by Utsa Patnaik
Neoliberalism provides a fertile ground for the growth of fascism. While it unleashes crisis and stagnation upon the economy, it undermines the liberal bourgeois establishment’s capacity to deal with the crisis and also weakens the left through the assault of globalization upon the nationally organized working class. At the same time, the global mobility of capital makes it easy to carry out propaganda such as the “Chinese are stealing our jobs” or the “Mexicans are stealing our jobs.” Neoliberalism thus creates conditions propitious for fascism.
There is an additional point. The ideological justification for capitalism, at least in the recent period, has been that it benefits everyone. The postwar regime’s high levels of employment, together with welfare expenditure (though a good deal of that was financed by Social Security taxation, at the expense of the working class itself), had provided some credence to this claim. But under neoliberal capitalism, when welfare expenditure is wound down and inequalities are on the increase, the ideological justification still centers around the claim that capitalism can provide high growth and high employment. Indeed, the winding down of welfare expenditure and other such “populist measures” is even lauded as being essential for this. A period of stagnation and crisis therefore makes neoliberal capitalism particularly vulnerable, since it directly negates the claims made injustification of the system. The discourse shift provided by fascism becomes a welcome phenomenon for the big bourgeoisie (constituting a part of international finance capital) in this context.
The Infirmity of Contemporary Fascism
The basic difference between the fascism of the 1930s and contemporary fascism (or neo-fascism) is that, unlike then, contemporary fascist movements, even if they come to power, can do little to overcome the crisis afflicting their respective countries. Japan, it may be recalled, was the first country to have come out of the Great Depression through state military spending financed by borrowing, the earliest version of what one may call “military Keynesianism.” Germany followed suit shortly thereafter when the Nazis came to power and started rearming the country. There was a brief period between the end of the Depression and the start of the war in these countries during which the fascists succeeded in placing their economies in a better position than the liberal capitalist ones.
In contemporary conditions, however, larger state spending, no matter for what purpose, which would have to be financed either by taxes on the rich or by a fiscal deficit to be able to enlarge activity, would be frowned upon by globalized finance, which would oppose both these means of financing. And since no fascist movement anywhere is proposing controls over cross-border financial flows, this opposition would be decisive in preventing any expansion in domestic aggregate demand through state spending, which would therefore prevent any overcoming of the crisis.
What fascist movements can do under these circumstances is greater protectionism, as indeed Trump is doing. But such “beggar thy neighbor” policies, if pursued by all capitalist countries, as they inevitably would be, since no country will be willing merely to turn the other cheek, would not improve the condition of any one of them. On the contrary, such policies are likely to worsen the conditions for all through a further shrinking of global aggregate demand, as the so-called “animal spirits” of the capitalists dry up in the face of aggressive universal protectionism.
We have argued that overcoming the current crisis, whether within the confines of a single economy or globally, requires overcoming the hegemony of international finance capital. No nation-state, not even one where the fascists are in power, can overcome the crisis unless it is willing to overcome this hegemony. And a hallmark of contemporary fascism is that, far from trying to overcome this hegemony, it is on the contrary keen to enlist the support of international finance capital for its accession to, and stay in, power.
This fact has an important implication. Earlier fascism had proceeded from rearmament to war, and had burned itself out through war, though at great cost to mankind. Contemporary fascism, just as it cannot overcome the crisis through rearmament, or use the slack of the crisis to effect rearmament (if it rearms at the expense of the workers’ consumption, then it will not have overcome the crisis, and, unless it abrogates electoral democracy altogether, it will have to pay a heavy electoral price), also would not burn itself out through war. It is therefore likely to be around for a long time, which means that it will succeed in bringing about a more gradual, more “peaceful” and less coercive fascification of the society and the polity, with even the political formations of the liberal bourgeois establishment emulating the fascist ones in expressing themselves against persecuted minority groups. With fascist and liberal political formations competing against one another electorally, and with the crisis showing no signs of abating, which keeps alive popular discontent, liberal political formations would find themselves being forced increasingly to echo the same right-wing, racist, anti-immigrant, anti-Muslim rhetoric that the fascists would be spewing out. Contemporary fascism, though it may not engulf the world in the kind of devastation that earlier fascism had done, will nonetheless cause great damage to the social fabric of the capitalist countries.
This enjoins a historic task upon the left. It alone is in a position to prevent this damage to the social fabric by pursuing policies that can take these countries out of their current crisis, policies that would contest the hegemony of international finance capital, and in the process bring about a transcendence of capitalism. Since overcoming the hegemony of international finance capital will unleash a process of transcendence of capitalism, none of the other political formations is equal to the task. Precisely for this reason however the left alone can take on this task. We are once again, in other words, facing a choice between socialism and barbarism, but in a different way from what Rosa Luxemburg had visualized in her specific context.4
U.S. Response to the Crisis
What has been said above may appear to be contradicted by the U.S. case. The United States under President Trump has not only protected itself against imports but has also enlarged the fiscal deficit. It has done so not just by giving large tax concessions to the corporations but even enlarging government expenditure. And yet it has imposed no capital controls. Finance is certainly not flowing out of the country because of its “deviant” behavior. Our argument that without overcoming the hegemony of international finance capital, there is no way of overcoming the crisis, whether for an individual country or for the world economy as a whole, appears to be contradicted by the U.S. experience.
