Jim, Thanks, I'm sending this to some of my "New Socialism" friends for a response. Regards, Victor ----- Original Message ----- From: "Jim Farmelant" <[EMAIL PROTECTED]> To: <[EMAIL PROTECTED]> Sent: Friday, May 07, 2004 3:00 AM Subject: [Marxism-Thaxis] Ideology and Economic Development (Monthly Review)
> > > Ideology and Economic Development > by Michael A. Lebowitz > http://www.monthlyreview.org/0504lebowitz.htm > ------------------------------------------------------------------------ > -------- > > Michael A. Lebowitz is Professor Emeritus of Economics at Simon Fraser > University, in Vancouver, and is the author of Beyond Capital: Marx’s > Political Economy of the Working Class (Palgrave Macmillan, 2003). He is > currently living and working in Venezuela. > ------------------------------------------------------------------------- > ------- > > Economic theory is not neutral, and the results when it is applied owe > much to the implicit and explicit assumptions embedded in a particular > theory. That such assumptions reflect specific ideologies is most obvious > in the case of the neoclassical economics that underlies neoliberal > economic policies. > > The Magic of Neoclassical Economics > > Neoclassical economics begins with the premises of private property and > self-interest. Whatever the structure and distribution of property > rights, it assumes the right of owners—whether as owners of land, means > of production or the capacity to perform labor—to follow their > self-interest. In short, neither the interests of the community as such > nor the development of human potential are the subject matter of > neoclassical economics; its focus, rather, is upon the effects of > decisions made by individuals with respect to their property. > > Logically, then, the basic unit of analysis for this theory is the > individual. This individual (whether a consumer, employer or worker) is > assumed to be a rational computer, an automaton mechanically maximizing > its benefit on the basis of given data. Change the data and this > “lightning calculator of pleasures and pains” (in the words of the > American economist Thorstein Veblen) quickly selects a new optimum > position.1 > > Raise the price of a commodity, and the computer as consumer chooses less > of it. Raise the wage, and the computer as capitalist chooses to > substitute machinery for workers. Raise unemployment or welfare benefits, > and the computer as worker chooses to stop working or to remain > unemployed longer. Increase taxes on profits, and the computer as > capitalist chooses to invest elsewhere. In every case, the question asked > is, how will that individual, the rational calculator of pleasure and > pain, react to a change in the data? And, the answer is always > self-evident—avoid pain, seek pleasure. Also self-evident are the > inferences to be drawn from this simple theory—if you want to have less > unemployment, you should lower wages, reduce unemployment and welfare > benefits, and cut taxes on capital. > > But, how does this theory move from its basic unit of the isolated, > atomistic computer to draw inferences for society as a whole? The > essential proposition of the theory is that the whole is the sum of the > individual isolated parts. So, if we know how individuals respond to > various stimuli, we know how the society composed of those individuals > will respond. (In the words of Margaret Thatcher, there is no such thing > as society—just individuals.) What is true for the individual is true for > the economy as a whole. Further, since each economy can be considered as > an individual—one who can compete and prosper internationally by driving > down wages, intensifying work, removing social benefits that reduce the > intensity of job searches, lowering the costs of government, and cutting > taxes—it therefore follows that all economies can, too. > > To move from the individual to the whole in this manner, though, involves > a basic assumption. After all, those individual atomistic computers may > work at cross-purposes; the result of individual rationality may be > collective irrationality. Why isn’t that the conclusion of neoclassical > economics? Because faith bars that path—the belief that when those > automatons are moved in one direction or another by the change in given > data, they necessarily find the most efficient solution for all. In its > early versions the religious aspect was quite explicit— that > instantaneous calculator of individual pleasure and pain was understood > to be “led by an invisible hand to promote an end which was no part of > his intention.”2 For Adam Smith it was clear whose hand that was—Nature, > Providence, God—just as his physiocratic contemporary, Francois Quesnay, > knew that “the Supreme Being” was the source of this “principle of > economic harmony,” this “magic” being such that “each man works for > others, while believing that he is working for himself.”3 > > But the Supreme Being is no longer acknowledged as the author of this > magic. In his place stands the Market, whose commandments all must follow > or face its wrath. The unfettered market, we are told, ensures that > everyone benefits from a free exchange (or it would not occur) and that > those trades chosen by rational individuals (from all possible exchanges) > will produce the best possible outcomes. Accordingly, it follows that > interference with the perfect market by the state must produce disaster—a > negative-sum result in which the losses exceed the gains. So, the answer > for all right-thinking people must be, remove these interferences. In > John Kenneth Galbraith’s well-chosen words, the position of the > fundamentalist preachers is that in a state of bliss, there is no need > for a Ministry of Bliss.4 > > And, if force and compulsion are necessary to bring about that world of > bliss (i.e., to make the world conform to the theory), this will simply > be “short term pain for long-term gain.” As Friedrich von Hayek explained > in an interview for Chile’s El Mercurio (April 12, 1981), dictatorship > “may be a necessary system for a transition period. At times it is > necessary for a country that there is some form of dictatorial power.” > When you have the invisible hand on your side, destroying obstacles to > the market is just helping Nature (in Adam Smith’s words) to remedy the > “bad effects of the folly and injustice of man.”5 > > So, remove all restrictions on the movement of capital, remove all laws > that strengthen workers, consumers, and citizens against capital, and > reduce the power of the state to check capital (while increasing the > power of the state to police on behalf of capital). In the end, the > simple message of neoclassical economics (and the neoliberal policy it > supports) is, Let capital be free! > > Of course, it can be said (and, indeed, was said by Joseph Stiglitz at > these meetings two years ago) that nobody believes this simple message > anymore. After all, economists have demonstrated the very strict (and > impossible) conditions necessary for this theory to be logically > supportable, have exposed the simplistic theory of information it > contains, and have revealed the many cases of “market failure” that call > for an ameliorating role for government. Not the least of these common > critiques stresses the interdependencies and externalities that are > minimized by neoclassical theorists and which often lead them to commit > fallacies of composition (the assumption that what is true for one is > necessarily true for all). And, yet, as the close fit between the simple > neoclassical model and neoliberal policies demonstrates, all these > sophisticated partial critiques of the simple message don’t count for > very much; in fact, that message (even if “defunct”) continues to be > believed, and it functions as a weapon to be used on behalf of capital. > > The Keynesian Alternative > > The only successful challenge from within this basic model focused on the > problem of the fallacy of composition and, accordingly, the need to > consider the importance of the whole. Rejecting the familiar neoclassical > argument offered during the Great Depression of the 1930s that > generalized wage cuts would lead to rising employment, Keynes stressed > the interdependence of wages, consumption spending, aggregate demand and > thus the general level of output and employment. (The neoclassical > movement from the part to the whole in this case, he held, depended upon > the assumption that aggregate demand was constant—i.e., unaffected by > wage cuts.) What neoclassical theory had ignored was the link between > individual decisions and the whole. Since it did not understand how the > interaction of individual capitals could produce a state of low > investment by those capitals, it failed to recognize the potential role > of government in remedying this particular market failure. > > With his emphasis upon the whole or macro picture, Keynes’s theoretical > perspective provided support for a set of policies less directly based > upon the immediate interests of individual capitals. Keynes himself > advanced his arguments as critical to the interests of capital as a > whole—the crisis of the 1930s for him was simply a crisis of > “intelligence”; however, his framework became the basis for > social-democratic policy arguments.6 > > Characteristic of the use of the Keynesian macro framework was the > familiar argument by trade unionists that increased wages would increase > aggregate demand, stimulate job creation and new investment. The > importance of increased consumption became the focus of what has been > described somewhat misleadingly as the “Fordist” model of > development—mass consumption, it was argued, is necessary for mass > production.7 However, to realize these benefits the market by itself > would not suffice—state policies and macromanagement were seen as > critical. What marked this as social democratic in essence was the > consistent theme that workers could gain without capital losing—these > positive-sum claims characterized the Fordist model. And what the case > for endogenous (internally-oriented) economic development has shared with > the Fordist model is its stress upon the importance of domestic demand as > the foundation for the development of nationally-based industry. > > During the so-called Golden Age between the end of the Second World War > and the early 1970s, these theories, which challenged the neoclassical > wisdom, enjoyed a period of grace. It was an unusual period: the United > States had emerged from the war with no real capitalist competitors—the > economies of Germany and Japan were basket cases, and the industries of > France, England, and Italy could not compete with those of the United > States. Further, in the United States and elsewhere, there was > considerable pent-up demand both from households and firms. Although it > was widely predicted that the end of the war would bring a relapse into > another depression, in fact the conditions were ripe for a substantial > increase in consumption and investment (the latter drawing upon a large > pool of technological advances made in the 1930s and 1940s). Added to > that (and supporting industrial profits) were falling terms of trade for > primary products as the result of increased supplies. In the United > States, oligopolistic industries were able to engage in target pricing to > achieve desired profit rates and could allow wage increases without fear > of being uncompetitive; elsewhere, the economies of scale available from > new investments made the growth of consumption as the result of wage > increases a net benefit rather a challenge to profitability. > > Here