Don't let yourself be lied to about the efficiency of the market

Don't let yourself be lied to about the efficiency of the market

An interesting publication recently highlighted how innovation in capitalist economies doesn't work as it says on the tin. Does this mean that resurgent social democracy is well placed to save capitalism from its own orthodoxies?

Sometimes, politics can be so strange and irrational that it takes your breath away. After a huge economic crisis, recession and now an ongoing depression, facilitated by decades of increasing deregulation and “neoliberal” policies, European governments are falling over themselves in their attempts to cut back, defund, privatise and otherwise dismantle the remains of the postwar welfare state. Far from moving into increase regulation to levels closer to those before the “neoliberal” experiment, the UK government has moved to deregulate and reduce further workers rights. The only weak move made to appease popular anger about the banks' role in the crisis has been to 'ringfence' banking and investment arms by 2019.

This is framed not just as deficit busting austerity, but as creative destruction to “unleash the private sector”: George Osborne has spoken of a state sector which is “crowding out” the private sector, and the Coalition has claimed it is “rebalancing” the UK economy away from the state.

Not so different from the orthodoxy which has reigned since the late 70s then. This is despite recent events. |It wasn't long ago that the right were crowing over how the new “Tigers” such as Ireland showed that free markets and deregulation were more effective than “outdated” European alternatives, such as those of the Nordic states. With those new Tigers like Ireland and Portugal locked into a downward spiral of perpetual crisis, you might think that the governments of capitalist countries would see it as in their own interests to follow ostensibly more sustainable models of capitalist development, such as those of the Nordic states and Germany. The UK government, for instance, on the one hand signals the need for a new, “responsible capitalism”, while on the other says that this will fall out of the air if regulation is cut, contrary to recent history and indeed common sense.

The first post-crisis government of the UK has seen, in a short period of time, the beginning of the privatisation of the NHS, a significant erosion of employment protections, and a wholsesale assault on public sector jobs, pensions and services. In the US, a large section of capital has swung sharply to the right, with the Republicans now so rightwing that Eisenhower or Nixon would be pilloried as redistributive “socialists” by their activist base and conservative funders, such as the Koch brothers.

It seems that amongst the capitalist class, faith in the “efficiency” of the private sector, at the very least to create growth, has been deepened, not disturbed by the crisis. Perhaps more accurately, they've been able to implement a project of building a minimal state and a rebalancing the economy in the immediate interests of capital thanks to the crisis.

What I want to look at in this blog, further to some of the issues discussed previously, is the basis for this increasingly fanatical belied in market efficiency, and whether, in the face of increasingly disappointing growth figures, capital may move towards reform without external pressure from the working class .

The market vs the state

For the right, and for most of the social democratic “left” which was conquered by rightwing policies in the wake of its defeats in the 1980s and 1990s, the role of the state is a minimal one. It is there to provide the framework for growth, innovation and “job creation”.

We could say that Adam Smith has been idolised and his writings have become catechism – for instance the Adam Smith Institute is the major right-wing thinktank in the UK. But in fact the current “ new normal” sees ideas which would reduce the minimal state beyond that envisaged by Smith becoming policy. He at least saw building and maintaining hospitals as the role of the state, the current government is deepening privatisation of healthcare and is even opening up the police force to privatisation.

There are some very obvious points we can make about the state/market dichotomy, which totally dominates political discourse from top to bottom.

First, the market cannot exist without the state. This is from the violent basis of the capitalist market, in dispossessing the former peasantry, to the police force stopping someone from stealing commodities from warehouses, to the patent office which records your “intellectual property” and the courts which enforce it. The police and ultimately army will stop strikers from blockading your factory gates or occupying your plant. The state builds, funds and maintains the road and rail systems which transport your workforce and goods. Ultimately, the state, and its arms will define what's mine and what's yours, and dictate that the commodity you produce with your labour belongs not to you but to your employer. It has been actively involved in the creation, maintenance and extension of capitalist markets and social relations, and still is.. Adam Smith, at least, was far more honest than any of his current fans about this:

Adam Smith wrote:
“Civil government, so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all.”