Before we discuss this issue, it should be noted that for the United States the two measures, protection against imports and fiscal stimulation of domestic demand, have to go together, for otherwise any such stimulation will leak out in the form of larger imports, creating employment elsewhere while the United States itself experiences increased external indebtedness without much increase in domestic employment. It makes sense, therefore, for the United States, while providing a fiscal stimulus to its domestic economy, to ensure that the impact of this stimulus does not simply leak out abroad. In short, it represents a consistent policy move.
There is an obvious reason why this move has not led to any financial outflows, but rather has been accompanied by substantial financial inflows. This is the unique position of the United States, which no other country enjoys, namely that among the world’s wealth-holders its currency is considered to be “as good as gold” even when, unlike under the Bretton Woods system, there is no formal convertibility between the dollar and gold at a fixed price. Dollar, and dollar-denominated assets, therefore become a stable medium for holding wealth. This makes the United States immune to financial outflows in the event of an increase in its fiscal deficit, unlike any other country, since no wealth-holder thereby loses confidence in its currency, or expects other wealth-holders to be doing so.
When other countries retaliate against U.S. imports through their own protectionist measures, not only will the level of activity in the United States suff
er on this account, but even that of the capitalist world as a whole by sapping the capitalists’ state of confidence. Hence, the apparent success of the United States in putting in place an expansionary policy without any controls over cross-border financial flows is misleading; this “success” lasts only as long as others do nothing to expand their level of activity.
The current pandemic will ensure that it cannot be for long. All countries at present are caught in its grip and experiencing massive unemployment and reductions in output because of the lockdowns associated with it. But when the pandemic subsides, it will be difficult for them even to return to their pre-pandemic level of activity, let alone expand that level. This is because during the pandemic-caused lockdown households and firms have been afflicted with income loss and have reduced their net worth to maintain essential expenditures, through borrowing or running down cash holdings. When the pandemic subsides, they will try to build up their net worth by keeping down expenditures, so that these expenditures will not recover to pre-pandemic levels any time soon. The shock of the pandemic therefore, even after the pandemic itself is over, will further aggravate the protracted crisis of capitalism. And in this context, other countries will be even less willing to accept without retaliating against Trump’s unilateral policies for U.S. recovery.
The very fact that the United States is adopting such policies is indicative of the degree to which it has abandoned any leadership role. Until recently, the United States, like Britain earlier, had left its own market open to other advanced capitalist countries and run a current account deficit vis-à-vis them, which, as we have seen, is what the leadership role demands. Under Trump, however, the United States is attempting to go it alone. But “going it alone,” which after all is what we would like the third world countries to do by de-linking from neoliberal globalization, cannot work in a world of free global financial flows.
It would not be enough for other countries merely to retaliate against U.S. imports for their recovery. They would also have to adopt fiscally expansionary policies. But if fiscal expansion for increasing activity is to be fruitful and not have its effect nullified by interest rate increases to prevent financial outflows, then interest rates have to be made non-competitive across countries, and this can only happen if they are detached from considerations of cross-border financial flows, that is, if capital controls are put in place. Keynes’s remark that finance must be “primarily national” (if policies for larger employment are to be put in place) has a greater element of truth than is commonly imagined. Putting such controls in place, however, requires overcoming the hegemony of international finance capital, which cannot be done within the confines of capitalism today, unlike what Keynes had imagined.
One set of countries that will particularly feel the adverse effects of protectionism in the United States are the “newly emerging economies” of the third world. For them, the phase of high growth is over, and along with it the massive diffusion of activities from the advanced capitalist countries of the world that has occurred into their economies. The working people in these economies, who had been squeezed during the period of high growth because of the unleashing of primitive accumulation of capital, are not going to get any relief because of the end of this high growth. They are, on the contrary, going to get further squeezed in the new situation because of the reduced employment opportunities as a consequence of the slowing down of growth. There is, in short, no symmetry in this matter. And they are going to be joined by segments of the middle class which had done well earlier but will now find their prospects bleak. We shall take up these issues in the last chapter.
