Tuesday, 29 July 2014

After Obama, What Next? - Part 8

The reality of this reliance of big industrial capital on social-democracy lies behind Obamacare, just as it lay behind the expansion of welfarism in the US in the 1960's, under Johnson's “Great Society” measures, and before that with Roosevelt's “New Deal”. If US big capital is to overcome its current malaise and the challenges the US faces from rising economies in Asia, and elsewhere, it will require something equally sizeable, and to ensure the election of social-democratic governments to implement them, it will need to offer adequate incentives to workers to vote for these parties to bring it about.

The outlines of what big capital in the US requires, to meet these challenges, can be seen, and as in the past, some of these requirements also offer the potential to provide the necessary incentives to workers to vote for parties proposing measures to bring them about.

For example, US capital has gained a considerable competitive advantage, in the last year or so, as a result of the development of fracking, which has made available large supplies of oil and gas, at much reduced prices, thereby reducing the cost of constant capital in many industries. This may also explain the more recent shift in US foreign policy in the gulf away from the gulf states.

But, this advantage may be short-lived. The costs of oil extraction from fracking may rise quickly, and the ultimate supplies may not be that great. The US, as with other economies, needs a revolution in energy production that will require large scale investment in research and development. That level of investment in development usually comes only from the state, until its outcome can be shown to be profitable. (The example of space technology is classic here, where it is only now 60 years after the first space programmes, that private capital is beginning to take over the development of space ports, space tourism and so on.)

The US, like most of Europe, requires considerable amounts of capital expenditure to repair and upgrade its social capital. Almost every week, there are reports, in the US, of bridge failures, for example, This is just a manifestation of the fact that during the period of long wave downturn, the policy of conservative governments was to seek to rebuild the rate of profit on the basis of low wages and high levels of private debt. The increase in public debt arose, not because of large scale borrowing to finance investment, but because of tax cuts for the rich, and to cover increased revenue spending on welfare as unemployment and poverty rose, and as low-paying small employers were subsidised out of the public purse via the extension of in-work benefits.

Global interest rates are starting to rise, as a result of the shift in the Long Wave cycle from the Spring to Summer phase. But, they are still at historically low levels, as they were after WWII. This provides an historic opportunity for governments to undertake long-term borrowing, issuing 30 year and even 50 year bonds with interest rates on them locked in to these low rates, to cover specific infrastructure investment.

In the US, that would cover a nationwide programme of rebuilding bridges, roads, and rail; the complete refurbishment of its electricity distribution, to provide a smart grid; the development of the kind of 21st century communication network an economy like the US requires. In many ways, this is the kind of programme that Roosevelt implemented with the New Deal. But, Truman and Eisenhower were thereby also locked into this social democratic framework. In fact, that social-democracy was given its international aspect first as a result of the agreements reached at Bretton Woods, though some of the necessary basis was also laid at Potsdam and Yalta, by locking in western communist parties to a reformist function where they simply acted as a left-wing pressure groups on the main social-democratic parties.

In Britain, despite the debt to GDP ratio being at 250%, the same approach was taken, borrowing to finance the development of the welfare state, and to nationalise bankrupt staple industries, so as to provide the necessary social capital for investment and restructuring. And again the incoming Tory government in 1951, had to operate within this social-democratic framework. Leading to the term Buttskillism. Expenditure on the welfare state increased, and the majority of nationalised industries were retained in state ownership to ensure the required investment continued to be made.

In Western Europe, a similar effect was achieved by the first major example of social democracy and Keynesianism at an international level, via the Marshall Plan. So, even when conservative governments were elected, they could only be so by acting as social democrats. If social-democratic parties are able to learn the lessons of history, then in the US and Europe, they will seize the historic opportunity that current low levels of interest rates provides, to draw up big bold plans for such large scale investment. Labour should join with other EU social democrats to propose such a programme across the EU, that would reinforce its growing integration, at a material level. But, an ideological struggle by social-democracy globally is required to defeat attempts of reactionary and conservative forces to prevent further progress by their insistence on austerity and similarly backward looking solutions. This is all the more necessary as forces like the conservative parties are not the most reactionary forces that have to be addressed. More reactionary forces such as those of religious fundamentalism of all sorts, feed off the success of other conservative forces, and present an even greater threat.

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