This much is relatively obvious, even though it cuts through the political discourse and “common sense” around markets and states.

The “interests of capital”

In a previous blog post, I discussed the way in which the obvious failures of austerity are leading to voices within the capitalist class arguing that a different strategy is in the interests of capital in the immediate and long term.

Some of this has been compounded further by the publication of a new text by the centre-left think tank Demos, which shows how innovation happens in the real world, not in the heads of right-wing ideologues. The pamphlet, The Entrepreneurial State, by Mariana Mazzucato is available in full here.

I want to look at this for two reasons here: firstly to show that contrary to ideology and common perceptions, even in “neoliberal” countries the state is frequently very proactive in driving innovation in key areas, despite the rise of the deregulated-financialised model in much other key areas of the economy. The demonstrable success could lay the basis for a much more state-centred politics elsewhere.

The second is to show that tendencies within capital are increasingly pushing a reform agenda, and that there is a very real argument that this is in capital's interests. This means that the social-democratic bounce we are seeing in Europe could well be the political force to do this, which of course has nothing to do with the interests of the working class whose support it will ride on.

The text gives many interesting examples of just how much the contemporary “cutting edge” of capitalist innovation is driven by state actors. Some choice picks include the fact the Google algorithm came from public sector National Science Foundation grant, and that molecular antibodies, which provided the foundation for biotechnology before venture capital moved into the sector, were discovered in public Medical Research Council (MRC) labs in the UK. Indeed many of the most innovative young companies in the USA were funded not by private venture capital but by public venture capital such as through the Small Business Innovation Research (SBIR) programme.

The author is highly critical of the market-state dichotomy discussed above:

Quote:
“ … The rhetorical assumption behind all of this is that the role of the state is negative rather than positive. It depicts the state as less productive (by definition) than the private—or voluntary—sector. This pamphlet shows that there is an alternative interpretation of the role of the state, at least in innovation policy, that hotly contests such a view. “

Much of the pamphlet is dedicated to discussing the link between innovation and growth, and where both come from. For example:

Quote:
“ … a generation ago, technological advance was seen as something that was externally given, there is now extensive literature to show that actually it is the rate, and direction, of innovation that drives the ability for economies to grow. This provides the justification for increased focus on the role that government can play to facilitate precisely that innovation, while at the same time exploding some of the myths that abound in Westminster, the European Commission and Washington about what actually drives innovation and growth.”

The basic argument is that a wealth of evidence to show that growth and innovation are maximised by public sector activity, and that in US, despite it's reputation as a bastion of creative free markets, 57% of basic R&D is state funded, with just 18% of funding coming from business, and the remainder coming from universities and other non-profits. She argues that the reason that Europe is less efficient at converting research into growth is not because of “a lack of science parks” but because it is less successful at this facilitation of R&D. So behind the sheen of silicon valley risk-taking and innovation in fact lies of complex of non-profit and public sector innovation which the private sector then commoditises. Examples such as innovations developed by DARPA, Small Business Innovation Research and recent nanotech advances are also used by Mazzucato to illustrate how non-profit innovations become “general purpose technologies” which then spread throughout the economy.

Her policy recommendations revolve around the basic conclusion that states should not just be there to fix the failures of markets, but to actively create markets.

So why is this relevant? Well, most importantly it shows that capitalism doesn't work as it says on the tin. Secondly it gives further evidence that sections of capital will be clamouring for a change from the current “austerity+neoliberalism” program, on the basis that it is in the best interests of capital to do so.

