BEYOND THE WELFARE STATE: VI: WHY THE WELFARE STATE BREAKS DOWN
Harrington, Michael
America is at a turning point. The radical nature of the period is recognized even by conservatives. When he was sworn in as secretary of the Treasury last summer, G. William Miller said that...
...In the decade since, there have been three recessions, one of them as I write and perhaps the worst since the Great Depression and exacerbated by chronic inflation unknown in America in peacetime...
...Political conflict becomes more than the struggle between competing occupational and interest groups...
...But if these themes are used carefully, I think they are quite important...
...There were also those in the Marxist movement who recognized this problem...
...I will leave unicausal theories to the legion of academic and government economists who explain that our problems derive from such "one-time shocks" as the OPEC embargo of 1973-74 and the subsequent quadrupling of oil prices...
...This was one reason why joblessness at the peak of the 1978 "recovery" was higher than at the trough of the 1970-71 recession...
...In the rather simplistic, tax-cut Keynesianism of that decade, economic growth was to be stimulated by individual, not social, consumption...
...As is so often the case in these matters, the rationale for this give-away was false...
...During the Great Depression, as Gardiner Means showed at the time, all prices fell, but the prices in concentrated industries declined much less than those in the competitive sector...
...These differences were sometimes reinforced by law—racial and sexual discrimination is the obvious example—but they were not the creations of law...
...The united front of trade unionists and employers against some environmental regulations is an obvious case in point...
...The "Playboy philosophy" might serve as a paradigm...
...Arthur Burns explained this antediluvian truth in 1978 to the American Enterprise Institute: Most people [Burns said] now realize that our economy is not recession-proof, and that our government's ability to deal with recessions—to say nothing of its ability to anticipate or forestall them—is quite limited...
...There was, however, a considerable shift in the composition of those expenditures...
...The state of nature, Hobbes said, was characterized by the war of each against all...
...Ironically, however, as life became more social, more interdependent, not least of all in the welfare state, it became more atomized...
...It was precisely in the '60s that the culmination of this trend, and the religious and cultural and moral shifts, became most striking...
...What if it becomes the custom for auto workers and environmentalists and consumer advocates to sit on the board of directors of the Chrysler Corporation...
...More broadly, as a recent study by the Machinists (IAM) has documented, military spending creates fewer jobs than social spending...
...Morris Janowitz makes some very perceptive comments on this phenomenon in his Social Control of the Welfare State (University of Chicago Press, 1976...
...Socialism, one should always remember, is not a secular salvation, a new religion on Saint-Simonian, or any other, lines...
...Here again, it would be wrong to counterpose the political and the economic, the conjunctural and the structural...
...The task of assessing one's self-interest becomes continuous and more complex, and persuing one's personal or group goals almost defies programmatic articulation...
...This is why the dole for the corporate rich is so much more generous than the handouts for the poor...
...Clearly, the welfare state cannot be praised—or blamed—for a religious crisis that began at least as far back as the scientific revolution of the 17th century...
...From 1969 to the present moment, as we have seen, the economy was completely unable to deliver on the promises of the '60s...
...It is also a postreligious product...
...Nixon's cynicism and dishonesty were not the work of History or of the System...
...Yet, its is an excellent way of increasing the maldistribution of wealth...
...Thinkers as distant as Herbert Hoover—or Karl Marx—could agree with Burns...
...a market-oriented system may require for its success so great a disproportion of business influence, both through the privileged position of business and through business disproportion in electoral and interest-group activity, that even modest challenges to it are disruptive to economic stability and growth...
...These unintended consequences, it should be candidly admitted, were anticipated neither by the left nor the center and right...
...At the same time costs were increased by stagflation, since the retirees' benefits are indexed...
...import quotas, tariffs, and "orderly marketing agreements" that limit the import of cheaper and frequently better foreign automobiles, television sets and textiles...
...But this does not take us far enough...
...Business learned very little from this experience...
...Five years of corporate propaganda about the capital shortage, low profit rates, and excessive government interference with the private sector came to a head in 1978 in the form of the Kemp-Roth and Steiger bills...
...I would extend this insight beyond the sphere of energy...
...II 't is well known that federal spending is a major source of the problem of stagflation...
...Something like that seems to be implied in President Carter's analysis of the "crisis of confidence...
...This complexity is itself part of the crisis of this system since it makes any resolution of its problems, from the right or the left, that much harder to achieve...
...And it also pays people for producing goods not going on the market...
...The independent truckers involved were selfemployed workers, precarious entrepreneurs...
...In the Theory of Moral Sentiments, he had insisted that a certain altruism, a pleasure in other people's happiness, was necessary to society (there is a "young Smith, old Smith" debate, much like the young Marx, old Marx dispute, which bears upon this text, but it need only be noted here...
...His new church was going to have a Council of Newton under the presidency of the mathematician who received the highest vote...
...I do not want to suggest for a minute that there is some simple way to cut the Gordian bureaucratic knot of the welfare state...
...The impoverished black or Hispanic family who wanted their children to go to the City University and the accountant who fought, through his or her union, to get a salary approaching a modest but adequate budget and the people in Queens who wanted snow removal service and the banks that speculated in municipal papers at a profit— they all hid their knowledge of the crisis and then not only refused to help when judgment day came but also demanded that free tuition be abolished at City University, that municipal employees take a real wage cut, and claimed that people who talked about services were all greedy...
...They are always part of a process in which accidents unrelated to the deep workings of the system play a role...
...The Harvard Business School report 38 Energy Future provides a marvelous, and empirically documented, refutation of this rationalization...
...Steiger provided for massive capital gains reductions, Kemp-Roth for a huge, acrosstheboard tax cut in which the lion's share of the benefits would go to the very rich...
