Diminished Profitability and Wel-fare Decline
(Reflections on the Irreformability of Capitalism in the 1990s)
Introduction: The Crisis of Conservative Policies and the Ineffectuality of the Left
In the eighties or early nineties, conservative parties obtained the support of the middle classes in many Western capitalist countries and won elections on the strength of a clear ―liberal‖ political slogan: ―Let market forces act freely. Give us, the conservatives, the chance to fight all forms of bureau-cratic, corporatist or monopolistic distortions of the market mechanism, and the economy will once again achieve the high growth rates of the past.‖ This conception was then concretized in a restrictive economic program aimed at curtailing wages and social spending, deregulating markets – including, of
course the labor market – and privatizing public enterprises.
However, today‘s austerity is futile unless society can be persuaded that 1it is paving the way for tomorrow‘s prosperity. As the promised economic
prosperity fails to eventuate, liberal ideologies meet with diminishing public acceptance. Conservative parties, after a period in office – lengthy in the
case of Britain and Italy, shorter in for example France or Greece— have
accordingly lost elections to center-left parties.
What deserves further investigation, though, is the inability of center-left governments to implement an alternative strategy for overcoming poor economic performance and social crisis. What the parties constituting these governments promised to the electorate in order to return to power was simply the same conservative policy of restriction, aimed at achieving price
stability, cutting the public deficit, reducing debt, etc. (all of this codified in EU countries as a policy framed in accordance with the Maastricht conver-gence criteria), leavened by a degree of ―social sensitivity,‖ i.e. measures of social protection for the low-income or marginalized sectors of the popula-2tion.
What took place, is a retreat of the political and ideological visions of the (ruling) Left, which manifests itself also in a conservative shift of the majority of left intellectuals. These intellectuals confine themselves now to the continuous reiteration of the simple thesis that full deregulation can never exist and that therefore center-left are more effective than conservative 3governments.
One apparent attempt to create an integrated alternative vision to the pragmatic administration of existing relations is ―stakeholder capitalism,‖ a policy conception involving a critique of conservative positions which was formulated and broadly discussed in Britain in the two years leading up to the 1997 general elections. The ―stakeholder capitalism‖ approach on the one hand utilizes many of the ideas or arguments also put forward by nearly every center-left governing party of recent years, and on the other attempts to mold them further into a political and social plan for reforming contempo-rary capitalism (in Britain). However, in my opinion it represents the mere semblance of an alternative to conservative policy. Its claim to be able to achieve the same goals by other means is altogether fantastic.
In the section that follows I will undertake a brief presentation of the ―stakeholder capitalism‖ approach, followed in the next three sections of the
paper by a critique of the approach in question. I will then attempt to deter-mine the reasons for the stability of conservative policy and to analyze the factors underlying poor economic performance. In the final section of the paper I will address questions bearing on the future of the welfare state and the political strategy of the Left.
Visions of a “Decent capitalism”...
The central idea of center-left governments of the mid- and late-nineties is that economic prosperity and social cohesion cannot be achieved simply through the unfettered functioning of markets. The actual problem is, howev-er, to establish a clear demarcation of the limits – and to determine the
proportions and the character – of state regulation. In this context, center-left governments, persisting in policies that give priority not to reducing unem-ployment but to stabilizing prices, curtailing public deficits, promoting
―labor-market flexibility‖ and privatizing public enterprises, appear as ―mod-
erate‖ exponents of conservative policy, ―monetarism with a human face‖ as it were. These policies therefore suffer from a lack of strategic vision, of a hegemonic social ideology, which would be different from center-right
pragmatism. The ―stakeholder capitalism‖ perspective was formulated in Britain as a way out of this strategic embarrassment. According to its sup-porters it can ―give the intellectual leadership back to the Left for the first time in twenty years‖ (Kelly et al, 1997, 238).
Stakeholding implies social inclusion, citizenship, co-operation and the social contract and is meant to foster such ideas as functioning principles of contemporary capitalism. What differentiates this project of stakeholder 4capitalism from other attempts to embellish capitalism, promoting it as a
social system favoring a ―harmony of interests‖ among social classes or individuals, is that its supporters do not restrict themselves to defending these ideas, but use them as the starting point for a critique of existing relationships and structures, which supposedly prevent the ideas from being implemented. ―Stakeholder capitalism‖ therefore appears as an adversary to existing capitalism under conservative hegemony, not engaging in apologetic declarations but on the contrary demanding change. The fact that the whole project is embedded in the theoretical approaches and analytical notions put forward by some of its supporters naturally has a bearing on the dynamics of this posture.