The left: the last line of defence of capitalism

The social democratic left is well positioned to do this. The current G8 talks show a rift within capital with Obama and Hollande on one side and Cameron and Merkel on the other. It looks increasingly likely that the disastrous (and predictable) economic effects of pure austerity in Britain will give the social democratic left a significant boost. This was seen in the council election results recently. This will provide a more saleable face to the project of capital restructuring both in the UK and in Europe more widely (Hollande, despite his anti-austerity rhetoric, has praised ex-Greek Prime Minister Giorgios Papandreou, who oversaw the brutal austerity project there. The Labour party here stood in the last election on a platform of massive cuts, despite presenting itself as the anti-austerity party now).

If Syriza emerges from the next round of elections in Greece able to form a government, it will be interesting to see how it attempts to manage the capitalist state given its stated aims to keep Greece inside the Euro, and while ending interest payments on it's outstanding debt. Despite the rhetoric, the party has a classic social democratic program currently focussed on effective management of the state and expanding the capitalist economy, not social transformation. The inevitable compromises that will follow between its politics and the demands of state management (as with left Latin American figures, which voices within Syriza want to emulate) reinforce the need for an independent working class movement with a grassroots presence in neighbourhoods and workplaces. In the final analysis, as always, all we can rely on to defend ourselves are ourselves.

Posted By

Django
May 20 2012 10:17

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Mark.
May 20 2012 13:12
Quote:
If Syriza emerges from the next round of elections in Greece able to form a government, it will be interesting to see how it attempts to manage the capitalist state given its stated aims to keep Greece inside the Euro, and while ending interest payments on it's outstanding debt. Despite the rhetoric, the party has a classic social democratic program currently focussed on effective management of the state and expanding the capitalist economy, not social transformation.

Looking at recent interviews with Syriza leader Alexis Tsipras I get the impression that his views owe a lot to the economist Yanis Varoufakis. So to understand where Syriza is coming from it's probably worth looking at Varoufakis's blog and also his 'modest proposal for resolving the eurozone crisis', co-written with ex-Labour MP Stuart Holland.

Steven.
May 20 2012 19:14

Good blog post.

One thing which could be worth examining is the case of Iceland, where the economy did collapse and the social democratic left basically took over. (I saw one very uncritical article on znet. Anyone recommend anything decent?)

petey
May 21 2012 18:02

this is a very good statement, and i printed it out, but it's microscopic on the page, so i've gotta ask again, is there a way to put a 'print' function on blog posts?

snipfool
May 21 2012 19:47

petey, try this

http://www.readability.com/articles/f9uj966o (print option on the left)

Joseph Kay
May 21 2012 19:53

ooh, there's a drupal module for that: http://drupal.org/project/readability_button

petey
May 21 2012 20:48

wow! so, snipfool and jk, i can attach that (somehow) to any page i'm on?

Joseph Kay
May 21 2012 20:54
petey wrote:
wow! so, snipfool and jk, i can attach that (somehow) to any page i'm on?

the admins would have to install it, test it and configure it. i'll post on internal to see if it's feasible. we do want to add this kind of functionality - the question is whether we do it with a third party service like this or do something ourselves.

snipfool
May 21 2012 21:02

there's an extension for chrome which lets you send articles to readability with the click of a button. i'm sure it exists for some other browsers too. it's a decent tool to have and serves as a workaround for libcom's current lack of printing options.
edit: sorry to continue to derail with this stuff

Cooked
May 21 2012 21:17

Really though you Chrome users should switch to Chromium. It's Chrome without the spyware.

Nate
May 22 2012 00:15

Django this is a great post, thanks a lot for this. Thinking out loud a bit I think it'd be interesting to try to map out current and potential social democrats in official power around the world, on a state by state basis as well as in their international and non-state networks.

Skraeling
May 22 2012 04:46

I think Werner Bonefeld's recent work on the 'strong state' of neoliberalism backs up to a large degree what you're saying Django. Bonefeld argues against the commonly held view that neoliberalism favours a weak or minimal state. He also explores how Adam Smith favoured a strong state like Django mentions. See his presentation: http://vimeo.com/36451059 - warning: it's a long video, and quite unbelievable how he manages to talk without stop for 2 hours without consulting notes!

