[Marxism] Michael Meeropol review of David Kotz book on neoliberalism

Louis Proyect lnp3 at panix.com
Tue Jan 2 08:18:23 MST 2018


REVIEW ARTICLE OF THE RISE AND FALL OF NEOLIBERAL CAPITALISM
by David M. Kotz

In 1998, Daniel Yergin and Joseph Stanislaw published The Commanding 
Heights --- a tour de horizon of the transformation of the relationship 
between governments and the economy between 1979 and the end of the 
1990s. The book covered the end of communism in the former Soviet bloc, 
the transformation of the Chinese economy under Deng Xiaoping, and the 
Reagan and Thatcher revolutions in the US and the UK. In describing 
changes in the US, Western Europe and Japan the book described the rise 
and fall of the post Great Depression version of the mixed economy. The 
changes wrought in these countries beginning in 1979 occurred because 
events in the 1970s undermined the intellectual supports for both the 
centrally planned system of Soviet style communism and the government 
intervention in the social democratic European countries as well as in 
the United States under the post-New Deal mixed economy. These events 
gave credence to the ideas of opponents of both systems, for example, 
the economist Freidrich Hayek. The emerging dominant ideology that they 
describe is one of free market laissez faire economics --- an ideology 
that they believe triumphed as a result of the failures of the more 
interventionist systems.

Though they never use the term, they are describing the rise of what 
David Kotz refers to as neoliberalism. Though his book covers some of 
the same ground, he has the benefit of writing in 2015 whereas Yergin 
and Stanislaw published their book in 1998. More importantly, however, 
whereas Yergin and Stanislaw suggest that the downfall of the postwar 
system in Europe and the US is the result of the triumph of ideas, Kotz 
argues persuasively that it is actually the result of the exercise of 
power by those who benefit from the capitalist economic organization of 
society. The analysis and evidence he brings to bear in support of the 
role of power exercised by business and political leaders is a most 
valuable aspect of this book --- one among many important contributions 
to our knowledge that makes it worthwhile for readers, particularly 
those who are rarely exposed to these types of arguments.

Neoliberalism, according to Kotz and the literature that has developed 
around that term is not just a series of ideas but a series of 
institutional relationships that constitute what US and British writers 
have referred to as a specific social structure of accumulation (SSA) – 
a particular version of capitalism for a particular time and place. 
Economic Historian Douglass C. North won a Nobel Prize in economics for 
his work on the role of institutions in economic growth. He argues that 
whether a particular economy grows or not depends in large part on the 
appropriateness of the institutional structure. Though his analysis of 
institutions is a far cry from that undertaken by those using the SSA 
analysis, his basic point is crucial to their approach – namely that a 
system of markets, including a labor market based on contract rather 
than the coercion of slavery or serfdom, as well as a capital market for 
investment funds and a market for the buying, selling and/or renting of 
land will only work with the appropriate institutional structure.

So far, there is nothing in the Yergin-Stanislaw or North analyses that 
are different from the quite simple description of “different types of 
economic systems” taught in the first few weeks of any Principles of 
Economics course. Capitalism is usually defined as an economic system 
based on 1) Freedom of enterprise and choice, 2) A reliance on markets, 
3) A limited role for government, 4) Private property rights, 5) Free 
(as opposed to coerced) labor. Sometimes this is counter-posed to the 
“mixed” economy where there is a much more significant role for 
government. As the textbook moves into more details in later chapters, 
the arguments as to where the appropriate role for government might be 
take up more and more of the discussion.

