Free economy and the strong state: some notes on the state - Werner Bonefeld

Abstract

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 social 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.

Neoliberalism met its definite end with the crisis that erupted in 2008. (Cecena, 2009: 33)

Conventionally, neoliberalism is seen to have emerged in the wake of the deep crisis of the early 1970s. According to Altvater, for example, ‘it began with the end of the Bretton Woods system of fixed exchange rates in 1973 and the following liberalisation of financial markets in Margaret Thatcher’s Great Britain’ (2009: 73). Neoliberalism is thus identified with a specific capitalist regime of accumulation, characterized by the dominance of finance capital over productive capital.1 Ordinarily, neoliberalism is associated with a weak state that is unable to resist market forces. The neoliberal state functions as a market facilitating state.

The neoliberal regime of accumulation is said to have ended in 2008 when the banking industry ‘did not hesitate to “bring the state back in”, in an even more radical way than in Keynesian times’. Once the state was back in, neoliberal capitalism transformed into a ‘kind of “financial socialism”’ (Altvater, 2009: 79, citing Sennett). This socialism socializes the financial losses, guarantees ‘toxic debt’ and secures private gains, and in order to balance the books, attacks conditions. It amounts to a huge redistribution of wealth from labour to capital. Financial socialism well illustrates Marx’s notion of the capitalist state as the executive committee of the bourgeoisie. What, however, is meant by ‘bringing the state back in’? Was it really left ‘out’ during the so-called neoliberal regime of accumulation?

The notion that the state has been ‘brought back in’ suggests a resurgent state, one that has regained some measure of control over the market. This view implies a conception of market and state as two distinct modes of social 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. The social constitution of state and market as distinct forms of social relations is not raised. Following Clarke (1992), 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.

What is needed is … honest and organised coercive force. (Wolf, 2001)

However distinct the political response to the crisis of 2008, the apparent emergence of neoliberalism during the 1980s did not entail a weak state. It entailed a ‘strong state’. Andrew Gamble’s book on the Thatcher period was thus aptly entitled The Free Economy and the Strong State, which made clear reference to the ordo-liberal conception of the relationship between the national state and the global economy.2 Susan George (1988) characterized the 1980s as a time in which everything was privatized, except the losses, which were socialized by means of debtbondage and repressive labour market and welfare state reforms. Ernest Mandel (1987) characterized the political economy of the 1980s as ‘military Keynesianism’, a Keynesianism that refinanced a financial system on the brink in the face of the then debtor crisis and bad debt exposure. Its rescue took the form of pro-cyclical global deficit financing based on the US dollar, expansion of the military industrial complex, privatization, and financial deregulation. Military Keynesianism sought to balance the books by taking money out of the pockets of workers, and by attacking conditions. Redistribution of wealth from labour to capital was such that by the early 1990s, ‘about two-thirds of the world’s population have gained little or no substantive advantage from rapid economic growth. In the developed world the lowest quartile of income earners has witnessed a trickle-up rather than a trickle-down’ (Financial Times, 24 December 1993). This one-quarter has since expanded to include more than half the world’s population, creating an unprecedented gap in incomes, domestically and on a global scale (see Glyn, 2006).

‘Military Keynesianism’ sustained capitalism on the basis of an accumulation of potentially fictitious wealth. Debt expanded to such a degree that, according to the Financial Times (27 September 1993), the IMF feared in the early 1990s ‘that the debt threat is moving north. These days it is the build-up of first-world debt, not Africa’s lingering crisis, that haunts the sleep of the IMF official’. In the face of recurrent crises since 1987,3 and various stock market fears, the USA emerged as the biggest debtor country. Magdoff et al. (2002) argued that, by 2002, outstanding private debt was two-and-a-quarter times GDP, while total outstanding debt—private plus government—approached three times the GDP. Deficit spending sustained a global economy that became completely dependent upon a mountain of debt.