Also, an article by Bonefeld 'The Free economy and the strong state: Some notes on the state' in Capital and Class 2010 seems highly relevant here. Bonefeld also argues that the division b/w the state and the market is a false dichotomy. I've only skim read it, but here is his abstract and conclusion:

Quote:
The crisis of 2008 is said to have brought the state back in, and its resurgence, in turn, is seen as revealing post-neoliberal tendencies. This analytical framework implies a conception of market and state as two distinct modes of scxial organization, and the perennial question about such a conception is whether the market has autonomy vis-à-vis the state, or the state vis-à-vis the market. Their social constitution as distinct forms of social relations is not raised. This paper argues that the capitalist state is fundamentally a liberal state. This conception entails class as the determining category of its form and content...

I have argued that the character of the neoliberal state is not defined by its relationship to the market, but by class. I have further argued that the capitalist state is fundamentally a liberal state. Whether one refers to it as neoliberal, post-neoliberal, Keynesian, Fordist or post-Fordist, the state's purpose, which is intrinsic to its bourgeois character, is to 'govern over the labour force' (Hirsch, 1997: 47; see also Agnoli, 1990). The old chestnut of the state as the executive committee of the bourgeoisie sums this up well.

Spassmaschine
May 22 2012 10:11
Joseph Kay wrote:
petey wrote:
wow! so, snipfool and jk, i can attach that (somehow) to any page i'm on?

the admins would have to install it, test it and configure it. i'll post on internal to see if it's feasible. we do want to add this kind of functionality - the question is whether we do it with a third party service like this or do something ourselves.

Sorry to continue this derail, but one problem with services like readability, instapaper etc. is they ignore all the bbcode formatting, so you lose headings, bold, italics, indented quotes etc, which isn't the end of the world but can be kind of annoying, so a custom job that avoided this would be sweet!

petey
May 22 2012 12:48
Cooked wrote:
Firefox Readability

thanks cooked (and snip and jk)

MT
Jun 11 2012 21:45
Chilli Sauce
Mar 24 2013 10:13

So, I know this article is pushing a year old, but it's the first time I've come across. It's really, really good. It's the kind of thing that I can give to my right-wing cousins when they start going on about efficiencies of the market and the excesses of the state and then, BAM!, at then end it hits 'em with the right hook of communism. Thanks for posting it.

Joseph Kay
Mar 24 2013 11:43

Since the article quotes Adam Smith, here's another one...

Adam Smith wrote:
A great part of the machines made use of in those manufactures in which labour is most subdivided, were originally the inventions of common workmen, who, being each of them employed in some very simple operation, naturally turned their thoughts towards finding out easier and readier methods of performing it. Whoever has been much accustomed to visit such manufactures must frequently have been shown very pretty machines, which were the inventions of such workmen in order to facilitate and quicken their particular part of the work. In the first fire-engines, a boy was constantly employed to open and shut alternately the communication between the boiler and the cylinder, according as the piston either ascended or descended. One of those boys, who loved to play with his companions, observed that, by tying a string from the handle of the valve which opened this communication to another part of the machine, the valve would open and shut without his assistance, and leave him at liberty to divert himself with his playfellows. One of the greatest improvements that has been made upon this machine, since it was first invented, was in this manner the discovery of a boy who wanted to save his own labour.

Smith then goes on to talk about a class of speculators taking up the task of innovation, but this seems like an important acknowledgement that the desire to make work easier inherent in those doing it is a pretty strong driver of innovation itself. What capitalists do is try and capture the gains of such innovations from the workers, so rather than increase on-the-job leisure, they are used to lay off workers and intensify work. So we don't have to worry about where innovations will come from without the sainted entrepreneurs. In fact we should expect freely-associated labour to generalise innovations much faster, since there's no incentive to keep them to yourself.