On Thursday, House Speaker John Boehner told the Economic Club of Washington, DC, “Job creators in America are essentially on strike.”
He was quite right. Although most people have heard of a strike by workers, capital too can go on strike, and often has done so to achieve its political and economic goals.
Economists Sam Bowles and Herb Gintis explained in their book Democracy and Capitalism how the capital strike works:
“The electoral prospects of an incumbent government depend on the general performance of the economy in the period preceding the election, particularly the level and growth of employment and personal income. The overall performance of the economy, in turn, depends on the level of investment. The level of investment in any given country depends on the anticipated domestic profit rate compared with expected returns in the rest of the world, and compared also with returns to non-investment uses of capital. Therefore the adoption of public policies that reduce the expected rate of profit also tend to reduce the electoral prospects of the incumbent government.” (p. 88)
So even though corporate profits are at extremely high levels – they grew by 44 percent from 2008 to 2010 and have continued to grow — and even though the internal cash available to corporations for investment increased by more than a third over these same years — corporations are not hiring. Capital is essentially saying to Obama: unless you lower our incredibly low tax rates even further, unless you reduce even more the minor regulations that impede us, we’ll refuse to invest, and thus maintain the devastating unemployment rate and doom your re-election prospects.
The capital strike is not a new phenomenon. Both the British Labour Party and the French Socialist Party “reneged on electoral promises in order to avoid antagonizing capital.” Leaders of these parties, “from Harold Wilson to Laurent Fabius, confirmed that these revisions in policy were made in order to maintain levels of profitability high enough to encourage investment.” (Peter Hall, Governing the Economy: The Politics of State Intervention in Britain and France, 1986, pp. 262–63.) In the United States, President-elect Bill Clinton was told by his advisers the constraints within which he had to operate. Said Clinton, “You mean to tell me that the success of the program and my reelection hinges on the Federal Reserve and a bunch of fucking bond traders?” (Bob Woodward, The Agenda: Inside the Clinton White House, 1994, p. 84.)
Does this mean that we are helpless against the power of corporations, that we have to give them what they want and what they demand or else the economy will be crippled and working people and the poor will continue to suffer? No, but it does show the limits of small incremental reforms. You can’t defang a tiger one claw at a time, as R.H. Tawney once said. In the same way, you can’t make tiny dents in the capitalist system because corporations will use their remaining power to crush you. The only solution is to take strong measures to break the power of capital, and that means removing the investment decision from them. Mitterand could have pursued a social democratic program, but only if he dared to nationalize key sectors of capital. Clinton could have freed himself from the constraints of the bond-traders, but only if he challenged their power directly. Instead, he appointed these very representatives of capital to the key economic positions in his administration (Indeed, it is another dramatic instance of how narrow the difference is between Democrats and Republicans that while Clinton’s Treasury Secretary was the former co-chair of Goldman Sachs, Robert E. Rubin, George W. Bush chose as his Treasury Secretary the chair and CEO of Goldman Sachs, Henry Paulson. At least when John F. Kennedy chose a Defense Secretary to follow Eisenhower’s George Wilson, the head of General Motors, he picked Robert McNamara, the head of a different auto giant, Ford.)
Obama too has staffed the upper economic positions of his administration with investment bankers and corporate honchos. There is no doubt that Obama would like to lower the unemployment rate — which threatens his presidency and the Democratic Party going into the 2012 elections. But to do so he’d have to directly confront the corporations. Those whom he’s chosen to oversee the economy and those on whose campaign contributions he depends (as well as the whole record of his presidency) make it exceedingly unlikely that he’ll undertake such an attack. Perhaps the fear of being a one-term president will jolt him into adopting a new approach. But don’t hold your breath.
Capital strikes
Steve raises a vital issue. Why, despite the restoration of profits, won’t capital resume accumulating? House speaker John Boehner states that this is because employers are on strike for lower taxes and reduced regulations. Conveniently this also happens to be the Republican agenda.
I don’t think the issue is so straightforward. The capital strikes that Bowles and Gintis discuss, and which Boehner unwittingly endorses, are of an entirely different stripe than that which is currently transpiring. What Bowles and Gintis had in mind were incidences in which business could not find the additional capital to raise the rate of accumulation faster than the fall in the rate of profit. Capital could not, in other words, raise the mass of profits. Business was being squeezed by militant trade union demands and an expansive public sector. The capital strikes under Mitterand or past Labour governments, for instance, took place in the context of intense international competition that prevented capital from offsetting these downward pressures on profits by raising prices. By restoring lax labor markets and inducing a fiscal crisis for the state, capital strikes trimmed the “outsized demands” of the working class and rebalanced the market in favor of profits.
