Two Expressions of Capitalism’s Cul-De-Sac
Prabhat Patnaik
WORLD capitalism has reached a cul-de-sac. The immense rise in income inequality in every country under the neo-liberal regime has brought about a stagnation of the system: since consumption out of a unit of income is higher for the poor than for the rich, the rise in income inequality means that the rise in demand does not keep pace with the rise in productive capacity, causing a slowdown in growth leading to stagnation and much higher unemployment. This is the situation in which the world economy has been caught ever since the bursting of the housing bubble in the U.S. in 2008. The bubble had temporarily prevented the unleashing of stagnation; with its bursting stagnation has engulfed the world economy.
The standard manner of overcoming stagnation that had been practised in the immediate post-war period, namely through larger government spending financed either by a fiscal deficit or by taxes on the rich (the only two ways of financing larger government spending if it is to have an expansionary effect on the economy), does not work under neo-liberalism. This is because globalized finance capital which enjoys hegemony under neo-liberalism opposes both a larger fiscal deficit and larger taxes on the rich. The dead-end, or the cul-de-sac, in which capitalism finds itself today thus arises not only because neo-liberalism has brought stagnation to the system, and hence greatly increased unemployment, which cannot be overcome within the confines of neo-liberalism itself; but also because at the same time, going beyond neo-liberalism to some new stage of capitalism, at least in the sense of transcending the regime of free cross-border flows of finance, is not possible as long as the hegemony of international finance capital is allowed to prevail.
This dead-end has to be located in a historical context. The long Victorian and Edwardian boom, stretching over most of the “long nineteenth century” that ended only with the first world war, was based on the (mainly unpaid) taking of resources from, and incursions into, the pre-capitalist colonial and semi-colonial markets. These incursions made possible an immense diffusion of industrial capitalism, from Britain first to Continental Europe and subsequently to the temperate regions of European settlement like Canada, the U.S., Australia, New Zealand, and South Africa. This long boom came to an end with the exhaustion of colonial and semi-colonial exports, and of shrinking of markets like India and China. The Great Depression of the inter-war period was a manifestation of the exhaustion of this stimulus of external sources and markets.
In the post-war period capitalism acquired a new stimulus, namely government expenditure, that gave rise to another long boom, which is sometimes referred to as the “Golden Age of Capitalism”. With the introduction of neo-liberalism, which made state intervention difficult, the system has moved to the present dead-end, which though not as deep or profound as the Great Depression of the 1930s, represents nonetheless a comparable conjuncture. There is however no way out of this conjuncture that is as yet visible. While Lenin’s words that “there is no such thing as an impossible situation for capitalism” must always be kept in mind, the difficulty in which the system finds itself at present should not also be underestimated.
Two manifestations of this situation are evident at present. One is the world-wide emergence of neo-fascism. Fascism thrives on twin pillars: extreme repression on the one hand, and generating hatred against some hapless religious or ethnic group on the other. While it draws on pre-existing differences in society for the purposes of this “othering”, and hence may appear to be a legacy from an earlier pre-modern period, the truth is the exact opposite. Fascism is an essentially modern phenomenon that is specific to late capitalism. The hatred generated within the majority group against the targeted minority is not a spontaneous one; it is fomented quite deliberately with the help of, and in the interest of, monopoly capital. It is big business that extends financial assistance and the support of the media it controls to fascist groups that exist at the margins of any modern society, to bring them centre-stage, and to promote the hatred they spout. Its aim is to change the discourse in a manner that wards off any threat to the hegemony of monopoly capital in a period of crisis when such hegemony tends to get threatened. The aim is to divide the oppressed classes so that they cannot effectively challenge this hegemony; and of course the high unemployment witnessed during the crisis makes it easier for the fascist groups to find recruits for their “cause” with the funds provided by monopoly capitalists.
This is what had happened in the 1930s when the capitalist world was reeling under the impact of the Great Depression; and this is what is happening today. The difference between the two situations lies in the fact that, unlike then, contemporary fascist groups are incapable of getting out of the current cul-de-sac, which is what justifies the prefix “neo”. The earlier fascism had overcome the Great Depression in countries where it came to power by stepping up government military spending financed by huge increases in the fiscal deficit; it had in short overcome the opposition of finance capital to fiscal deficit and it could do so because finance capital had been essentially national. Contemporary neo-fascism cannot cajole finance to drop its opposition to larger fiscal deficits because finance capital today is international, which is also the reason why inter-imperialist rivalry is muted today.
The fact that contemporary neo-fascism may not engage in wars, also means that it would be subject to the usual electoral process and may even be voted out of power (in conditions where free and fair elections are not altogether suppressed). By the same token however, unless the anti-fascist forces, that come to power when the neo-fascists are ousted, overcome the crisis of neo-liberalism by transcending neo-liberalism itself (which is essential for it), the neofascists would make a comeback; this is what Trump has done in the US.
The second manifestation of the dead-end of neoliberal capitalism, apart from the growth of neo-fascism, is the large-scale imposition of tariffs by the Trump administration. This represents a partial retreat from neo-liberalism, though by no means an overcoming of neo-liberalism in any fundamental sense, since the regime of cross-border capital flows, including above all of financial flows, which is the crux of neo-liberalism, continues unabated. Trump’s imposition of tariffs is the clearest indication that within the earlier free-trade-free-capital-flow version of neo-liberalism it was not possible to increase the level of employment in the US. The imposition of tariffs amounts to an attempt to increase employment in the US at the expense of other countries; it amounts in short to an attempt to export unemployment from the US to other countries, the pursuit of a “beggar-thy-neighbour” policy. Such “beggar-thy-neighbour” policies in the form of competitive exchange rate depreciations had also been pursued without success during the Great Depression of the 1930s.
It is only the US that could have initiated such a partial retreat from the neo-liberal regime. Any other country imposing such high tariffs would have lost the “confidence of the investors”, a euphemistic description of a flight of finance, that would have led to a collapse of its currency. The dollar however continues even to this day to retain so much strength that the US could effect such a partial retreat from a neo-liberal regime with no more than a 4.57 percent fall in its value against the euro over a one-year period ending September 28. The US may not see as large an increase in its domestic employment as the Trump regime may be hoping, since, even in the absence of retaliation, the protectionist effect of the tariffs will be partly offset by the higher inflation they will bring in their train. But high tariffs by the US will certainly aggravate the crisis for the rest of the world, at least in an immediate sense (until they have effected some change in their economic strategy if at all they do effect such a change).
Both these manifestations represent extreme measures. Having neo-fascists at the helm flies in the face of the claim of capitalism to be the home of freedom and democracy. Likewise, for the leading capitalist power of the time to resort to “beggar-thy-neighbour” policies not only vis-à-vis countries of the third world who are habitual victims anyway, but even against other metropolitan countries, betrays a desperation and helplessness that is quite unprecedented in recent memory. These extreme measures however testify to the seriousness of the predicament in which the system finds itself at present.