...Even more problematical, when people begin to seek after "positional" 45 goods not washing machines and cars, which can be turned out in almost any volume, but exclusive neighborhoods, "fine" schools, quiet, unspoiled vacation spots— there is no way, even with constant growth, to satisfy the demand...
...But what if the social principles were located within, rather than imposed upon, the economy...
...This is one of the reasons why Arthur Burns's theory that recessions 40 "wring out" inflation does not work...
...A person's linkage to the mode of production under these conditions is based both on his occupation and on the institutions of social welfare...
...It also shows how corporations that still seek recessions no longer respond to them by lowering prices, i.e., it allows us to understand at least part of the genesis of stagflation...
...We are, it is said, bumping into inherent and natural limits...
...The Council of Economic Advisers pointed out in its 1979 Report that "lowering capital gains taxes is not an efficient means of promoting investment...
...But then, are our difficulties the result of the welfare state, i.e., of the very reforms that were the response to the earlier crisis half a century ago...
...If one measures federal spending as a percentage of "full-employment GNP" and computes it in constant dollars, then the government took 20.7 percent of output in 1955 and 19.1 percent in 1976...
...It is a major cause of the demise of the Phillips Curve and, much more important, of all the public policies based on it...
...Obviously, two very different lessons could be drawn from this analysis: therefore one must retreat back to Herbert Hoover...
...In Britain, Lindblom writes, . . . some observers hold union demands . . . to be the root cause of the "English sickness"—the decline of British productivity and economic stagnation...
...At this point, there was concern that the system would literally run out of money in the not-too-distant future...
...but this can only be done through democratic, anticorporate planning...
...In reality, only the greed of the people at the top is both real and satisfied—while that of everyone else in this example is imposed upon them because they do not have enough to make ends meet and it stays, in any case, frustrated...
...Politicians, some of whom had been cheerleaders for the collectivist hedonism of the '60s, began to talk of austerity...
...Meanwhile transfer payments to individuals went from 18.9 percent to 45.7 percent and social investments (in education, health, etc...
...They want corporations and the wealthy to be absolved of the responsibilities ordinary citizens must meet, and they justify this blatant demand for higher profits through federal subsidy on the grounds that it will make the economy more productive, which has not been the case at all...
...They pressured a Labour government to that end and helped to bring it down...
...By increasing the ability of the people to consume through transfer payments and other programs, a gentle inflation is supposed to stimulate full employment...
...The welfare state, we may now add, sometimes seems to be the war of each group against every other group...
...But each of them also involved the resurgence of old-fashioned capitalist tendencies...
...This is true enough—but it is a dangerous, potentially reactionary truth and has to be handled most carefully...
...It was elaborated in a series of articles in Playboy magazine...
...Two comments are relevant to this thesis...
...Where huge investments are needed, more often than not—one thinks of steel and energy—to pay for the antisocial and uneconomic results of past corporate policies, there can indeed be a shortage of capital, particularly when capitalists are speculating in land, jewels, and rare violins rather than putting their money into an uncertain economy...
...The only form in which faith can now survive among masses of people is as a will to believe in belief...
...It suggests, among other things, the relevance of a point made by Gunnar Myrdal some years ago...
...Now there were fewer and fewer neighbors...
...Now almost all prices remained high, even in times of economic downturn...
...All three of these recessions were, to some measure, deliberately provoked, as we shall see shortly...
...And the total value of the deduction is three-and-ahalf times more than the outlays for AFDC...
...The problem is, the opposite is much truer...
...In a study designed to show that we had overestimated the number of poor people a few years back—i.e., a study that underplayed poverty whenever possible—the Congressional Budget Office reported that the normal workings of the economy, uncorrected by those federal programs, left one quarter of the people poor...
...The active support of the UAW for a Chrysler bail-out is, however, a progressive departure from this pattern...
...but to do it, one must resolve the crisis of the welfare state and that is not a simple matter...
...Clearly—to everyone except the editorialists at the Wall Street Journal—a "free market" solution to the problem would have been economically chaotic as well as socially unjust...
...In short, it is interference with the benign workings of capitalism, not capitalism itself, that is the substance of the "fact...
...Both felt that political wisdom required much more private affluence than public investment...
...To return to the point with which this section began: there are unintended consequences of the welfare state that impinge on class structure and consciousness, making the work of building progressive coalitions both more imperative and more difficult than ever before...
...The old morality had become attenuated, the Playboy philosophy had become a national consensus—and now this philosphy would no longer work because of stagflation...
...Before getting to this point, however, a few more details should be filled in...
...So religion—"the logic of the world in popular form"—is less and less of a force in the society...
...This, it turned out, was an exaggerated fear...
...In the 1930s, studies began to pinpoint one of the consequences of this development—administered prices...
...That would be the diagnosis of a vulgar radicalism and it is, as we shall see, quite wrong...
...Much of the problem arises from the fact that there is a capitalist economy that "normally" leaves 25 percent of the people poor, and these then have to be propped up by a welfare-state apparatus that is nominally noncapitalist but actually operates on corporate priorities...
...All of them looked out for their particular interest...
...First, inflation proceeded at a faster rate in the three quarters before the embargo in 1973 than in the quarter that experienced the embargo...
...It is a prediction that becomes more true with each passing year...
...The complex social base of political participation under the welfare state conditions new patterns of political involvement—patterns characterized by high degrees of volatility, which do not really lead to stable and unified political preferences and alliances and which help account for the lack of clear-cut political majorities and the emergence of weak parliamentary regimes...
...In the process, I will once again borrow from Fred Hirsch...
...Children, in David Riesman's marvelous phrase, became "consumer trainees...
...In a complex fashion, the economic and social changes brought about by the welfare state have reinforced the long-run crisis of religious faith, and the absence of religious faith has made the crisis of the welfare state all the more difficult...
...in the first three quarters of 1978, it was a slightly higher percentage...