was the setting in which the virtuous circle of the Fordist model > could flourish: increased output stimulated gains in consumption and vice > versa—in developed countries as well as those developing countries that > decided to industrialize on the basis of import-substitution rather than > rely on the fortunes of primary product exports. But, the rapid growth of > productive capacity in many places during the period portended a point > when capital would face a problem of overaccumulation. > > Already by the late 1950s, there were signs that competitors were > emerging to challenge U.S. economic hegemony. Further, by the mid-1960s, > terms of trade for primary products (dominated by oil) stopped falling, > soon to begin an upward movement. Increasingly, it was the companies > outside the United States that were growing more rapidly, and by the > early 1970s, with falling profit rates spreading, the “Golden Age” of > capitalism is generally conceded to have come to an end. > > The increasing intensity of capitalist competition, which now became > apparent, reflected the overaccumulation of capital. In this context, > transnational firms reduced their production costs by shutting down some > (relatively inefficient) branch plants that had been established to serve > particular national markets and by turning others into exporters as part > of a global production strategy. Production for national markets and, > thus, the import-substitution strategy for industrialization was now no > longer seen as credible because relative costs became the focus in the > competition of capitals. In general, the virtuous circle of Fordism had > been broken, and a premium was placed instead on driving down wages and > other costs for capital. > > This “new reality” is the context in which Keynesianism was rejected. The > neoclassical wisdom, which identified high wages and social programs as a > source of disaster, once again dominated. Neoliberalism (supported by > international financial institutions) became the weapon of choice of > capital, leading to a generalized assault on social programs, wages, and > working conditions in the developed world and the use of a strong state > in developing countries to ensure their access to the comparative > advantage of repression. > > But, why were Keynesianism and the Fordist model so easily discredited? > Basically, Keynesianism as transmitted was always a theory of aggregate > demand but not of supply. Its premise was that the level of output is > constrained by demand in the economy in question; and if that demand is > forthcoming, capital will provide the supply. Since the assumption was > that capital would supply the consumption and investment goods if > government created the appropriate environment, the government’s role was > to stimulate the economy in those cases where the interaction of > individual capitals would otherwise lead to low investment. Its assigned > task in the theory was to create the environment for investment when the > market failed. > > What happened, though, when aggregate demand rose and domestic supply did > not respond appropriately? Inflation and trade deficits increased. > Accordingly, in the new reality, the environment that government sought > to create became one that would induce investment in the local economy > rather than investment elsewhere—its focus, thus, became to lower taxes > and wages. The neoclassical and Keynesian question, in short, had > remained the same, what can the state do to make capital happy to invest? > What was consistent was the role envisioned for government—support > capital’s requirements. > > The Failure of Social Democracy > > There should be no surprise, then, that capital abandoned the tool of > Keynesian theory for one more suited to its needs under the new > conditions. But, how do we explain the failure of social democracy to > find an alternative? After all, social democracy has always presented > itself as proceeding from a logic in which the needs and potentialities > of human beings take priority over the needs of capital. Even limited > measures such as the exclusion of medical and educational services from > the market, the provision of income maintenance programs and social > services, and the advocacy of everyone’s right to a decent and > well-paying job suggest an implicit conception of wealth as the > satisfaction of human needs—rather than one of capitalist wealth. > > In fact, the failure of Keynesianism as theory was really the failure of > an ideology—social democracy. Within the Keynesian structure, there was > always an alternative. The basic Keynesian equations in themselves say > nothing about the structure of the economy; they don’t distinguish > between burying money and government investment, between activity which > leads to the expansion of capitalist enterprises and activity which leads > to the expansion of state enterprises. Although for Keynes the > appropriate engine for growth was the capitalist one, a policy of > expanding a state productive sector was always a theoretical option in > order to drive the economy. > > If the capitalist sector is the only sector identified for accumulation, > however, then in theory and practice the implication is self-evident: a > “capital strike” is a crisis for the economy. All other things equal, a > government cannot encroach upon capital without negative-sum results. > This has always been the wisdom of conservative economists. > > Yet, it is essential to understand that the conclusions of the > neoclassical economists are embedded in their assumptions—and > particularly relevant here is the assumption that all other things are > equal. Consider two simple examples, rent control and mineral royalties.8 > If you introduce rent controls (at an effective level), the conservative > economist predicts that