Implied in numbers 1 and 2 above is the presumption that competition 
among sellers of goods, services or “factors of production” will produce 
an approximation of the most efficient and dynamic way to organize 
society. What distinguishes the SSA approach from the taxonomy in most 
Principles texts is that Kotz and others emphasize that capitalism is a 
system of power --- that important implications of numbers 1 and 5 above 
are ignored. Those who already own sufficient wealth producing property 
to live off of it are much more likely to be able to successfully pursue 
“freedom of enterprise and choice” than those who are “free” to offer 
their labor for sale to the highest bidder. Another important 
implication lost in most Principles of Economics explanations is that 
though a wage-laborer is free to offer his or her services to any 
particular individual with sufficient wealth producing property to 
employ him or her, because access to capital for investment purposes is 
difficult to come by for those who don’t already have it, he or she must 
offer that labor to some institution. The free laborer is free to work 
for someone else or starve – especially when there is a “limited role 
for government.”

The SSA analysis argues that to make capitalism successful, the 
imbalance of power between owners and workers needs to be managed so 
that economic growth can continue. Though nowhere in the characteristics 
of capitalism in a typical Principles text is there a statement that 
capitalism depends on growth for its very survival, that in fact is the 
key to both the emergence of capitalism in the past and its successful 
spread to the entire world over the last three centuries. When 
structural problems arise that interfere with the successful functioning 
of a particular type of capitalism, it either must transform itself or 
run the risk of disappearing.

In this book, Kotz focuses on the United States. He identifies four 
periods of distinct SSA’s since the Civil War. From the 1870s to 
approximately 1900, we have an era that could mostly be characterized by 
laissez faire capitalism – with minimal government involvement in the 
economy and great freedom for businesses. What government involvement 
there was related to conquering the Indian tribes, defeating organized 
labor (the Pullman Strike of 1994), and providing at least lip service 
to the idea that competition was preferable to monopoly with the passage 
of the Sherman Anti-Trust Act. The most important step taken towards 
freedom for businesses was the Supreme Court decision in Santa Clara 
County v. Southern Pacific Railroad Company [118 U.S. 394 (1886)]. In 
that ruling, the Chief Justice explicitly stated that “the Court does 
not wish to hear arguments on the question whether the provision of the 
14th Amendment to the Constitution which forbids a State to deny to any 
person its jurisdiction the equal protection of the laws, applies to 
corporations. We are all of the opinion that it does.”

Kotz’s next SSA is one that begins during the so-called Progressive era 
between 1900 and the end of World War I. Between World War I and the 
Great Depression, the economy reverted to a form of the 19th century 
laissez faire economy but in this period it was dominated not by small 
firms operating in competitive industries but by giant corporations 
where most industries were organized along oligopolistic lines. In this 
situation, the dynamic of co-respective competition replaces the 
periodic gale of creative destruction so praised by Joseph Schumpeter in 
his 1913 analysis of the business cycle under competitive market 
conditions. That system dominated by oligopolies foundered when the 
economy failed to bounce back from the depression that followed the 
stock market crash of 1929. Instead of a strong recovery such as the 
ones that had occurred periodically in the 19th century and after the 
1921 depression, the US (and rest of the world) experienced a very 
sluggish recovery that left US unemployment at 18% ten years after the 
1929 crash.

The third SSA identified by Kotz was created by the New Deal and World 
War II experiences which left the US with a strong labor movement, a 
significant mistrust of bankers and industrialists, and a strong faith 
in the ability of government to “fix things.” It also left the US with a 
strong competitor, the Soviet Union and capitalism with a strong 
alternative, centrally-planned communism. Faced with fears of a return 
to the depression economics of the pre-war period, American political 
and business leaders accepted a version of social democracy (Kotz calls 
it “regulated capitalism”) with a strong role for government and labor 
unions and a shared prosperity which lasted from the end of World War II 
through the 1970s. This period is covered thoroughly in the Yergin and 
Stanislaus book and TV series and has been the subject of many books, 
most of them ignoring the radical perspective of Kotz and the developers 
of the SSA analysis.

