditions, the Republican far right were cowed, which opened the door for Obama to extend the Keynesian intervention to effectively nationalise GM, in the same way as had happened with the banks. It was classic social democracy – nationalisation of significant industries for the time; rationalisation and recapitalisation out of the state purse; loss of jobs etc. in the name of saving the industry; followed by eventual return to private capital. It was exactly the strategy adopted by Attlee in 1945 and by social democracy on many other occasions.

Within its own terms of reference, social democracy succeeded after 2008 in the US just as it did in the UK after 1945. After 1945 in the UK, important strategic industries for capital in general were nationalised, decades of under-investment was remedied by the state out of taxation, and the other side of this was the loss of hundreds of thousands of jobs in these industries. In the same way, after 2008, the state intervened to save GM, but again it involved the loss of thousands of jobs, a process, however, that had started some years earlier with companies like Delphi, having been hived off, going through a process of bankruptcy that facilitated cuts in wages of up to 66%, and also cuts in pension and healthcare provision. See my post - Delphi.

As I wrote some time ago, the process of restructuring of US capital that could have been undertaken during the 1980's and 90's (and this applies to the UK too) but wasn't, will instead be compressed into a much shorter period of time, as a result of the crisis that will ensue from the final bursting of the financial bubbles blown up during that period – A Momentous Change.

But, the very nature of such changes mean they can only be accomplished, without major social upheaval, during certain periods. In the 1950's and 60's, for example, although far more mines were closed, and far more miners lost their jobs in Britain than in the 1980's and 90's, there was no real opposition. The reason was that there were plenty of other jobs to go to, that many saw as a better alternative to what had always been a hard, dangerous and dirty job in the pit. In other words, social democracy can only work properly in times of Long Wave Boom, when capital is expanding, so that restructuring can move both capital and labour to the new more dynamic, more profitable areas with the least disruption.

To that extent, Obama's course should have been set fair. The new Long Wave Boom started in 1999. The rising rates of profit that began in the late 80's, also now led to rapidly rising volumes of profit as capital expanded rapidly. But, that was not the whole story. Much of the rapidly rising rate and volume of profit had been occurring in China and the Asian Tigers, not in the US. To the extent it was occurring in the US, it was only in a relatively small number of industries. What is worse, although these high profit industries had a lower than average organic composition of capital, the reason was not because they employed lots of workers, but because they employed a relatively large amount of highly skilled, complex labour.
The problem that arises from that is two fold. Firstly, the number of new jobs created is relatively low. Secondly, the ability to provide the highly skilled labour-power to fill these jobs requires the investment of large amounts of state capital in the welfare state, in the shape of adequate education. Throughout the 1990's, and early 2000's, Alan Greenspan, in testimony to Congress, had pointed out that the US was failing in that regard, which meant too few workers were being produced with the requisite skills. That pushed up wages for those that did, and meant that those that didn't faced low wages, or no jobs. I will continue to examine this aspect in Part 6.

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