the supply of rental housing will dry up and a > housing shortage will emerge. Likewise, he will tell us that if you > attempt to tax resource rents (notoriously difficult to estimate), > investment and production in these sectors will decline, generating > unemployment. Both those propositions can be easily demonstrated—and they > can also easily be demonstrated to be entirely fallacious with respect to > the necessary conclusion. > > Assumed constant in both cases is the character and level of government > activity. Clearly, rent controls may reduce private rental > construction—but if the government simultaneously engages in the > development of social housing programs (e.g., the fostering of > cooperatives and other forms of nonprofit housing), there is no necessary > emergence of a housing shortage. Similarly, taxing resource revenues may > dry up private investment in mineral exploration but a government > corporation established for exploration and production in this sector can > counteract the effects of a capital strike. Obviously, all other things > are not necessarily equal. Why should all other things be equal if a > social democratic government rejects the logic of capital? > > Thus, we need to be aware of the limits of the conservative economist’s > logic. However, that does not at all mean that these arguments can be > ignored! Because what the conservative economist does quite well is > indicate what capital will do in response to particular measures. It is > an economics of capital. And, nothing is more naive than to assume that > you can undertake certain measures of economic policy without a response > from capital; nothing is more certain to backfire than introducing > measures that serve people’s needs without anticipating capital’s > response. Those who do not respect the conservative economist’s logic, > which is the logic of capital, and incorporate it into their strategy are > doomed to constant surprises and disappointments. > > Understanding the responses of capital means that a capital strike can be > an opportunity rather than a crisis. If you reject dependence upon > capital, the logic of capital can be revealed clearly as contrary to the > needs and interests of people. When capital goes on strike, there are two > choices, give in or move in. Unfortunately, social democracy in practice > has demonstrated that it is limited by the same things that limit > Keynesianism in theory—the givens of the structure and distribution of > ownership and the priority of self-interest by the owners. As a result, > when capital has gone on strike, the social-democratic response has been > to give in. > > Rather than maintaining its focus on human needs and challenging the > logic of capital, social democracy has proceeded to enforce that logic. > The result has been the discrediting of Keynesianism and the ideological > disarming of people who looked upon it as an alternative to the > neoclassical wisdom. The only alternative to the barbarism being offered > became barbarism with a human face. With this acquiescence to the logic > of capital, its hold over people was reinforced; and the political result > was the popular conclusion either that it really doesn’t matter who you > elect or that the real solution is to be found in a government > unequivocally committed to the logic of capital. > > So it was that the new wisdom became TINA—there is no alternative. No > alternative to neoliberalism, which is simply neoclassical economics > enforced by finance capital and imperialist power. Yet, as occurred after > the “Golden Age,” concrete conditions have a way of undermining accepted > truths—and nowhere has this been truer than in less developed countries. > The fallacy of assuming that every country could become the promised land > by surrendering completely to capital became clear; and, as the evidence > of the failures of the external orientation imposed by neoliberalism has > accumulated, interest in an internal solution, the endogenous model of > development, has grown again—especially in Latin America. Yet, how > credible is such an option in the current conjuncture where intense > capitalist competition continues and the power of international capital > in fact (if not ideology) has not declined? > > The Possibility of Endogenous Development > > Removing the straitjacket placed upon economic development by > neoliberalism will not be an easy matter. A true focus upon endogenous > development cannot simply be an orientation to the limited markets that > characterized previous import-substitution efforts; rather, it calls for > incorporating the mass of the population that has been excluded from > their share of the achievements of modern civilization. In short, real > endogenous development means making real the preferential option for the > poor. And, that means making enemies—internally (both those who > monopolize the land and the wealth and those who are content with the > status quo) and externally. > > Any country that would challenge neoliberalism by seriously attempting to > foster endogenous development will face the assorted weapons of > international capital—foremost among them the International Monetary > Fund, the World Bank, finance capital and imperialist power (including > such forms as the U.S. National Endowment for Democracy and other forces > of subversion). These are, of course, formidable foes. Since no > government based simply on its own resources can hope to succeed in this > struggle against such internal and external enemies, the central question > will be whether the government is willing to mobilize its people on > behalf of the policies that meet the needs of people. Here, the essential > matter is the extent to which the government has freed itself from the > ideological domination of capital. > > This unshackling implies