...But Adam Smith, who theorized many of these concepts more profoundly than anyone else, recognized that people do not live by production alone...
...Welfare," taken in its narrow sense, is a very subordinate function of the welfare state...
...Each person and each member of his household must confront an elaborate set of contradictory or competing and often ambiguous issues in the pursuit of his selfinterest— immediate or long-term...
...2 The revival of fundamentalist religion is a confirmation of this point...
...There are, then, both old and new "objective" causes of the current crisis that are capitalist in character: business cycles, the tendency toward monopoly, the creation of a stagflationary welfare system for those whom we still call, out of habit, entrepreneurs...
...Arthur Burns, that supposed paragon of monetary probity, thus has the distinction of shaping an easy-money policy to help reelect his friend Richard Nixon, and of then organizing the rescue operation he himself had made necessary...
...In The Streets Were Paved With Gold, Auletta develops this concept in a journalistic analysis of the New York crisis (which has some value but only if its basic premises are carefully ignored...
...there is centralized distribution that dominates the fragmented system of production in apparel...
...However, the democratization of equity means that the return and stability of property rights, individual welfare plans, and the benefits of public social welfare are also crucial components for the citizenry at large...
...So many of the traditional sources of individual and community resilience have been sapped...
...Capitalism, on the contrary, claimed rational assent, its holy grail was a contract of mutual benefit, its priests were lawyers...
...In 1977, it was 45 percent of corporate funds...
...More recently, the cults of Hitler and Stalin 48 were explained as the herd response of rootless masses to the loneliness of their alienation and anomie...
...Simultaneous inflation and chronic unemployment subvert all the theories, and theory-based policies, of the past generation...
...Consider an example of this phenomenon from the history of the recent British Labour government...
...It has evolved new modes of social control which deal with the deviant as a patient and substitute medical rehabilitation for punishment...
...In 1972 and 1973, even though profits soared, the ratios had changed dramatically...
...This line of thought, as Dennis Wrong showed in these pages (in Summer 1979), can be taken up by reactionaries and even fascists dedicated to the traditional values of Kinder, Kitche, Kirche...
...Such contradictions never assert themselves in "pure" form...
...Rousseau's discussion of civil religion is well-known...
...Those values, however, are not replaced, as the classic Marxists hoped, by a new, this-worldly solidarity without need of absolutes...
...This analysis throws some light on a broader trend...
...If that can be done—and it is a gigantic task we set ourselves—then souls will not be saved, but there will be an environment in which perhaps men and women will be able to find their best selves, and culture can recover its depths...
...After a corporate-dominated system destroys the economic basis of a minimally decent life in the South Bronx, the victims are given a few dollars in welfare and food stamps and excoriated for not achieving a minimally decent life on their own...
...Saint-Simon, that extraordinarily rich thinker—the last gentleman and first socialist of France, the guiding spirit of that country's most advanced workers and bankers, the inspiration of Stalinists, technocrats, and anarchists—is perhaps a less familiar case...
...There are a number of other factors involved, some of them having to do with attitudes, psyches, even souls, and others more "objective" in character...
...But what happens if—in their flight to the inner sanctuary of transcendental values—that hallowed refuge turns out to be empty...
...In his 1980 Budget, released in early 1979, the President had admitted that "the present social security benefit structure cannot be financed over the long run under currently legislated tax rates...
...This is a familiar story, even though the established wisdom does not tell it as I have...
...It is in this context that the private sector goes to Washington for its "risk" capital...
...Under these circumstances, chronically poor economic performance in a time of structural changes that are systemically irrational, i.e., unplanned on principle, can pose some serious cash-flow problems for corporations...
...what is there for people to believe in...
...The corporations were thus not one "interest group" among many but the dominant class whose very special greed is the 46 mainspring of the entire system...
...Let us begin with the latter, less speculative category...
...Not so familiar, but just as true, is the fact that corporations have become much more addicted to debt than the government...
...Those anomalies can be resolved—there are sectoral causes of inflation in a non-monopoly sector such as health care...
...so is Robespierre's Cult of Reason...
...So long as there was constant economic growth, the demands of the people for more reproducible goods could be met without any redistribution of wealth or change in the way economic divisions were made...
...The current crisis of the welfare state cannot be understood apart from that fact but then, it cannot be explained by it alone...
...But the symbolism was not unimportant...
...The point is that transfer payments are not charity but a structural necessity of the system...
...In thus arguing that classic structural problems of the capitalist economy persist almost half a century after the creation of the American welfare state, I am not saying that these factors alone were the cause of the nation's troubles during the last decade...
...In his book on postindustrial society, Daniel Bell made a similar point: that "situs" is becoming as important as status, i.e., the organization where one works is as significant as what one does within the organization...
...The Crisis of Democracy develops a number of the ideas just discussed...
...Christopher Lasch raises one aspect of this problem in The Culture of Narcissism...
...q employment economy...
...At the same time, this precondition periodically turns into a curse...
...What concerns me here is that they disappeared within a culture and society with very little that was substantial to offer in their place...
...It is difficult to reconcile these timidities or defeats with the hypothesis that unions have either disproportionately large political influence or the more modest hypothesis that they have influence equal to that of businessmen...
...In 1946, public debt was equal to 129.4 percent of GNP, private debt, 73.6 percent...
...All these policies accomplished their aim: unemployment dropped, prices stabilized, and the improved economy helped to reelect Richard Nixon...
...or, therefore one must proceed far beyond Franklin Roosevelt...
...In that extremely important instance the federal government does not spend the money itself...
...finds little use for dogmas or racial and ethnic purity but at the same time forfeits the security of group loyalties and regards everyone as a rival for the favors conferred by a paternalistic state...
...The welfare state is the first agnostic society in Western history...
...Had the Federal Reserve not played an active role, there might have been a number of dramatic bank failures...
