Redistribution is not enough

If the crisis of neoliberalism is a result of the collapse of the system of accumulation that prevailed for the last thirty years, where exactly is the immediate problem? We’ve already isolated productive investment (expanding value), robust demand (realizing value), and efficient technology (circulating value) as the key determinants of growth, so which of these has frozen up?

Demand is the obvious candidate.

From the mid-’80s to 2008, consumers went on a debt binge that propped up demand despite stagnating paychecks. The financial collapse not only rendered this strategy untenable, it also destroyed a huge number of jobs that had been created as a secondary effect of the housing bubble. Burned by the debt habit, and often either jobless or insecure in their jobs, consumers cut back substantially. Moreover, as Dean Baker argues in The End of Loser Liberalism (Ch 2), house-owners lost about $7 trillion in the bust. The valuation of assets has a significant “wealth effect” on consumers’ willingness to spend, so now that people see they have less wealth than they thought, they have withdrawn about $500 billion in annual spending from the economy.

While it’s important to remember that demand can come from rich people and companies just as much as from wage workers, the enormous consumer markets of the rich countries mean that the final market for most producers is employees and their dependents. Large-scale problems in mass consumption are very difficult to overcome solely through luxury production and can only be mitigated in the short term by increasing business outlays on, for example, mechanization or investment in computer technology.

The right prefers to argue that the problem is on the investment side – that regulatory overreach or excessive taxes on business are preventing the “job creators” from reviving the economy. This is not a viable argument. There is, in fact, a massive surplus of capital available for investment, so burdensome taxes are clearly not the problem. As The Wall Street Journal reports, “Corporations have a higher share of cash on their balance sheets than at any time in nearly half a century”. And rather than pursue productive investment, many corporations are spending their money on stock buy-backs. This allows executives to make their bonuses by artificially raising the price of shares through what amounts to an accounting gimmick rather than by strengthening the business.

The immediate obstacle to business expansion is uncertainty about the direction of the economy. The US Chamber of Commerce survey of small businesses (conducted in late September and early October), despite the Chamber’s crude ideological interpretation of the results, demonstrates that excessive government interference is not the problem. When asked to list the two main impediments to hiring, business owners answered “economic uncertainty” (59 percent), “uncertainty about what Washington will do next” (39 percent – concern that Republicans were determined to bring down the economy was still running high), and “lack of sales” (34 percent). Worries about the healthcare bill (33 percent) and “too much regulation” (23 percent) were distinctly secondary issues. More anecdotal reporting reinforces this conclusion.

So we have something of an impasse. The economy stagnates because consumers don’t have enough money to keep up purchasing, itself an outcome of the collapse of the housing bubble and the high rate of unemployment. But businesses are unwilling to create new jobs or raise wages because the economy is stagnant. How to cut the Gordian knot?

Why not just redistribute value from capital and rich people to labor and poor people? It’s not only the right thing to do, it’s absolutely vital if we’re to get the economy functioning again. Write down the unsustainable debts that are strangling consumers and governments, strengthen unions so they can demand a larger share of the wealth that workers produce, expand government programs that help the poor and the middle class and finance them by raising taxes on corporations and the rich. With money in their pockets again, consumers and government can both start spending. All that idle capital will have a reason to be put to productive use again.

These are essential measures for rebalancing the economy – not to mention for mitigating the brutality of American society and preventing Europe from sinking into American conditions. But there’s a big problem. Simply taking money away from capital means introducing a new dysfunction into the growth system: inadequate investment.

The conventional understanding of the economy among progressives is basically static and conflictual. The image is of a set amount of wealth available to society, which is divided up by power relations. Because “the one percent” have attained a preponderance of power, they have claimed for themselves an increasing share of this wealth. The response that follows is to mobilize “the 99 percent” and take back our fair share.

This understanding isn’t wrong, but it is fatally one-sided. It misses the essential fact that capitalist society is not a static whole that can be redivided at will, but an exceedingly dynamic system founded on an intricate network of social practices, subjectivities, and institutions. Upending one aspect of the system would reverberate through the entire complex, undoing established ways of doing and ways of being, rendering other aspects of the system unworkable.

As I’ve argued in more detail, wage repression and rising inequality were not merely a product of corporate greed, but a fix for serious problems in the accumulation process that helped cause the crisis of Fordism in the 1970s. As the rate of productivity growth declined, businesses needed to increase exploitation in order to maintain healthy profits. Government lent a hand not just because of the corrupt nexus of state and capital, but because the reinvestment of healthy profits was the only way to maintain steady growth rates.

The system that was erected around this framework is now in ruins. The fact that redistributing wealth and making the economy more egalitarian would undo the entire neoliberal system is no argument against it: neoliberalism has already undone itself and there can be no return to the status quo ante. The only question is what kind of society will replace neoliberalism. But those of us interested in shaping the outcome need more than an egalitarian ethic and a good political strategy if we’re to succeed, because the possibilities are harshly circumscribed by the need to restore capitalist accumulation. The object of our efforts is not “inequality” or “the one percent”, but the social totality and the revival of its animating dynamic on a new, more humane basis.

The contradiction revealed by the crisis is not merely between capital and labor, but between the profits that can produce growth and the consumer purchasing power needed to actually complete the sale of those products. Admittedly, the task of redistributing social wealth faces huge obstacles in the bitterly retrograde bipartisan political class and the rigidly ideological business leadership. But in some ways, given the existence of a liberal silent majority, revealed at last by Occupy, and an easily formulated reform program, this may be the easier task. How to maintain profits after the props of rising exploitation and speculation have been pulled away is a much more difficult problem to resolve. And lest we simply sneer and say, “Screw those rich guys”, we have to remember that the health of the entire economy and the welfare of each one of us depends upon steady profitability. Until, that is, we no longer live in a capitalist society.