Throughout the last thirty years, the accumulation of potentially fictitious wealth in the form of money, M...M’, and the coercive control of labour, from debt bondage to new enclosures, and from the deregulation of conditions to the privatization of risk, have belonged together. In the context of a global economy plagued by debt and threatened by the collapse of debt, Martin Wolf argued that the guarantee of global capital required stronger states. As he put it in relation to the so-called Third World, ‘what is needed is not pious aspirations but an honest and organized coercive force’ (Wolf, 2001). In relation to the so-called developed world, Soros (2003) argued, rightly, that terrorism provided not only the ideal legitimation but also the ideal enemy for the unfettered coercive protection of debt-ridden free market relations ‘because it is invisible and never disappears’. The premise of a politics of debt is the ongoing accumulation of ‘human machines’ on the pyramids of accumulation. Its blind eagerness for plunder requires organized coercive force to sustain the huge mortgage on future income in the present. Wolf ’s demand for the strong state does not belie neoliberalism. Neoliberalism does not demand weakness from the state. Laissez-faire is no ‘answer to riots’ (Willgerodt and Peacock, 1989: 6). Indeed, laissez-faire is ‘a highly ambiguous and misleading description of the principles on which a liberal policy is based’ (Hayek, 1976: 84). That is, the neoliberal state is ‘planning for competition’ (1976: 31), and there can therefore be no market freedom without ‘market police’ (Rüstow, 1942: 289). For the neoliberals, there is thus an ‘innate connection between economics and politics’ (Friedman, 1962: 8): not only does the free market require the strong, market-facilitating state, but it is also dependent on the state as the coercive force of that freedom.

And now, ostensibly, neoliberalism has come to a crushing end, when ‘the financial markets imploded, causing huge losses of more than US$1.4 trillion’ in August 2008 (Altvater, 2009: 75). Arising from its ashes is ‘the new era of postneoliberalism’ (Brandt and Sekler, 2009: 12)—a response, according to Brandt and Sekler, to ‘the (negative) impacts of neoliberalism’, whose specific mode of organization is as yet unclear. It could range from social democracy to military dictatorship, and from radicalized Keynesianism to the militarization of social relations. Whatever its precise mode of organization, at its base post-neoliberalism is a rejection of financial capitalism, carried by social forces that demand a return to sustained real economic growth (Brandt and Sekler, 2009: 11–12). The spectre of the coming era appears, thus, in the form of a strong and capable ‘post-neoliberal’ state that makes money its servant, putting it to work for growth and jobs.4 The post-neoliberal state is thus conceived of as a powerful state that polices the market with strong state authority in favour of progressive productive accumulation, creating jobs and wealth.

The superstructure is the expression of the substructure. (Benjamin, 1983: 495–6)

Marx introduces his base and superstructure metaphor by writing that his investigation led him to the understanding that the ‘sum total of [the] relations of production constitutes the economic structure of society, the real foundation, on which rises a legal and political superstructure and to which correspond definite forms of social consciousness’ (1981: 8). Leaving aside Marx’s own understanding of his work as a critique of economic categories (Marx, 1981: 10), and therewith of the very economic objectivity from which the superstructure is supposed to arise, his metaphor says that the political form of bourgeois society, the state, belongs to the society from which it springs. Crudely put, the purpose of capital is to accumulate extracted surplus value, and the state is the political form of this purpose.

Marx’s claim that the base/superstructure metaphor is the result of his investigation is, however, disingenuous. Its origin lay in classical political economy. William Robertson (1890: 104) summarized the classical position well: ‘in every inquiry concerning the operation of men when united together in society, the first object of attention should be their mode of subsistence. Accordingly as that varies their laws and policy must be different’. Adam Smith provided the classical exposition. His theory of history is remarkable not only for the emphasis given in it to economic forces that work their way through history towards ‘commercial society’, but also for the argument that in each historical stage, the political form of society, be it conceived in terms of authority or jurisdiction, necessarily flows from the forms of property. For Smith, private property is the consequence of the development in the division of labour. It gives rise to the growing social differentiation of society into distinct social classes, and its extension increases the social surplus, which leads to the expansion of private property. This expansion lays the foundation for the separation between civil society and state in capitalism.