...People were often honest because they believed in honesty and not just because it was the best "policy...
...Second, if it is undeniable that the quadrupling of oil prices exacerbated this "normal" downturn, it did so only because a wasteful energy system, built with federal subsidies according to corporate priorities, was there to make the very worst of a bad situation...
...Obviously, there is substantial truth in • the democratic left's indictment of partial, often co-opted, reforms that leave the basic system intact...
...That is done in other countries, like Sweden, and the monies collected are even invested in socially useful projects, like cooperative housing...
...Arthur Burns says so, and Jerry Brown and Jimmy Carter do, too...
...Thus it tends to be more stagflationist than social outlays, contributing less to employment and more to inflation...
...But the issue can be examined from another perspective...
...It thus makes "situs" consciousness socially conscious...
...In fact, recession often performs an unavoidable function by forcing managers to improve efficiency, by enabling interest rates to come down, and by wringing some of the inflation out of the economic system...
...It also is profoundly affected by another classic capitalist mechanism: the concentration of corporate power...
...During the euphoric period of "the Great Society" in the '60s it was said that the fundamental rhythm of boom and bust had been eliminated from the economy...
...What Auletta and the Trilateralists offer as a theory is vulgar pluralism...
...This psychological, social, and even religious reality is, I think, one of the reasons for the militant unhappiness of the society...
...Still, the Social Security tax—the most regressive federal levy—was increased...
...This is not to deny that resources in the world are finite and that there are, in this ultimate sense, "limits...
...If God is no longer in His/Her heaven and the government is no longer in control of the economy...
...It is democracy—too much participation, egalitarianism, and responsiveness to group claims—which has brought us to this pass...
...In this country, however, the current generation in the labor force provides the financing for the retirees through payroll taxes...
...The inherently limited consumption of the majority becomes a lack of effective demand for the output of giant enterprises...
...There are those on the right who think so: we went much too far along the road of government intervention, spending profligately, corrupting the people's moral fiber and productivity...
...Indeed, a generalization made by Richard Titmus applies here: more often than not the welfare state is an inadequate response to the diswelfare state...
...Citizens [the authors write] make incompatible claims...
...The federal government facilitated a vast expansion of credit...
...Having overthrown feudalism and slavery and then outgrown its own personal and familial forms, capitalism has evolved a new political ideology, welfare liberalism, which absolves individuals of more responsibility and treats them as victims of social circumstances...
...If they do not, they become a forgotten moment in the trend 41 toward monopoly and concentration...
...Let us begin with the "old" and "objective" constituents of the crisis of American welfarism: how traditional capitalist contradictions now manifest themselves, albeit in new and unprecedented ways...
...The sum at issue was, as such matters go, derisory: $600 million out of a projected expenditure of $179.1 billion...
...Indeed, it is only one department of a Social Security apparatus that spends much more money on the non-poor than on the poor...
...The crisis of that Social Security system first surfaced in the 1973-74 recession...
...Moreover, massive structures, operating according to corporate priorities were, to stay with the New York case, financing the exodus of jobs and tax monies as well as the immigration of poor, and often desperate, people...
...To compare federal priorities in different years (and therefore different economic environments), one reckons the direction and impact of Washington's actions within an assumed fullrestored and the crisis would come to an end...
...Lindblom's conclusion...
...The decisive fact is that the American economy has become much more concentrated in the years since World War II...
...39 In 1973-74, there was a drop in revenues in the Social Security system as unemployment rose to the highest levels since the Depression...
...The government in Washington, then, has to bring at least some of those people into the market or else the boom-and-bust cycle would be even more severe than it is now...
...it is a necessity of the system itself...
...There is confusion among the politicians, because the traditional party loyalties are decomposing and no new realignment is taking their place...
...Once it is described, it points the way to a larger proposition: that governmental subordination to boardroom priorities is a major source of the current crisis...
...Then came the '70s...
...A similar, but somewhat different, phenomenon was observable in the conflict between farmers and independent truckers during the diesel oil shortage of 1979...
...This does not mean, however, that a new spirituality can be willed into existence...
...But, as befits this time of transition and uncertainty, they feel threatened by the very measures that have done so much for them...
...So the thesis that federal social spending is the cause of our woes doesn't hold up any better than the notion that federal spending, pure and simple, is at the root of our difficulties...
...On the one hand it championed an absolutist civil libertarianism that was compelling, fighting against the censors and the archaic laws with 49 regard to private sexuality...
...licensing agreements and route restrictions that drastically curtail competition in the trucking industry, laying the ground for repeated increases in prices and wages while trucks suffer from idle capacity and small trucking firms go out of business...
...if both the this-world and the other-world have become problematic and for related reasons...
...It is well known but wrong...
...Under Prime Minister Callaghan's "incomes policy," inflation was successfully reduced in dramatic fashion...
...One can retire to such a godly vendee for a while—but eventually the Revolution triumphs...
...In this example, conservatives ignore the truly inflationary tendencies of subsidies to the private sector while talking sternly about the relatively minor inflationary impact of social spending...
...The problem of the welfare dependence of some of the poor has been widely recognized...
...The problem was that the Phillips Curve, which said that prices and joblessness vary inversely with one another, broke down...
...Social Security is the most obvious case in point...
...The maldistribution of wealth is, of course, a precondition for capitalism...
...Second, there are new social problems of quantity and quality that affect the class structure...
...Something similar happened when Lyndon Johnson refused to ask for a tax increase in order to finance an unpopular war...
...To return to the specific point at hand, the chronic recessions of the past decade result from the perverse workings of the system and are not accidents invented by foreigners...
...Most people also understand that however regrettable recessions may be, it is a mistake to view them as simply being pathological phenomena...
...there is the supposedly controlling but often controlled, welfare state with its bureaucracies...
...Or, more precisely, it is right only in terms none of the proponents of this thesis ever mention...