more than simply a return to the old idea of > import-substitute industrialization—even if accompanied this time by the > massive land reform that would create the potential for a much larger > home market. New models of Keynesianism—even dressed up as the Fordist > positive-sum solution—will not move those whose active support will be > necessary to strengthen the resolve of a government which will find > itself constantly pressured by capital to sue for peace. Theories that > continue to be rooted in existing patterns of ownership, in the > dominating principle of self-interest and in the belief that (outside of > a few exceptions) the market knows best, cannot support a successful > challenge to the logic of capital—they are an organic part of that logic. > > The central flaw in social democratic proposals for endogenous > development is that they break neither ideologically nor politically with > dependence upon capital. If a model of endogenous development is to be > successful, it must base itself upon a theory that places the goal of > human development first. More than the consumption stressed by > neoclassicals and Keynesians alike, it must focus on investment in and > development of human capacities. This means not only the investments in > human beings that come from the direction of expenditures and human > activity to the critical areas of education and health (ie., what has > been called investment in “human capital”) but also from the real > development of human potential which occurs as the result of human > activity. This is the essence of the revolutionary practice that Marx > described, the simultaneous changing of circumstances and human activity > or self-change.9 In contrast to a populism that merely promises new > consumption, this alternative model focuses upon new production—the > transformation of people through their own activity, the building of > human capacities. > > A development theory that begins from the recognition of human beings as > productive forces points in quite a different direction than that of the > economics of capital. Where are the measures in traditional theory for > the self-confidence that arises in people through the conscious > development of cooperation and democratic problem-solving in communities > and workplaces? Where is the focus upon the potential efficiency gains of > unleashing these human productive forces, whose creativity and tacit > knowledge cannot be produced by directives from capital? By stimulating > the solidarity that comes from an emphasis upon the interests of the > community rather than self-interest, a model based upon this radical > supply-side theory rooted in human development will allow a government to > move further with the support of the community. Within such a framework, > the growth of noncapitalist sectors oriented to meeting people’s needs is > not merely a defense against a capital strike; rather, it emerges as an > organic development. Here, human needs and capacities, rather than the > needs of capital, become the engine that drives the economy. > > Endogenous development is possible—but only if a government is prepared > to break ideologically and politically with capital, only if it is > prepared to make social movements actors in the realization of an > economic theory based upon the concept of human capacities. In the > absence of such a rupture, economically, the government will constantly > find it necessary to stress the importance of providing incentives to > private capital; and, politically, its central fear will be that of the > “capital strike.” The policies of such a government inevitably will > disappoint and demobilize all those looking for an alternative to > neoliberalism; and, once again, its immediate product will be the > conclusion that there is no alternative. > > Notes > > 1. Thorstein Veblen, “Why is Economics Not an Evolutionary Science?” in > Veblen, The Place of Science In Modern Civilization and Other Essays > (1919) republished as Veblen on Marx, Race, Science and Economics (New > York: Capricorn, 1969), 73. > > 2. Adam Smith, The Wealth of Nations (New York: Modern Library, 1937), > 423. > > 3. Ronald Meek, Economics of Physiocracy: Essays and Translations > (Cambridge: Harvard University Press), 70. > > 4. John Kenneth Galbraith, American Capitalism (Boston: Houghton Mifflin, > 1952), 28. > > 5. Adam Smith,The Wealth of Nations (New York: Modern Library, 1937), > 638. > > 6. Michael A. Lebowitz, “Paul M. Sweezy” in Maxine Berg, Political > Economy in the Twentieth Century (Oxford: Philip Allan, 1990). > > 7. Whether “Fordism” was a conscious model is definitely questionable. > Certainly, much of what is claimed for Henry Ford himself in this respect > is mythology. For a critical view on the historical question regarding > Fordism, see John Bellamy Foster, “The Fetish of Fordism,” Monthly Review > 39, no. 10 (March 1988), pp. 14–33. > > 8. These examples come from the 1972–1975 period when the New Democratic > Party (Canada’s social-democratic party) governed British Columbia, > Canada. > > 9. Michael A. Lebowitz, Beyond Capital: Marx’s Political Economy of the > Working Class, 2nd ed. (New York: Palgrave Macmillan, 2003). > > > ________________________________________________________________ > The best thing to hit the Internet in years - Juno SpeedBand! > Surf the Web up to FIVE TIMES FASTER! > Only $14.95/ month - visit www.juno.com to sign up today! > > _______________________________________________ > Marxism-Thaxis mailing list > [EMAIL PROTECTED] > To change your options or unsubscribe go to: > http://lists.econ.utah.edu/mailman/listinfo/marxism-thaxis _______________________________________________ Marxism-Thaxis mailing list [EMAIL PROTECTED] To change your options or unsubscribe go to: http://lists.econ.utah.edu/mailman/listinfo/marxism-thaxis