Smith determines the state as the political form of private property, and derives state purpose from the needs of private property. The state is to protect, maintain and facilitate the law of private property. Smith specifies a number of indispensable state functions. Apart from defending the country against external threats, it has to provide for an exact administration of justice in order to resolve clashes of interest between property owners. For him, ‘justice … is the main pillar that holds up the whole edifice’ (1976b: 86). It safeguards the rights of the individual to liberty and property, guaranteeing the framework of civil society. The state is indispensable also for the provision of public goods that are required for the operation of the market, but which cannot be provided for by the market itself for lack of profitability (see Smith, 1976a: 723). Furthermore, the state is charged with facilitating the law of private property for example, by removing various institutional and legal impediments, and by confronting those private interests that impede the perfect liberty of the market. This responsibility also entails that the state make efforts to help achieve the ‘cheapness of provision’ (Smith 1978: 6), facilitating the progressive development of accumulation on the basis of increased labour productivity.

Smith introduces the subject of the class struggle between capital and labour, arguing that ‘common wages of labour depend every where upon the contract between those two parties, whose interests are by no means the same’. That is, the ‘workmen desire to get as much, the masters to give as little as possible. The former are disposed to combine in order to raise, the latter in order to lower the wages of labour’ (Smith, 1976a: 83). In this struggle, the masters have the upper hand because they are ‘fewer in number, can combine much more easily … [and they] can live for longer upon the stock which they have already acquired’. The workers, on the other hand, might ‘starve’. That workers rebel is understandable given that ‘they are desperate’. Yet, their action is foolish, because ‘the workmen very seldom derive any advantage from the violence of those tumultuous combinations’ (Smith, 1976a: 83–4).

According to Smith, the resolution of the class conflict can only lie in determining the true interest of the worker, and the true interest lies in sustained progressive accumulation. ‘Workers do well not to struggle, because with the increase of surplus, stock accumulates, increasing the number of workers, and the increase of revenue and stock is the increase of national wealth. The demand for those who live by wages … increases with the increase in national wealth’ (Smith, 1976a: 86–7). This, then, is the famous trickle-down effect—accumulation, he argues, increases national wealth and ‘occasions a rise in the wage of labour’ (Smith, 1976a: 87). Smith calls this the ‘liberal reward for labour’, and one consequence of his argument is, of course, that if there are poor, then this is an indication that ‘things are at a stand’ (Smith, 1976a: 91), requiring state action to facilitate ‘the cheapness of goods of all sorts’ (Smith, 1976a: 333). The owners of stock in some countries might achieve higher rates of return on their investments than in other countries, ‘which no doubt demonstrate[s] the redundancy of their stock’ (Smith, 1976a: 109). The maintenance of stock requires competitive adjustment, and its facilitation ‘belongs to the police’ (Smith, 1978: 5).

According to Smith, ‘national wealth’ and ‘workers’ benefit from progressive accumulation. However, the owners of stock have an ambiguous relationship to progressive accumulation, because ‘the increase in stock, which raises wages, tends to lower profit’ (Smith, 1976a: 105). Capitalists might therefore seek to maintain the rate of profit artificially, impeding the natural liberty of the market, for example by means of price fixing or protectionism. This kind of assertion of private power ‘produces what we call police. Whatever regulations are made with respect to the trade, commerce, agriculture, manufactures of the country are considered as belonging to the police’ (Smith, 1978: 5). That is to say, the ‘economic system requires a market police with strong state authority for its protection and maintenance’ (Rüstow, 1942: 289), and effective policing entails ‘a strong state, a state where it belongs: over and above the economy, over and above the interested parties [Interessenten]’ (Rüstow, 1963: 258). The ability of the state to protect and maintain the law of value depends on its separation from civil society—it is the state’s independence from society that allows its effective operation as a capitalist state. Failure to maintain its separation from society will ‘eventually lead to class war’ (Nicholls, 1984: 170).

