Commentary on Political Economy

Saturday 17 September 2011

PHANTOM OF THE OPERA: (Fiscal Crisis and Powerlessness of the State-Plan)

Each new day brings epochal and fundamental questions about the nature and effectiveness of ‘nation-states’ in advanced capitalist societies. It is imperative that we  survey critically the succession of daily events and commentary in order to draw some strategic politico-economic conclusions about the current significance and likely unfolding of the present “crisis”. In the previous ‘wolfexchange’ I sought to outline an analytical framework that traced the origin of the present ‘crisis’ of capitalism on parallel chains of economic developments. The first was theorised by Keynes and represented the rise of “the collective capitalist”, the State-Plan, as a pervasive “bureaucracy” to replace “the self-regulating market” to stabilise the capitalist economy against deflation and high unemployment arising from the downward rigidity of nominal wages, itself the consequence of the growing political cohesion of Western working classes from the late nineteenth century.

The second elaborated on Schumpeter’s theory of capitalist development based on the “crisis-inducing rationalisation” of capitalist technologies of production (“Innovation” and “creative destruction”) and the consequent “concentration” of the “market mechanism” (internal, through  integration of economic functions within managerial lines of command, and external, through consolidation of “corporate oligopolies”).

My central thesis is that the current “sovereign-debt” induced fiscal crisis of the State-Plan is “critical” in that the State-Plan is forced by the inter-play of these two forces into a combined loss of legitimacy (or political authority) and economic effectiveness (powerlessness) that seriously threaten its pivotal role in the preservation of capitalist relations of production.

To illustrate the “effectiveness” of this thesis in explaining the unfolding politico-economic events, I have turned to three gloriously insightful commentaries in Monday’s FT (linked below). What I ask participants to do is to read these commentaries and….connect the dots.

In the first commentary, Tony Jackson argues that

“The less sunny view is that rising consumer debt has been encouraged by governments to disguise the fact that the real incomes of the rank and file have been going nowhere – in stark contrast to the privileged few. Certainly, whenever the debt bubble has looked like bursting, governments have ridden to the rescue. And in the recent crisis, this has meant substituting public debt for private on a heroic scale,” [1].

But given that the State-Plan (capitalist government) has reached the outward limit of indebtedness consistent with maintaining acceptable levels of employment and growth, it needs to shift the burden of investment growth back onto “corporations” (private enterprise) which, in turn, due to what Jackson calls “the fallacy of composition” are both financially and politically unable to replace the State-Plan in what by rights is its central politico-economic role.

Furthermore, as David Rothkopf argues with majestic lucidity, shifting this strategic burden back on “corporations” whose “innovation-induced complexities” have already created a “phantom balance-sheet” of toxic assets that entangles the State-Plan in a deathly spiral of “moral hazards”,  poses “systemic risks” for the entire capitalist economy and indeed for society itself! In his words,

this latest “[phantom] balance sheet” invites the creation of an almost endless supply of further risks. If markets continue to believe there are entire classes of assets that governments just will not have the guts to cut loose, this third balance sheet has infinite expansion possibilities…. This in turn creates huge burdens on the governments that most can ill-afford,” [2].

And the task becomes especially diabolical when monetary authorities are required to anticipate the occurrence of more “asset bubbles” induced by the need - once again brought about by social and political antagonisms that I attribute to the wage relation - to maintain acceptable living and employment standards. As Andrew Large concludes with admirable terseness,

“In the case of financial stability, while instability is obvious, by the time that point is reached policy has failed. Instead, policy to prevent a state of instability from arising has to be based on unobservable probabilities,” [3].

The politico-economic conclusions to be drawn from this analysis are of dramatic importance. For we have reached a stage at which the contra-diction between the “social guarantee” of the State-Plan and the very “systemic” nature of the risk incurred by “private corporations” becomes absolute – where in fact there is power without responsibility on both sides, as the State-Plan loses its “democratic power” to manage the capitalist economy, while the “corporates” lose their ability to initiate economic growth responsibly! What we have is the subversion of democracy!

If, indeed, “the phantom balance sheet” constituted by the “risk-taking technological innovation of enterprises” keeps growing, then the State-Plan cannot maintain the fiction of “effective political control” over the society of capital – to a point where ‘corporates’ must be re-appropriated or nationalised: the expropriators become the expropriated!

[1] (T.Jackson on State as ‘Sugar-Daddy’)

[2] (Rothkopf on ‘Phantom Balance Sheets’)

[3] (Large on ‘Systemic Risk’ as ‘Unobservable Probabilities’)

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