But profits, including after tax profits, have already returned to their pre-crisis levels (thanks largely to the floor placed under aggregate demand by the stimulus package and the automatic stabilizers such as unemployment insurance and food stamps). The immediate revenue appetites of the state can hardly be decisive in the refusal of the private sector to expand productive capacity. And as for the “outsized” pretensions of the working class . . . not even the most dyed-in-the-wool reactionary could raise that alarm. Real weekly wages of the average blue collar worker have been cast back to levels not seen since 1964.
If this is indeed a capital strike, it has its roots elsewhere.
This suggests that Boehner is opportunistically piggybacking reactionary claims to a process that he has no understanding of in the hopes of blackmailing an electorate to accede to his, or rather Grover Norquist’s, loathsome vision of a properly functioning small business utopia.
The business press hardly gets it any better, but they at least tweak the argument so that it is no longer as gross an affront to the senses. Their claim is that any further extension of the public debt will have disastrous consequences, not now, but down the road. It will require raising future taxes on business to finance a growing public sector. It will also raise the specter of inflation by expanding the monetary claims of a “class of dependents” who do not also add to output. Business is, according to this view, hoarding funds to offset the expected increase in the future costs of doing business from these twin effects of “unchecked entitlements.”
Business can only expect to relinquish funds for expansion and additional employment if its confidence is restored. Such delicate souls can only be reassured by a government dedicated to shrinking itself, which, with the working class neutralized, is the only remaining source of fear for the future of profit making.
This is again quite convenient. Business awoke one morning in the fourth quarter of 2007 in a cold sweat over future entitlement taxes and, evidently according to Boehner and the business press, went on strike.
The ongoing recession evidently has nothing to do with decades worth of erosion in capital’s rate of return to assets. It has nothing to do with the growing financialization of capital, in which the system generated ever more ingenious means of redistributing income upwards rather than in boosting industrial productivity. (The financial sector and its enriched patrons being two classes of dependents who also don’t actually contribute to expanding output, a fact mysteriously lost to Republican apologists.) This redistribution machine did not produce a financial bubble. This bubble did not collapse into a ponzi scheme when the productive sector, starved of capital, could no longer expand surplus value as fast as the financial sector could produce competing claims against aggregate profits.
Similarly, the prolonged length of the recession has nothing to do workers seeking to restore savings, the result of collapsed housing prices and destroyed pensions. It has nothing to do with nonfinancial businesses restoring their balance sheets by saving for the balloon payments coming due before 2015 against toxic debts accumulated in leveraged buyouts and commercial real estate acquisitions. It has nothing to do, in other words, with a collapse in aggregate demand from a system that now seeks to maximize savings as the bubble continues to deflate. It has nothing to do with a system that cannot make profitable use of the 30% of idle capacity and the 20% of its un- or underemployed work force given the absence of that demand as the private sector continues the process of deleveraging.
And the “capital strike” cannot, of course, be broken by aggressive demand supports such as making government the employer of last resort. Or of twinning that call with such demand-enhancing conditions as making such employment possible at living wages, with guaranteed COLAs, health benefits and retirement plans.
And it has nothing to do with a feckless administration and its clueless establishment advisors who cannot do the minimum needed to defend their own reelection prospects.
Structural Dependence of the State on Capital
Steve,
Great stuff. I believe you hit the nail on the head in connecting opposition to Obama as part of a broader condition known as “the structural dependence of the state on capital”. Capital speaks louder than votes. But they way you put it sounds like the capital strike is being conducted by actors who are unjustifiably greedy. They should be satisfied with the profits they have and the tax cuts the government’s already given them. But this raises the question…if capitalists are holding out for unreasonable demands, then they are passing up profit opportunities that more reasonable capitalists should jump at. The question is “why don’t they”? That is, why don’t we have capitalist “scabs” breaking the strike and soaking up all these profit opportunities? It seems to me the answer is “because investor confidence is what it is and these actors have a REASON to be sitting on their profits and not re-investing them. I don’t know what it is, but I can’t make sense of the “capital strike” holding without it. PS – your post was a wonderful birthday present for me…even if I just found it now.