According to Hegel (1967: 210), prevention of class war might be advanced by ‘successful wars’ that ‘have checked domestic unrest and consolidated the power of the state at home’. He also advocated the use of ethical means, including the regressive equality of nationalism, which purports that regardless of conditions, we are all members of the one national boat—this imagined community that purports to transcend class relations.5 Before Hegel, Smith (1976a: 723) had already argued that the state has to promote ‘the instruction of the people’, chiefly by means of education and public diversions. He argued that government should take pains to offset the social effects of accumulation by assuming responsibility for cultural activities to maintain the liberal constitution of civil society. Against the false consciousness of class war, the state was to make workers realize that their true interest is best served by progressive accumulation. In the words of Müller-Armack, an ordo-liberal proponent of some considerable repute who coined the phrase ‘social market economy’,6 this was to lead to the incorporation of competitiveness ‘into a total life style’ (Müller-Armack, 1978: 328). The purpose of the state is thus to secure the ‘complete eradication of all orderlessness from markets and the elimination of private power from the economy’ (Böhm, quoted in Haselbach, 1991: 92). The free market is thus endorsed as a stateless sphere under state protection. The state depoliticizes the conduct of social relations as relations of liberty, freedom, equality and Bentham, and it does so by monopolizing the political as the ‘concentrated and organized force of society’ (Marx, 1983: 703).

Its proponents construct the liberal state unashamedly as a class state that, ostensibly, operates in the true interest of workers—in jobs, wages and conditions, and thus in the progressive accumulation of capital. The state ‘maintain[s] the rich in the possession of their wealth against the violence and rapacity of the poor’ (Smith, 1978: 338), and instructs the poor that their true interest lays in the progressive accumulation of capital. The state, of course, is not a class state because its proponents say it is. However, the base–superstructure metaphor that Marx derived from classical political economy7 reports that the state is the political form of the law of private property. As a tax state, it depends entirely on the progressive accumulation of capital. However, the class character of the state is not defined in national terms. It subsists through world market relations. As Smith (1976a: 848–49) put it, ‘the proprietor of stock is properly a citizen of the world, and is not necessarily attached to any particular country. He would be apt to abandon the country in which he was exposed to a vexatious inquisition, in order to be assessed to a burdensome tax, and would remove his stock to some other country where he could either carry on his business, or enjoy his fortune more at his ease’. That is to say, ‘the capitalist law of property and contract [transcends] national legal systems, and world money [transcends] national currencies’ (Clarke, 1992: 136; also Bonefeld, 2000). Smith wrote his work as a critique of the then mercantilist state. By the beginning of the 19th century, it had become the ideological orthodoxy of a liberalizing state (see Clarke, 1988: ch. 1). It was in this context that Marx writes (with Engels) in the Communist Manifesto about the cosmopolitan character of the bourgeoisie, and defines the national state as the executive committee of the bourgeoisie.

Law is made for the state, not the state for the law. [If] a choice must be made between the two, it is the law which needs to be sacrificed to the state. (Rossiter, 1948: 11)

In our time, Milton Friedman has provided a cogent definition of the state as the executive committee of the bourgeoisie. As he put it, the state is ‘essential both as a forum for determining the “rules of the game” and as an umpire to interpret and enforce the rules decided upon’, and enforcement is necessary ‘on the part of those few who would otherwise not play the game’ (1962: 15, 25). That is, ‘the organisation of economic activity through voluntary exchange presumes that we have provided, through government, for the maintenance of law and order to prevent coercion of one individual by another, the enforcement of contracts voluntarily entered into, the definition of the meaning of property rights, the interpretation and enforcement of such rights, and the provision of a monetary framework’ (p. 27). The state has to ‘promote competition’ (p. 34), and to do for the market what the market ‘cannot do for itself ’ (p. 27). Liberals, says Friedman, ‘must employ political channels to reconcile differences’ because the state is the organization that provides the means ‘whereby we can modify the rules’ (p. 23, emphasis added). However, what happens when they interfere?