PART 6
CHAPTER 20
Capitalism in History
Almost the whole of economics, whether in its classical or in its neoclassical version, analyzes capitalism as a closed self-contained entity, and this is true even of the Marxist tradition, in which the analysis of capitalist dynamics typically refers to a conceptual universe consisting of the capitalists, the workers, and the state that hovers in the background to enforce property relations and what is often called “rules of the game.” But once we see capitalism as it really has been, ensconced within a milieu that was pre-capitalist to start with but is then molded by capitalism for its own purposes, leaving it neither in its pristine form nor assimilated into the capitalist sector (as Rosa Luxemburg had visualized), then the dynamics of capitalism appear in an altogether different light. What is more, many of the propositions commonly advanced about capitalism appear in a different light when we move from a perception of capitalism as an isolated system to a perception of capitalism as enveloped within a world that is not itself capitalist but which it subjugates.
Lest we are accused of not taking cognizance of Marx’s brilliant analysis of the relation between the capitalist and the pre-capitalist sectors in his discussion of “primitive accumulation of capital,” we should clarify that our argument, advanced in chapter 17, has been that the process of primitive accumulation of capital is not confined to some “pre-history” of capitalism; rather, it occurs throughout its history (a view which, we argue below, Marx himself was coming to). Primitive accumulation accompanies the process of “normal” accumulation of capital, analyzed by Marx through his two-department schemes in Volume II of Capital. Any analysis of the real history of capitalism cannot ignore the continuous process of primitive accumulation of capital that occurs throughout its life. A cognizance of this fact has important implications.
Capitalism and the Production of Poverty
The first implication of a change in the perception of capitalism, the recognition that it is enmeshed in a pre-capitalist milieu that it molds to its own requirements, is in regard to capitalism’s production of poverty. In talking of capitalism’s “production of poverty” we are not just saying that “poverty” under capitalism is altogether different from “poverty” in all pre-capitalist societies since it is accompanied by an essential element of insecurity induced by participation in the market. This is no doubt true and important, but we have something additional in mind.
When Marx wrote of capitalism producing wealth at one pole and poverty at another, he was, as the context makes clear, referring to the “reserve army of labor.” Marx’s remark is generally interpreted as meaning that since the expanded reproduction of capital is accompanied by an increase in the absolute size though not necessarily the relative size (compared to the active army of labor), of the reserve army of labor, which is the main repository of poverty in its capitalist incarnation, accumulation is marked by an increase in poverty.
Interpreted in this manner, Marx’s remark is both true and unexceptionable. Who can deny that capitalism cannot function without a reserve army of labor (though this may nowadays be called by some other name, like NAIRU), or that the absolute size of this reserve must increase over time as the workforce increases, or that poverty is typically associated with unemployment? Goodwin’s formalization of Marx was just one way of clarifying the underlying logic of the argument.1
But once we see capitalism within its global setting, the proposition about the production of poverty takes on a very different meaning. The vast labor reserves created in countries like India, China, Indonesia, and Bangladesh through deindustrialization (and surplus drain in the case of colonies) is also a product of capitalism. And capitalism, through such drain and deindustrialization, is the progenitor of modern mass poverty in these countries. Hence capitalism’s production of poverty must be interpreted in a global setting.2
But these labor reserves are not just something that got created and happened to persist over time. Their existence and perpetuation are essential to the logic of capitalism. And this is so because products of the tropical landmass are subject to increasing supply price; land-augmenting measures, which could keep increasing supply price at bay, typically require state intervention and are eschewed under capitalism for this reason, for capitalists do not want an activist state except when it directly promotes their own in
terests. If, owing to capital accumulation, a growing metropolitan demand for products of this tropical landmass has to be met without causing inflation, which would destabilize the value of money within the system, then coercion has to be exercised directly or indirectly to ensure that the local demand for such products, that is, the demand within countries of the tropical (and semi-tropical) landmass, which more or less coincides with the third world, is correspondingly adjusted downward. This requires what we have called income deflation in the third world economies.
The existence of vast labor reserves in the third world is one way of imposing income deflation on its working people, whereby their absorption of such goods is squeezed. If perchance labor reserves begin to get exhausted, creating larger incomes for the working people, then their demand for goods with increasing supply price would increase, destabilizing the value of money within the system and hence the system itself. To prevent destabilization, measures of “inflation control” would be adopted and these would re-create the labor reserves. Hence the labor reserves are not just an accidental historical legacy of deindustrialization of the colonial times; they are part of the logic of the system itself.
The poverty produced by income deflation is distinct from the poverty produced by the existence of a reserve army of labor in the metropolis, with which typically Marx’s remark about the production of wealth at one pole and poverty at another has been associated. Put differently, the growth of wealth at one pole through capital accumulation must be accompanied, independently of what happens to the reserve army in the metropolis, by an appropriate squeeze on the absolute amount of products subject to increasing supply price that is absorbed by the people of this tropical landmass. Since these goods must enter in some minimal amount into any basket, the access to which must be a benchmark for defining poverty, it follows that there must be growing absolute poverty in the third world accompanying capital accumulation, and hence the growth of wealth, in the metropolis.