...In Politics and Markets, Charles E. Lindblom (Basic Books, 1977) discusses this point brilliantly...
...Suddenly it was obvious that they were not...
...Its success depends, not simply on developing the "correct" anticorporate program to transform the structures that are at the core of stagflation, but also on the ability to mobilize a democratic movement of men and women motivated by a practical solidarity...
...Since an extraordinary portion of that credit was short term, there was a near financial panic when the recession hit...
...So economic growth was to be achieved by a civic hedonism...
...At that point, the rat race becomes not simply morally objectionable but self-defeating...
...The system is in a secular as well 42 as a cyclical slump and both trends are inherent, not accidental...
...and so on...
...Nixon got both, politically intolerable levels of unemployment—which, in those ancient times, were reached at a point that is now called full employment by a good many experts—and what then seemed to be excessively steep price increases (which were, however, lower than anything seen under the Carter administration...
...and for a decade these have not even functioned...
...He writes that . . . the influence of the welfare state on the social structure modifies and transcends the format of conventional interest-group politics...
...What if the death of God becomes particularly apparent in a time of the failure of Man...
...Yet, as Steve Kelman documented in the New Republic last year, these new, socially conscious regulations do not cost nearly as much as the procorporate restrictions imposed by agencies under the control of those 43 whom they are supposed to monitor...
...But as time went on, under that policy some of the most nasty disputes had to do with pay differentials within the working class rather than between the working class and the corporate (or hereditary) rich...
...And yet, moving in that direction is, for the reasons suggested by Lindblom among many, basic to the solution...
...Government in a capitalist welfare state, then, tends to promote the common good of the majority by first assuring the special interests of those at the very top...
...Therefore, he said, the Administration will put forth proposals to "eliminate unnecessary benefits...
...The past ten years, however, have been anything but a period of constant economic growth, which is why this pillar of welfare-state consensus is being eroded...
...It is the trivialization of the liberation, not the liberation, that is the focus here...
...But since then, precisely in the stagflationist decade of 196979, buying power has been lagging behind prices, not bidding them up...
...So the welfare state remains powerfully constrained by the inherent, and quite traditional, tendency of the capitalist economy to follow a rhythm of boom and bust...
...So the business cycle, first exhaustively analyzed by Karl Marx, continues on its destructive way as we near the 100th anniversary of Marx's death...
...When he was sworn in as secretary of the Treasury last summer, G. William Miller said that the nation had "inherited the most distressing economic environment in 50 years...
...Does the moment simply mark the reassertion of traditional capitalist contradictions...
...People had been told by the new Coues that every day things were getting better in every way...
...from 1.1 percent to 14.1 percent...
...The political management of the economy, which Nixon manipulated for his own purposes, had been created in response to the deep-lying trends in capitalism and cannot be understood without reference to them...
...It is, as Robert Lekachman has shown, the very centerpiece of the system...
...In two extremely important areas, then, the traditional capitalist demons are at work: in the business cycle and in the trend toward monopoly...
...In others, it is necessary to speculate about a period that is postbourgeois yet not socialist, a time of inbetween, the time of the "late welfare state...
...But there is indeed a new element in this old story: if the mysterious rhythms of boom and bust have not been brought under control, as the New Economics of the '60s thought, they have been politicized...
...In essence they agree with my analysis: the system can only work on the basis of huge infusions of cash provided directly or indirectly by the government...
...Senator Kefauver held hearings that showed how giant enterprises, like General Motors, targeted rates of profit and rigged the market to yield the returns that were fixed in advance...
...Many years ago, in a book that disbarred him from teaching at City College in New York, Bertrand Russell, a theorist and practioner of the new morality, said he feared that the liberation he urged just might trivialize sexuality...
...it is an indispensable characteristic of the system itself...
...In some areas we can be fairly specific about the changes that took us by surprise...
...Note that the largest single increase in spending occurred in payments to individuals (and Social Security was, of course, the mainspring of the trend, not "welfare...
...That this central core of the American industrial system is so organized hardly seems the contrivance of Saudi princes and Libyan colonels...
...The case of affirmative action, moreover, bears very much on the reactionary use that can be made of the theme of the new social complexity created by the welfare state...
...The narcissistic personality that Lasch evokes is indeed a social product...
...On the other hand, it put that freedom to work in the service of a glossy, thing-ridden, sexist, and bourgeois hedonism...
...but the context in which those vices operated, their ability to affect an entire economy, were the result of structures developed to counter basic capitalist drives...
...A report to the Trilateral Commission in 1975, written by Michael Crozier, Samuel Huntington, and Joki Watanuki and entitled The Crisis of Democracy, and Ken Auletta's book The Streets Were Paved With Gold (Random House, 1978) are cases in point...
...In the recent period, the stagflationist decade of 1969-79, the phenomenon seemed to become so pervasive that a theory of monopoly price-setting seemed to be dubious...
...consumers do...
...It is also experiencing the crisis of a civilization or rather the most recent manifestation of that crisis...
...the substitutes were shallow at best...
...The United States, then, is not simply going through a crisis that is systemic, i.e., derives in considerable measure from its capitalist structures...
...There has been a fierce controversy over whether the rate of profit is falling...
...The 1970 recession was deliberately provoked by Richard Nixon in order to purchase a little price stability with a little unemployment...
...In America, one union president noted a similar trend...
...There is the uncontrolled, profit-maximizing private sector with its bureaucracies...
...Note, then, that this is a period in which everyone has reasons for being unhappy, a reality President Carter skimmed over lightly in his talk about a "crisis of confidence...
...But, and this is the terrible catch, those who are a rung or two above them on that ladder, unionized workers for instance, then perceive those welfare recipients as their enemy...
...Trade unionists were concerned, not with keeping up with the Lords and Ladies, but with keeping up with other trade unionists...