The great calamity for capital and its state is not the incorporation qua representation of the working class into the system of liberal democracy. As Simon Clarke (1991b: 200) put it, ‘the development of parliamentary representation for the working class, however much scope it may provide for improving the material conditions of sections of the working class, far from being an expression of collective working-class strength, becomes the means by which it is divided, demobilised and demoralised’.8 The great danger is the democratization of society.9 It puts into relief the bourgeois separation between society and state, and it does so by recognizing and organizing its ‘“forces propres” as social forces’ (Marx, 1964: 370). According to the (neo) liberal proponents, such democratization, that is, the politicization of social labour relations by means of sustained social struggles, is inherent in the ‘market system’. For Smith, for example, class struggle derives from the workers’ desperate conditions; he argued that such struggle expresses false consciousness because the improvement of conditions depends on progressive accumulation, and he calls upon the state to ensure the cheapness of provision (by means of greater labour productivity). The ordo-liberals argue similarly. In their view, the tendency of what they call proletarianization is inherent in capitalist social relations, leading to social crisis, turmoil and disorder if unchecked. Its containment is a political responsibility, and means of containment range from the internalization of competitiveness (Müller-Amarck, 1978), the creation of a stakeholder society (Röpke, 1949), the transformation of a proletarian society into a property-owning democracy (Brittan, 1984), the supranational regulation of money and law (Hayek, 1939; Müller-Armack, 1971), and political action against collective organization: ‘if liberty is to have a chance of survival and if rules are to be maintained which secure free individual decisions’, the state has to act (Willgerodt and Peacock, 1989: 6), and ‘the most fundamental principles of a free society … may have to be temporarily sacrificed … [to preserve] liberty in the long run’ (Hayek, 1960: 217). Indeed, in times of crisis ‘no sacrifice is too great for our democracy, least of all the temporary sacrifice of democracy itself ’ (Rossiter, 1949: 314). For justice to prevail, order needs to be restored. Law is not applicable to social disorder. Law is the consequence of order, and the rule of law depends on the force of law. It is for this simple reason that the much-proclaimed citizen is also viewed with suspicion as a potential security risk.

The use, then, of ‘honest and organised force’ (see Wolf, 2001) refers to the police action undertaken to facilitate and maintain justice, that pillar of the law of private property. What is a just wage? The notion of a just wage presupposes that the labour contract is between equal exchange partners, each contracting in freedom and liberty, seeking to advance their respective interests. Even on this assumption, the codification of the relationship between capitalist and labourer as equal and free citizens is contradicted by the content of the exchange. Once the labour contract is signed, the factory floor beckons. The wage contract is the fundamental form of bourgeois freedom—it connects equality with exploitation.

Political economy is indeed a scholarly dispute about how the booty pumped out of the labourer may be divided (see Marx, 1983: 559), and the more the labourer gets, the better. After all, it is her social labour that produces the ‘wealth of nations’, and this in a context in which ‘the labourer belongs to capital before he has sold himself to capital’ (Marx, 1983: 542). The hopeful suggestion, then, that a ‘post-neoliberal’ mode of capitalist regulation will be one of job creation translates working-class demands for employment and social security into a politics of economic growth and, that is, into pressure on the state to facilitate the increase in the rate of accumulation (see Clarke, 1991b: 200). The working class, then, remains an ‘object of state power. The judicial power of the state stands behind the appropriation of labour without equivalent by the capitalist class, while preventing the working class from using its collective power to assert the right to the product of its labour’ (Clarke, 1991b: 198). The judicial power of the state entails not only the legal recognition of the social individual as a property owner. It entails also the force of law. Or, as Walter Benjamin put it, for the oppressed, ‘the “state of emergency” … is not the exception but the rule’ (Benjamin, 1965: 84).