The publication in 1995 of the first edition of The State We’re In, by
Will Hutton, might be considered the starting point of the campaign for stakeholder capitalism and the discussion related thereto. Hutton, now editor of The Observer and at that time economics editor of The Guardian, in 1996
brought out a second revised edition of the book, which had remained on the paperback best-seller list for more than six months and had been broadly discussed in newspapers as well as in articles published in referred journals. The concept of stakeholder capitalism was adopted by Tony Blair during the 1997 election campaign, having already been incorporated into British trade union documents (such as Your Stake at Work - TUC Proposals for a Stake-
holder Economy, 1996).
One of Hutton‘s main ideas, implied also in the title of his book, is that
capitalism is inconceivable independently of its institutional edifice, and more specifically of the state. His critical analysis targets British capitalism as it took shape during the period of Conservative rule after 1979. He writes: ―If a
well-functioning market economy requires skilled workforces, strong social institutions like schools and training centers, and a vigorous public infra-structure, these cannot be achieved if the governing class cannot understand
the values implicit in such bodies‖ (Hutton 1996, 25). This idea embodies a critique of the notion of ―globalization‖ and its political implications, i.e. the
proposition that the internationalization of capital and the economic interde-pendence of international markets have developed to such a point that they make all forms of national economic policies (if different from the conserva-tive dogmas of deregulation and ―flexibility‖) impossible. As Hutton himself puts it: ―the world is not that global‖ (Hutton, in Kelly et al 1997, 7) Or,
formulated another way, ―capitalism is not simply and exclusively an eco-
nomic system but a socio-political system whose content and structure is formed and moulded by its history‖ (D. Kelly, in Kelly et al, 49).
However, what lends Hutton‘s book its broad intellectual authority is its incorporation of a twofold critique of mainstream conceptions: on the one hand a codified theoretical critique of neoclassical economic postulates concerning the way the (capitalist) economy functions, on the other a polemic against the policies followed in Britain under Conservative governments and so of the way that British capitalism has developed.
Hutton disputes the key tenets of neoclassical economic theory (the no-tion of economic rationality, the doctrine of rational expectations, the law of diminishing returns, the theory of general competitive equilibrium), preferring a Keynesian approach according to which a correctly regulated financial system constitutes a prerequisite for increased investment, which in turn represents ―the key motor of the economy‘s prosperity because it has a snowball effect, what Keynes called the multiplier‖ (Hutton 1996, 242). If the financial system‘s inherent tendency to liquidity is not retarded by state policies, it may act counter-productively and thus destabilize the market economy. This means, according to Hutton ―that unmanaged capitalism is inherently unstable as a system and that successful enterprise is a social rather than an individualist act‖ (Hutton 1996, 237, see also Hutton 1994).
At the level of concrete analysis of British capitalism, Hutton criticizes the effects of conservative policies such as dogmatic monetarism and above all the deregulation of financial markets. He claims that such policies granted supremacy to stock markets and the financial system at the expense of the British economy as a whole, eroding the country‘s productive capacity,
which is directly linked to industry and investment. As a result, an extremely diffuse ownership structure evolved whereby a hundred and sixty insurance companies and pension funds own seventy percent of the shares in British enterprises, putting pressure on managers to pay high dividends (in order to avoid takeovers) and thus reducing the funds available for investment. The short-termist culture of financial markets is in this way transmitted to the entire economy, displacing long-term investment and growth strategies. The
attitude of owners is characterized by a counterproductive ―lack of commit-
ment to and responsibility for their assets (...) because they are always ready to walk away from the companies they own by selling their shares‖ (Hutton 1996, 157).
British capitalism thus loses, according to Hutton, its ability to increase productivity, to introduce innovation in the means of production, to achieve high growth rates, to create new jobs, to distribute prosperity throughout the whole of society. Inequality and social marginali-zation then occurs, as a consequence of ―the spiral of corporate downsizing and delayering, and the
displacement of risk onto the labour force‖ (Hutton in Kelly et al 1997, 4). The end result is a thirty/thirty/forty society, with thirty percent of the popu-lation unemployed and marginalized, thirty percent insecure and ―newly
marginalized‖ and only forty percent of the population holding a secure and stable job.
The project of ―stakeholder capitalism‖ aims at curing all these short-
comings of (British) capitalism. Hutton and all other exponents of the ―stakeholder capitalism‖ concept believe that this is possible. ―Thus the great challenge of the twentieth century, after the experience of both state socialism and unfettered free markets, is to create a new financial architecture in which private decisions produce a less degenerate capitalism. The triple requirement is to broaden the area of stake-holding in companies and institutions, so creating a greater bias to longterm commitment from owners; to extend the supply of cheap, longterm credit; and to decentralize decision-making. The financial system, in short, needs to be comprehensively republicanised‖
(Hutton 1996, 298).