Kotz very carefully describes the various institutional elements of this 
version of capitalism, (with a convenient summary on P. 51) and then 
shows the successes in the immediate postwar period followed by emerging 
problems (contradictions) within the system. It appears that the very 
successes of the system, the ability of the labor movement to translate 
rising productivity into higher real wages and the ability of government 
policies to keep recessions short and unemployment low, created pressure 
on profitability. By the end of the 1960s, the average rate of profit in 
the non-financial corporate business sector began to decline and it fell 
all the way through the 1982 recession. In this context, Kotz argues 
that business leaders shifted from the active support or grudging 
acceptance of the institutions of regulated capitalism that had 
characterized the previous decades. They opted for something new. The 
something new is neo-liberalism.

Kotz argues that neo-liberalism is not just a response to what has been 
referred to as globalization – nor is it merely a rise in the relative 
importance of the financial sector. Instead, he summarizes the elements 
of neo-liberalism (in a table on page 42) as including not only a 
removal of certain barriers to the free flow of capital and goods 
between nations, deregulation of basic industry and the financial 
sector, combined with cutbacks in the (already relative stingy) welfare 
state in the US. He also calls the reader’s attention to some elements 
that have been less remarked in journalistic coverage of the changes 
wrought by Reagan (completed by Clinton) in the US and Thatcher in 
Britain. For example, Kotz notes that corporate CEOs came to be hired 
from outside the corporation and large corporations began to treat 
sectors within the larger enterprise as separate profit centers subject 
to market principles rather than part of an overall structure subject to 
command and control planning. This can explain part of the dramatic 
divergence of CEO pay from the median pay within corporations and the 
extraordinary divergence of the incomes of the top 1%, .1% and .01% from 
the rest of the “very rich” that have been well documented by Emanual 
Saez and Thomas Piketty.

Turning to the capital-labor relationship, Kotz points to the well-known 
marginalization of collective bargaining, which involved a significant 
reduction in the percentage of the private sector work force in unions. 
He also notes the “casualization” of jobs – the rise of part time work 
which permits businesses to avoid paying benefits. In the public sector, 
in addition to the abandonment of aggregate demand management by the 
federal government – leaving “managing” of the macro-economy to the Fed 
– there was the privatization of more and more government functions, 
even, under Bush II, the contracting out of many of the aspects of the 
US occupation of Iraq after 2003. Kotz analyzes neoliberalism as a 
coherent structure with many layers not captured by Yergin and 
Stanislaw’s term “free market laissez faire capitalism.” He then amasses 
a great deal of evidence to demonstrate that on strictly economic terms 
(growth, private investment, average rates of unemployment, even 
productivity growth) neoliberalism was unable to replicate the 
macroeconomic reality of the previous SSA. For the economy as a whole 
and definitely for the majority of people, the new system failed to 
deliver the goods. However, that did not matter. The whole point of 
neoliberalism was to revive the profit rate and reverse the relative 
erosion of the position of the highest income people. Since 1979, the 
trend has been to increase inequality as the benefits of what economic 
growth there was ended up accruing to the richest 10% of the population 
with a disproportionate benefit accruing to the top 1% and even smaller 
groups. Thus, the people who were dissatisfied with how the economy was 
treating them under the previous SSA have been rewarded with a larger 
share of the economic pie since 1980. Though the system required bubble 
induced surges in investment and consumption (first during the dot.com 
boom, second during the housing bubble), it kept chugging along 
supporting increased consumption over the long run through increased 
borrowing. With memories of the depression fading, lenders, borrowers, 
regulators and politicians blithely ignored the warnings of a few 
economic Cassandras who identified the piling on of debt and the bubble 
based economy as a crisis just waiting to happen. In analyzing how 
neo-liberalism worked, Kotz makes an important contribution to our 
understanding of the roots of the economic crisis of 2008 and the 
failure of the economy to rebound. The economy failed to rebound from 
the Great Depression after the crash of 1929. This led to a series of 
reforms that together constituted the rise of a new SSA – which lasted 
with great initial success through the 1970s. Kotz argues that 
ultimately, the failure of the economy to rid itself of the stagnation 
that has made the recovery from the 2008-2009 recession (the NBER dating 
committee believes it began in June of 2009) a joke to the vast majority 
of Americans may also be a harbinger of the end of neo-liberalism. And 
make no mistake about it. The sluggish recovery is a fact. In June of 
2009, the official unemployment rate was at 9.5%. It took over two years 
for that rate to fall below 9% another year for it to fall below 8% and 
it didn’t fall below 7% till December of 2013 over four years into the 
“recovery.” But that isn’t the worst of the news. The employment to 
population ratio has not regained its 2007 level as of March 2015 and 
the ratio in June 2009 (59.4) was higher than the one from March 2015 
(59.3). Remember, this is after more than five years of “recovery.”