Conclusion

The ready acceptance of capitalist crisis as a point of transition from one regime of accumulation towards a new regime of accumulation is based on some features of capitalist development that are elevated to defining characters of distinctive modes of capitalist regulation (Bonefeld, 1987). The superficial character of such analysis prevents an understanding of the enduring features of capitalist social relations, and its disregard for history is striking. History tell us ‘how rapidly an epoch of global prosperity, underpinning prospects of world peace and international harmony, can become an epoch of global confrontation, culminating in war. If such a prospect seems unlikely now, it seemed equally unlikely a century ago’ (Clarke, 2001: 91), and seems more likely today than only yesterday. History tells us that the resolution to capitalist crisis— proclaimed as a capitalism of economic growth, jobs, and conditions—is potentially barbaric (Bonefeld and Holloway, 1996). That is to say, the notion of constant capitalist regime changes exposes a shrinking of historical consciousness. It justifies forgetfulness.

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.

Originally published in Capital & Class 2010 34: 15.

• 1Altvater’s implied distinction between the good capitalism of production and the bad capitalism of parasitic money-making is unfortunate. Such a distinction fails to conceptualize capitalism. Equally unfortunate is his mythologization of ‘Thatcher’s Britain’. On the crisis-ridden connection between productive accumulation and monetary accumulation, and its development during the Thatcher period, see Bonefeld (1993).
• 2Ordo-liberalism developed in Germany during the crisis of Weimar, from the late 1920s onwards. It argued that the free economy required a strong state for its ‘facilitation’ and protection. Hayek joined up with the ordo-liberals after the defeat of Nazism. Ordo-liberalism, or the Freiburg School as it was also later called, laid the foundations for contemporary neoliberalism. See Haselbach (1991), and Bonefeld (2006a).
• 3These range from the crash in 1987 to the deep recession of the early 1990s, to the European currency crises of 1992 and 1993, the Mexican crisis of 1994, the East Asian crisis of 1997, the Russian crisis of 1998, the Brazilian crisis of 1999, and the Argentinian crisis of 2001. The period between 2001 and 2007 was one of military expenditure, a mountain of private and public debt, war, torture, and poverty. During this period, China’s exorbitant rate of accumulation guaranteed the huge accumulation of claims on future value extraction in the present (on the relation between credit and value, see Bonefeld and Holloway, 1996).
• 4On the history of this demand in the context of the earlier CSE debate on the state, see Bonefeld (2008). Simon Clarke edited the debate, with an important introduction in Clarke (1991a).
• 5The strength of this ethical appeal is, for example, evident in what Radice (2000) criticised as ‘progressive nationalism’. Such nationalism distinguishes ‘healthy national sentiment from pathological nationalism. [This is just as ideological] as it is to believe in normal opinion in contact to pathogenic opinion. The dynamic that leads from the supposedly healthy national sentiment into its overvalued excess is unstoppable, because its untruth is rooted in the person’s act of identifying himself with the irrational nexus of nature and society in which he by chance finds himself ’ (Adorno, 1998: 118). See also Bonefeld (2006b).
• 6The phrase ‘social market economy’ is opaque. It means different things to different people. In its neoliberal origin, the social aspect of the market economy meant an ‘honest decision’ for the free market. Balogh’s (1950: 5) take on the social market economy is succinct. It is ‘planning by the free price mechanism’.
• 7And which thus does not transcend classical political economy (see Bonefeld, 1992, 2003).
• 8See also Agnoli (2002) and Radice (2001).
• 9As Hennis put it most memorably, ‘the democratisation of society is the main enemy [Hauptfeind] of democracy’ (quoted in Agnoli, 1990: 136, n. 7).