...Pornography appeared in candy stores, marijuana became ubiquitous, the academic doctrine of in loco parentis was destroyed in a few brief years, and so on...
...More broadly, mass society dissolved communities, which had been the social substratum of the religious survivals...
...In the almost half- century since Roosevelt improvised this tactic, it only really worked during two brief periods--the first that of the massive military spending in World War II, which came to about 50 percent of GNP, the second the Kennedy-Johnson years, which is another story...
...Moreover, unlike previous dominant classes (whose appetite for wealth was limited by their ability to consume) capitalists must get larger and larger profits over time...
...Feudalism, and indeed every form of domination in our history, had been sanctified by God—and supported by the crowd...
...Still, I want to at least circle around this theme, not to exhaust it or even outline it, but rather to evoke it as a significant element in the present situation...
...That is not the result of the malevolence of the bureaucracy...
...There is a related, though quite different, point developed by Fred Hirsch in Social Limits to Growth (Harvard University Press, 1976...
...There is no hope of even beginning to confront that second challenge if the first is not met...
...But then, in the summer of 1979, as the economy was entering its third recession in a decade, a Joint Economic Committee report (prepared under the guidance of a sophisticated conservative, Senator Bentsen) came up with a gloomy projection of a stagflationist future in which Social Security would once again be in deep trouble...
...The welfare state, this argument continues, cannot distribute nonexistent wealth or ignore the fact that a period of growth based upon cheap and abundant energy has come to an end...
...It would, of course, be foolish to contrast the present situation to an earlier time when seamless, homogeneous social classes without divisions confronted one another...
...And yet, when one looks at the reality in that country,] . . . for all their demands, union members have not won any great alteration in distribution of income or wealth, or in participation in management, or in recent decades any substantial equalization of educational opportunity for their children...
...Corporate profits are too low, someone like ex-Treasury Secretary William Simon would say, because business has been crowded out of credit markets by federal borrowing for social programs, because there is too much regulation, and so on...
...What if there were a growing public energy sector developing new technology rather than a government subsidizing and monitoring the corporations as they try to resolve a crisis they did so much to create...
...Because they press for more action to meet the problems they have to face, they require more social control...
...It is to say that the limits we have thus far encountered are primarily of human—and, more specifically, of capitalist (or Stalinist)— construction rather than facts of nature...
...The focus of the dispute was government policy, not private capital, and both sides were made up of people who work...
...If, the President argues, we would only say something good about America every day, then confidence would be NOTES I One measures in terms of a hypothetical "fullemployment GNP" (or, as it is now put in this chastened era of chronic joblessness, a "high-employment GNP") in order to determine the trends produced by policy decisions as distinguished from those imposed upon Washington by the economy...
...Emphasis added.] The last comment is, in scholarly language, the substance of a criticism often directed at those of us who favor affirmative action...
...Left-wing values were summoned to defend a particularly shallow and superficial version of the status quo...
...The latter policy, which was advocated at the time by the labor movement, the minorities, and economists like Galbraith and Keyserling, seemed to be much too radical to Kennedy and Johnson...
...The most obvious factor here is the business cycle—which is now the political business cycle...
...Let me generalize...
...In capitalist society, business wants government to provide it with "risk" capital, and that becomes a new source of stagflation...
...For example, in 1977 the Congressional Budget Office said that a major reason for the "disappointing" recovery from the 1974 recession was "the stagnation of real income in recent years...
...trigger prices to "protect" our steel industry from foreign competition as profits of our steel industry soar...
...Part of the confusion arises because the existence or nonexistence of that "fact" depends upon how it is defined and explained...
...The standard establishment explanation of this trend is neo-Marxist: that a falling rate of profit deprives business of the chief internal source of monies for new investment, jobs, and productivity...
...The farmers were a more socially variegated group that contained a good many individuals who could not be dismissed as agribusinessmen...
...The resultant conflicts among, and between, the poor, the workers, and the middle class have in fact made the corporate rich more secure...
...A reduction by eliminating the wastefulness imposed by corporate priorities could improve the quality of life in this country...
...none was concerned with the common good...
...That $5.5 billion increment in welfare payments for the rich is roughly equal to 80 percent of the $6.7 billion in the main federal welfare program, Aid for Families of Dependent Children...
...Indeed, that trend is a key to the understanding of our newest economic puzzle, the simultaneous existence of both inflation and recession...
...1 Indeed, the fluctuations during those 22 years are relatively minor...
...The 100 largest corporations, hearings under Ted Kennedy have shown, now own the same percentage of total assets as the 200 largest corporations did 30 years ago...
...There is an analogous pattern in the attack on government regulation...
...Right after World War II, in the recessions of the '50s, that same phenomenon became even more marked...
...The theory that capitalist competition leads inevitably to monopoly was, of course, at the very center of Marx's analysis in Das Kapital...
...The rightist scapegoating of the welfare state is wrong, as Robert Lekachman has documented in the Fall 1979 Dissent...
...and federal, state and local restrictions in countless occupations and industries that reduce competition and raise prices...
...In Robert Merton's famous example, the welfare bureaucracy replaced the political club...
...Arthur Burns, the Cotton Mather of the Federal Reserve, stoked up the money supply, fiscal policy became liberal, price controls were imposed, the President took credit for a Social Security increase imposed upon him by a Democratic Congress, and so on...
...This was the background of Nixon's conversion to "Keynesianism," i.e., to his own reelection, in 1971...
...Given these patterns, one can only account for stagflation in terms of federal spending by arguing that social expenditures are more inflationary than military expenditures...
...for blacks or for Hispanics...
...There have been endless and angry protests from the executive suite in recent years against legal limits placed upon the corporation's right to despoil the environment or to threaten the lives and limbs of working people...
...In 1972 borrowed monies accounted for about 50 percent of the corporate total, in 1973 for around 60 percent...