Kotz carefully develops the argument that the crisis that emerged in 
2008 and the subsequent sluggish recovery is not only the result of bad 
policies (as has been argued, for example by Paul Krugman in End This 
Depression Now) but the result of a structural crisis in neoliberalism. 
He further argues that this is not merely a financial crisis and 
develops persuasive evidence for this conclusion. If he is right, then 
when the current crisis is finally resolved, the American economy might 
very well be operating under a new SSA. The book closes with speculation 
as to the possible future structure. He believes the American economy is 
faced with three possibilities – One is that, despite the crisis in the 
neoliberal SSA, it might survive because the powerful forces that 
benefit from it have not been severely damaged. Unlike the period of the 
Great Depression when many banks failed and the economy experienced 
unemployment rates of 25% and the alternatives of fascism and communism 
in Europe frightened business and political leaders in the US to accept 
New Deal reforms, the policy responses to the crisis from the supposedly 
liberal Obama Administration have been to sustain all the elements of 
neoliberalism. In fact, in the austerity approaches of the Republican 
Congress and the anti-labor and anti-democratic new rules developed in 
many states (with the support of the Supreme Court) one could argue that 
the political and business leadership of the United States are “doubling 
down” on the neoliberal SSA no matter how much pain it causes ordinary 
Americans.

Two versions of a new form of regulated capitalism are also considered. 
One which Kotz calls “business regulated capitalism” is summarized with 
a table on P. 203. Though some of the elements of the post-World War II 
SSA would be re-instituted, such as financial regulation, the 
marginalization of organized labor would continue and there would be 
expansions of public-private partnerships along with a re-invigoration 
of the role of government in the promotion of innovation and expanded 
spending on military and civilian infrastructure. “The dominant ideas 
that could hold together such a social structure of accumulation are 
those of nationalism and individual responsibility. Such ideas justify a 
stronger role for the state.”(203). It is not surprising that 
maintenance of military superiority is a strong component of this SSA 
(something shared with the post-World War II SSA as well). The other 
alternative Kotz labels “social democratic capitalism” which has very 
small differences from the SSA that prevailed after World War II 
(compare pages 51 and 207). For a variety of reasons, Kotz thinks such a 
change is most unlikely.

Finally, Kotz suggests that given the fact that according to polling 
data, more and more young people in the United States have a favorable 
opinion of “socialism” (not defined in the polling), it is conceivable 
that some democratic form of socialism could emerge as an alternative to 
a capitalist SSA. He develops the possible elements of such a radical 
transformation in the US economy and summarizes it in a table on page 213.

In this chapter, Kotz is not attempting to make firm predictions. That 
is why he does not assert that the crisis of 2008 and since will 
necessarily mean the end of the neoliberal SSA though he argues that 
such an end would benefit the majority of the people. Instead, he seeks 
to engage the reader in an effort to understand the choices we as a 
society face. Human beings make their own history. The SSA after World 
War II was created as a result of struggles and circumstances. The same 
can be said about the emergence of neoliberalism. The present presents a 
context out of which the future will emerge but we citizens of the US 
have some power to affect the nature of the changes. Kotz’s book 
provides information and analysis to help us understand where we have 
been as well as encouragement to build our own futures.




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