―Stakeholder capitalism‖ thus appears as a vision of a new, co-operative
and socially decent form of capitalism. This form of capitalism is moreover considered to be the only one that can be successful. In Hutton‘s words
―there is clearly a huge interest in trying to construct a way in which a moral community can coexist with a successful capitalism‖ (Hutton in Kelly et al 1997, 8). ―Successful capitalism demands a fusion of co-operation and
competition and a means of grafting such a hybrid into the soil of the eco-nomic, political and social system‖ (Hutton 1996, 255).
… Fudge and Fudge Again
The concept of stakeholder capitalism implies that it is possible politically and ideologically to shape a structural unity, i.e. a unity of interests on a stable and long-term basis, among individual workers and ―their‖ enterprise.
From such a perspective the worker is seen as a part of the capitalist enter-5prise, as committed to it, as included in the enterprise.
The ―stakeholder capitalism‖ approach thus attempts to refute the notion
of capitalism‘s inherently exploitative and contradictory character – the
notion that it constitutes a system of class power and class exploitation (extraction of surplus value) of the laboring class by the capitalist class. It is aware of the reality of inequality and social exclusion (what Hutton describes as a ―thirty/thirty/forty society‖) but attributes it to the hegemony of the ―counterproductive‖ financial system (and its capital) and to conservative
policies of market deregulation, not to the class structure of the capitalist economy.
To my mind this approach constitutes a theoretical and ideological re-treat from classic social-democratic positions in favor of liberal-individualist ideas. Social Democracy traditionally conceived of working people and the labor movement as an entity, a social class and a social force defined by its own special class interests and goals, even if under certain circumstances or in certain conjunctures these interests were seen as being compatible with those of specific capitalist fractions or of the capitalist class as a whole. In the case of stakeholder capitalism the working class, with its special class interests, is considered non existent and the analysis focuses on individual 6workers, whose interests are regarded as integrated (or requiring integration) into ―their‖ company‘s interests and goals. This theoretical and ideological theses have specific political consequences: ―I am not an advocate of (...)
industry-wide collective bargaining (...) Instead I conceive of the workforce as, in European terms, a social partner who will bargain and operate at the level of the firm and the industry. This is not a return to old-style corporat-ism‖ (Hutton in Kelly et al 1997, 7).
Apart from this, the question arises as to whether, and to what extent, the ―stakeholder capitalism‖ agenda is feasible, i.e. if it is actually possible to bring into effect a plan of co-operation and mutual commitment between labor and ―productive capital‖ (enterprises) for a reform of state institutions and a challenge to the hegemonism and unaccountability of financial markets. The feasibility of the ―stakeholder capitalism‖ strategy has been disputed by 7both right and left.
The whole concept of ―stakeholder capitalism‖ can be disputed not only because it arbitrarily assumes a stable commitment of workers to ―their‖ enterprise, but also because it is founded on the undocumented assumption of a ―structural‖ contradiction between the ―hegemonic‖ financial and the
industrial (―productive‖) capital. This contradiction is regarded, as already
shown, as an outcome of monetarist economic policies which transmitted the short-termist culture of financial markets to the entire British economy.
However, the expansion or contraction of the financial markets depends on the economic conjuncture and the (upswing or downswing) phase in capital accumulation (the phase of the economic cycle) and not on the ―entre-
preneurial culture‖ in one or the other country. It was Karl Marx who has shown, in Part V of Volume 3 of Capital, that the expansion of credit and of
financial speculation is closely related with the periodic economic depres-sions: An increase in profits (due to a suppression of the wages fund), which takes place in a conjuncture of low rates of capital accumulation (depres-sion), boosts the financial sphere and speculation, long before an upswing trend in the economic cycle is made possible (through restructuring of the capitalist production). (See Marx 1981, Ch. 32). On the basis of this analy-sis, Paul Mattick pointed out, almost 30 years ago: ―This (the Keynesian,
J.M.) distinction between ‗industry‘ and ‗finance,‘ between ‗productive‘ and ‗parasitical‘ capital is as old as capitalism itself and gave rise to a pseudo-struggle against ‗interest-slavery‘ and irresponsible speculators (...) Specula-
tion may enhance crisis situations by permitting the fictitious over-evaluation of capital, which then cannot satisfy the profit claims bound up with it‖ 8(Mattick 1969, 23-24).
Share prices increased as more and more money-capital moved into the stock markets, as a result of a contraction of the spheres of profitable in-vestment in the ―real‖ economy. What the ―stakeholder capitalism‖ approach construes as the negative element in the hegemonic role of finance capital (undermining owners‘ ―commitment to and responsibility for their assets,‖ Hutton 1996, 157) has to do not so much with shareholders‘ expectations
that they will earn high dividends as with the fast changing value of the shares themselves, i.e. with the expectations of ―financial investors‖ that they will be able to buy shares cheap and sell them dear, or to hold shares of high and increasing value. It is this process that has driven share values in most capitalist countries to levels no longer corresponding to the actual perfor-9mance of rise in output of the ―real‖ economy.