...This is inflationary only if it sends an excess of dollars into a market with insufficient goods (which is "demand-pull" inflation on the textbook model...
...At the same time they resist any kind of social control that is associated with the hierarchical values they have learned to discard and reject...
...So the notion that accelerating outlay in Washington created stagflation does not survive the most casual investigation...
...Then, when panic threatened in 1974 and '75, it stepped in as a lender of last resort to banks— but not as an employer of last resort for workers...
...It holds that "if the United States were to make a serious commitment to conservation, it might well consume 30 to 40 percent less energy than it now does, and still enjoy the same or an even higher standard of living" (emphasis added...
...On a less profound level, Lunacharsky and Gorki became "God builders" in the years of reaction after the failure of the 1905 revolution and advocated a new and atheist religion...
...But now a Democratic president, in theory at least the heir of Franklin Roosevelt, was moving along the same path...
...Moreover, this last point relates to a neoconservative theme often used by Jerry Brown and other, more conventional rightists...
...Since a social class of private citizens has the function of making the key investment decisions on behalf of the society, that class must be much wealthier than all other classes...
...The nation, Lyndon Johnson said, is no longer at the mercy of a "relentless tide of ups and downs," and the Council of Economic Advisers immediately added that prosperity had become the "normal state" of the American economy...
...Leaving aside the evasiveness of Miller's verb—it is a way to ignore the failure of more than two years of the Carter administration—his central point is quite true...
...The union is calling for roughly one-third control of the corporation by public and employee representatives in return for the government aid...
...There is, however, a way out that is easier to define than organize but no less necessary for that fact: to go beyond the welfare state...
...For instance, the enormous deficit in 1975 was the creature of stagflation more than of Gerry Ford's leadership...
...During good times in the '60s, corporations got about two thirds of their funds from internal sources (profits and capital consumption allowances) and only about a third from credit markets or other external sources...
...There are also those on the left who see the welfare state as the problem: intervening timidly and inadequately, the liberals left the structural irrationalities of capitalism intact and subordinated Washington's actions to the priorities of giant, multinational corporations...
...At the very moment 37 when those claims were being made, in January 1969, the economy was starting to destroy them...
...All the groups in New York—the bankers, the unions, the poor, the consumers of public services—were greedy...
...Not so incidentally, each of these policies also prepared the way for the extremely severe stagflation of 1973-74...
...More to the point, if the welfare state is an attempt consciously to modify the workings and outcomes of that capitalism, then we see here the ability of capitalism to modify the welfare state...
...Thus, the new collectivist management was permeated by the old individualistic values...
...Obviously, the solution is not to abandon affirmative action but to create an economic environment in which it can be much more effective than it is now...
...That was an advance, but it had its price: life was becoming less personal even if it was also just a bit more fair...
...A shocking case of congressionsl cowardice and hypocrisy in 1978 should help document this point...
...A number of significant thinkers long ago suggested that the decline of Christianity in Western society would require the creation of a new, secular faith...
...In California, a young governor who dated a rock star but wouldn't live in a mansion inaugurated his second term by coming out for both gay rights and a balanced budget...
...However, I do not want to focus upon the fact of this scandal, which is rather commonplace, but upon what it reveals about the attitude of the corporate rich...
...The result is a crisis of atheistic humanism as well as of religion—a devastation, as Nietzsche put it, of all values...
...If the times are not as dramatically miserable as the years between the stock market crash of 1929 and Franklin Roosevelt's innauguration in 1933, they are at least as confused and bewildering...
...It found: the social democratic consensus [in Western Europe] is breaking down while the relationships between groups have become so complex and erratic that citizens are more and more frustrated...
...That is why I want to speculate, very briefly, on just a few of the political, social, and economic consequences of the death of God...
...Robert Eisner, the Northwestern University economist, made a partial list of those measures in a 1979 column in the New York Times: . . . price supports for milk as dairy prices skyrocket...
...Prosperity brings labor militancy, declining productivity, a loosening of industrial discipline, and soon the corporations begin to call openly for a downturn...
...This is, of course, a generalization of the thesis that the 1973-74 stagflation was created by OPEC and the notion—promulgated by the Carter White House in the summer of 1979—that the 1979-80 recession is simply the result of the fall of the Shah of Iran and the consequent "energy spasm" in the economy...
...Corporate borrowing dropped dramatically in 1975 under the impact of the recession, but then began to climb again...
...acreage restrictions that reduce agricultural supply...
...Pensions for the aging in the United States are not "funded," i.e., the government does not put the workers' contributions aside and then pay it back with interest when they retire...
...There is, all the polls report, a cynicism among the people who lack confidence, not simply in politicians, businessmen, labor leaders—but in all of them at the same time...
...Steel was an important case in point...
...But the fact that this crisis became particularly acute precisely during the time of the welfare state is relevant to its troubles...
...Under such circumstances, it is not surprising that people might retreat within themselves...
...But this is failing to understand that the spiritual crisis is part of a profoundly material process, reacting reciprocally with it...
...So if capitalism claimed to be ruthlessly individualistic, it had the good grace to contradict itself...
...First, there is the new group struggle created by the welfare state...
...IV There is bewilderment among the economic policy-makers because stagflation subverts the conventional wisdom of the last, Keynesian half-century...
...It is corporate debt and, in the midst of all the jeremiads about federal prodigality, this federally facilitated private binge is rarely mentioned...
...Then in the '60s hedonism for the people became a public dogma...
...Capitalism was able to function in part because precapitalist religion survived within it...
...This is a dramatic example of the kind of new social conflicts arising out of the welfare state apparatus itself...
...In short, the underlying idea suggested here, that the crisis of religion is also a crisis of society, is hardly novel...
