Capitalism’s Rolling Back of Welfare Spending
Prabhat Patnaik
IMMEDIATELY after the war when capitalism had faced a serious existential crisis, it had adopted a dual strategy to cope with it. First, it whipped up the “red scare” which was absolutely without any justification, in order to terrorise the domestic working class into acquiescing with the system. Second it was forced to make adjustments in its modus operandi, of which four in particular deserve attention, namely, formal political decolonisation, the introduction of democratic governance based on universal adult franchise, the acceptance of Keynesian “demand management” to eliminate mass unemployment, and the adoption of welfare state measures everywhere, especially in Western Europe. These changes were so significant that an impression got around that “capitalism had changed”, that it was no longer the old predatory capitalism which prevailed but a new “welfare capitalism”.
With finance capital gathering strength during the long post-war boom that followed, and with this finance capital going global, which paved the way for an attenuation of the autonomy of the nation-state and the imposition of a neoliberal regime everywhere, these post-war measures were getting reversed anyway; but this reversal has now acquired an unprecedented momentum. The open genocide being perpetrated against the Palestinians with the support of metropolitan capitalism has a brutality equalling if not exceeding that of colonial times; the upsurge of neo-fascism and of bourgeois authoritarianism has attenuated the democratic space available to people; the economic crisis of world capitalism can no longer be treated through Keynesian “demand management” because of the hegemony of globalised finance; and now there is also a concerted effort to roll back welfare spending everywhere, and to devote the resources released from it for making financial transfers to capitalists and for raising military expenditure.
Donald Trump’s “big beautiful bill” which got passed by both houses in the US and has now become law, is a massive assault on welfare spending. According to the Congressional Budget Office which makes estimates independent of the US government, this bill will give tax concessions whose cumulative value over the next ten years is $4.5 trillion; and the main beneficiaries of the tax concessions will be the rich. In addition, military expenditure will rise cumulatively by $150 billion and “border security” (that is, expenditure incurred for keeping out immigrants) by $129 billion. All these outgoings are financed through a cut in Medicaid by $ 930 billion, in Green Energy by $ 488 billion and in Food Benefit by $ 287 billion. Medicaid is the programme that is meant to help the most vulnerable sections of American society, such as the old, the poor and the disabled; and curtailing it as the bill does, is to hit at the most helpless segments of this society. Trump’s “big beautiful bill” is a brazen transfer of benefits from the poorest to the richest.
Of course the tax concessions are far larger than even the curtailment in expenditures mentioned above; as a result, the fiscal deficit in the US is slated to increase cumulatively over the next decade by $3.4 trillion. The US government in short will be borrowing on its own account, and reducing the welfare expenditure it undertakes, in order to simply hand over wealth to the American rich. This is sought to be justified in the name of reviving the economy; but if revival was the objective, then the government itself should have directly spent what it borrowed; but instead it is just handing over all this purchasing power to the rich. Its impact by way of stimulating the economy will be trivial; it amounts only to a gratuitous addition to the wealth of the rich.
A question will arise here. A larger fiscal deficit is disliked by finance capital. Even when the larger fiscal deficit is incurred for financing transfers to the rich, finance capital still does not like it. In fact this is what Liz Truss, a former British prime minister had tried to do; but so great was the objection of finance to her programme that the pound-sterling fell in value and Liz Truss had to resign. She became in the process the shortest-serving prime minister in the entire history of Britain, with a tenure of no more than 50 days. How then has finance capital allowed Donald Trump to undertake larger borrowings for making larger transfers to the rich?
Of course it is still not clear if Trump has got away with a larger fiscal deficit; that is, whether finance capital will not force him to curtail the fiscal deficit further, not necessarily by reducing transfers to the rich but by cutting down welfare expenditures even further. But Trump does have some leeway because of the fact that the American dollar has a status today that is quite different from that of the British pound sterling. The world’s wealth-holders still regard the dollar to be almost “as good as gold”, and would be unlikely to move out of it even in the face of Trump’s enlarged fiscal deficit. This leeway was not available to Liz Truss when she embarked on her infamous plan to make deficit-financed transfers to the British rich.
The curtailment in welfare spending that is occurring in the US at present is soon going to be followed by a similar curtailment all over the metropolitan capitalist world. At a NATO summit held on June 24-25 in the Hague, a decision was taken to raise military spending in all member countries of NATO to 5 per cent of GDP by 2035. The current spending is about 2 per cent of GDP and in many countries not even that. NATO countries, especially those in Europe, in other words are planning to raise their military spending from 2 per cent to 5 per cent of GDP in a decade’s time.
Now, the currencies of the other NATO countries are not comparable to the American dollar, which is why they cannot raise their fiscal deficits relative to GDP in defiance of the wishes of globalised finance capital. Besides, most European NATO countries, being members of the European Union, are statutorily constrained not to raise their fiscal deficits above 3 per cent of their GDP, which is more or less the level where it currently is anyway. Since taxing the rich is out, again in deference to the wishes of finance capital, it follows that the rise in military expenditure will have to be effected at the expense of the working people in these countries, which can take the form either of higher taxation imposed on the workers or of cuts in welfare expenditure.
Of the two alternative ways of raising the burden on the workers, cuts in welfare spending are obviously more easily achieved, though it matters little which way is adopted, for both ways entail a decline in the living standard of the workers. The imposition of an additional burden of 3 per cent of GDP on the workers is an immense imposition. The NATO countries in short have given clear notice that even officially the days of so-called “welfare capitalism” are over, that the world is back to the days of “predatory capitalism”.
Why have NATO countries decided to raise their military spending? There is of course the standard invoking of a Russian threat to Western Europe. But even in the heyday of the so-called Soviet threat that was invoked to justify the Cold War, such high levels of military expenditure had never been witnessed. Besides, even today the annual military expenditure of Russia is less than a third of the total annual military expenditure of the European NATO countries alone, even if we leave aside the USA. So, the “Russian threat” is just a camouflage. The significantly higher military expenditure to which the NATO countries have committed themselves is motivated by a desire to protect a crumbling Western imperialist order by using force against all countries that are seen as possible challengers to this order. The bombing of Iran was motivated by this desire; and the coming years are likely to see several such instances of aggression.
It is to prepare for such aggression that the workers of the advanced countries are being made to sacrifice whatever welfare measures they had enjoyed till now. A crumbling imperialism however is dangerous in the extreme, for it is perfectly capable of pushing the world to a catastrophe. The recklessness involved in bombing Iran’s nuclear sites testifies to this. Raising the awareness of people all over the world to resist this imperialist recklessness thus becomes absolutely necessary.