...In America, above all, the social classes have been marked precisely by extreme internal heterogeneity: workers were not simply workers but native-born and foreign, black, white and Asiatic, skilled and unskilled, male and female, Catholic, Protestant, and Jew, and so on...
...The maldistribution of wealth, a basic element of capitalist— including welfare capitalist—society, thus functioned to perpetuate a crisis...
...or between minorities and ethnic groups only a few rungs above them on the social-class ladder...
...New factors are also at work in social relations and even in the sphere of culture...
...The system, then, will not work without a basic substratum of injustice...
...This was the case even though this social economic formation was the first truly secular order in the Western world...
...That law increased the deductions for capital gains from approximately $16.8 billion in 1978 to $22.3 billion in 1980...
...That discounts the differing circumstances, and focuses upon the trends that result from government action...
...Both Antonio Labriola and Max Adler, two of the most intellectually sophisticated thinkers of the first generation after Marx's death, doubted the master's teaching about the disappearance of religion...
...And yet, there is a form of deficit-spending that has grown enormously in the postwar period and is rooted in the very nature of the system...
...Therefore the government had to play a role in the crisis...
...The problem of the welfare dependence, not simply of wealthy individuals, but of the entire system of late corporate capitalism has normally been concealed...
...When, during the last recession, Gerald Ford had proposed to deal with this problem by "capping" the cost of living increases for the aging, i.e., by legislating a decline in their living standard, one could see that as a traditional exercise of Republican social meanness...
...Finally, there is the question of affirmative action...
...When demand contracts, as it did in 197374, big business does not lower its prices in order to increase volume, which is what it would do if it had any respect for Alfred Marshall: it raises prices in order to maintain profit levels on the basis of a lowered volume, which is what Karl Marx and Gardiner Means thought it would do...
...Everyone in an industry, from the president to the janitors, feels a common interest in opposing measures that protect society...
...Of course, the claims and expectations of one's occupation remain central...
...This requires the emergence of a new social consciousness and raises some vexing, and 47 speculative, questions about values and the political consequences of the death of God...
...I do not want to suggest for a moment that the passing of many taboos and superstitions was bad...
...Bureaucracy proliferates in the welfare state, Myrdal argued, because everything has to exist twice...
...It is a political, economic, and social movement with specific proposals to make that can resolve the problems of the mature capitalist economy...
...But note that now there was no classic fight between the workers and the bosses or the poor and the rich...
...Rather, they decay in a time of manipulated and collectivized individualism in which consumption is defined as civic virtue...
...Deficitspending is not a leftist aberration in latecapitalist society...
...In 1974 (admittedly, a banner year for private-sector borrowing), government debt had declined to 46 percent of GNP, corporate debt had risen to 152.8 percent...
...Social radicalism and economic conservatism, somewhat on the Playboy model, went hand-in-hand...
...2 Millions are thus liberated from the old values...
...The demands of minorities and women for public assistance in redressing injustices that have been reinforced, and even instituted, by public policy is unassailable...
...And even extending that insight to the welfare state is not new as Lasch's example, and others, show...
...sugar quotas and price supports to maintain and raise sugar prices...
...Providence was now the invisible hand of the market...
...The welfare state was, of course, in considerable measure a response to just that problem...
...He writes of the "psychological man of our time"— . . . the new narcissist...
...This argument then rationalizes the central corporate political demands of recent years: that Washington legislate a higher profit rate by lowering corporate taxes and personal income levies on the rich, accelerate depreciation, relax environmental and occupational safety laws (which means imposing the private social costs of business upon defenseless individuals), and so on...
...But even though the welfare state thus discriminates in favor of the corporate rich in a way that is profoundly antisocial, the main beneficiaries of all this are as surly as anyone else...
...Once people had observed a moral code because they believed in it, or because their neighbors would see them violate it, or for both reasons...
...Defense outlays were 58.2 percent of the total in 1955 and 24.6 percent in 1976...
...One must also look at some of the unintended social, psychological, cultural— consequences of the welfare state...
...Thus, America's domestic inadequacies would have brought on a crisis in 1973-74 even if there had been no Yom Kippur War and OPEC cartel...
...Workers, he 44 said, tend to view other workers as the prime cause of inflation...
...Neither passed in their original form but both helped shape the Revenue Act of 1978...
...The new social and economic structure produces a fusion of claims and expectations about wages, property income, and welfare claims...
...The complexities of the modern world, including those found in Biblical scholarship, have to be ignored...
...All of this culminates in a survey of "the dysfunctions of democracy...
...This was a consequence of the effective end of price controls in January 1973, i.e., of allowing the "natural" economic forces to assert themselves...
...Indeed, it was the existence of these intraclass conflicts on a scale unknown in Europe that contributed mightily to the failure (thus far) of American socialism...
...But given the failure of the welfare state's economic managers to come up with an effective response to stagflation, this has led to struggles between minorities (which is more important, affirmative action against racism or against sexism...
...superficially relaxed and tolerant...
...Thus a venerable capitalist tendency contributes to our unprecedented inflation...
...What has happened under the welfare state is that groups have been constituted around legal rights and entitlements (or their absence...
...This was not an episode, or even a simple reflection of the business cycle...
...New York City, to cite a trivial but not insignificant case, had to pass a law requiring people to clean up after their dogs...
...A little earlier, a cloud no larger than President Carter's hand appeared in the sky...
...Clearly, I am for the latter option (as is Lindblom...
...This, as we have seen, is not true...
...And although Burns (or Hoover) would not put it this way, it can be added that the process they describe is rooted in a system of unplanned, profit-maximizing production with a correlative structure of maldistributed wealth...
...Yet this is, as we have seen in just a few examples—and they could be multiplied almost endlessly—a structural source of the problem of stagflation, which now threatens to subvert the reforms of the past generation...
...The idea that public property miraculously cures all economic ills is in tatters...
Vol. 27 • January 1980 • No. 1