The ―hegemony‖ of the financial markets does not derive from some in-
herent contradiction between productive and financial capital, but from the slow-down in the rate of productive capital accumulation. As Karl Marx puts
it, ―accumulation is the independent, not the dependent, variable‖ (Marx 1981, 679).
Aspects of Germany’s “Social-Market”: The Supremacy of Finance
Capital and Policies of Downsizing Enterprises
In order to defend their arguments, the supporters of the stakeholding idea would need to undertake on the one hand a theoretical analysis of the social structures, classes, antagonisms and tensions in a capitalist society and on the other to examine the dynamics of stakeholding through history. Instead, Hutton argues with the simplistic affirmation that “stakeholder capitalism”
already exists, in contemporary Germany and its neighboring countries (Austria, Switzerland, the Netherlands...).
Hutton‘s reflections are based on a twofold assertion: a) that radically 10different forms of capital do exist, and that the ―German form‖ of capital-
ism is actually a ―stakeholder capitalism.‖ Through this sleight-of-hand he
transforms the ―stakeholder capitalism‖ agenda from a universal promise of creating a humane capitalism (―the great challenge of the twentieth century, after the experience of both state socialism and of unfettered free markets‖
(Hutton 1996, 298) to the banal pragmatism of adopting the (supposedly different from the British) ―German model‖ of capitalism in Britain. He therefore becomes a run-of-the-mill apologist for actually existing (Ger-man !!!) capitalism:
―Capital and labour operate in partnership (...) It is a social market (...) there
is a compromise in favour of concerted and co-operative behaviour aimed at
boosting production and investment. Labour has to recognise the legitimacy
of capital, and capital the rights of labour (...) Wider economic policy is the
outcome of negotiations between the various social partners (...) In order for
managers and workers to run enterprises collaboratively, financial stakehold-
ers have to concede that they cannot maximise their returns in the short run
(...) The rentier tradition is very weak in Germany‖ (Hutton 1996, 262-68).
However, his simple assumption that there is still such a thing as ―the German miracle‖ (the miracle of the ―Social Market‖) cannot disguise the fact that since 1994 all kinds of indices that he considers crucial for the determination of the prevalent ―form of capitalism‖ (growth rates of the GDP and of gross fixed capital formation in equipment, change in the number of employed and in the unemployment rate) have deteriorated in Germany to such an extent that they now rate below the corresponding figures for the British economy (EU 1997).
The rate of unemployment, for example, hit a new post-war record in Germany in July 1997, as the national figure exceeded 11.3% (18.2% in 11Eastern and 9.8% in Western Germany, Financial Times, August 7 1997).
Moreover, for all Hutton‘s assertions, the behavior of the German stock market is not qualitatively different from that of its British counterpart.
It is characteristic that until the mid-eighties more than 42 percent of shareholder value in Germany was in the hands of the companies themselves, often through cross-holdings of shares among enterprises. This situation has changed rapidly since the late eighties or early nineties. More than forty percent of investors in the Frankfurt stock market are now non-Germans (Japanese and European banks, American pension funds, etc.) so that what has now emerged in Germany is a dispersed pattern of shareholder value similar to that prevailing in Britain.
In Germany, as in Britain, shareholders and company managers work together quite harmoniously to ensure that the latter follow policies that enhance the confidence of the financial markets, thereby ensuring increases in the shareholder value of companies. What are these policies? They are poli-cies of radical income redistribution in favor of capital, or what is called ―downsizing‖ of enterprises. Their aim is to increase company profitability through intensifying of labor exploitation and curtailment of their less profit-able activities.
The era of financial undervaluation of enterprise assets which enabled some speculators to buy out companies cheaply only in order to demolish them (to break them up) and sell them piece by piece, has been over since the early nineties. Tension between companies and financial markets has now eased. Share values everywhere have reached levels that are clearly higher than the actual market value of the companies‘ assets, and managers now have every reason to co-operate with those who take a proprietary interest in the shareholder value of their companies. Financial takeovers of companies are now organized in a less counterproductive way, with managers and banks also participating, as we will illustrate below, citing the Krupp-Thyssen case.
The downsizing process is represented by the various hegemonic capital-ist forces – economic and intellectual alike – as ―modernization‖ of the
economy. Its concomitant of increased unemployment is depicted as an inevitable by-product of modernization. In reality it represents nothing more than a strategy of reshuffling power relations to the benefit of capital and to the detriment of employees. It may perhaps be a different strategy from the one deployed during the sixties and seventies (in response to the different relationship of forces prevailing at that time) when high (and rising) rates of profit were related to rapid increases in output, stable or even increasing
wage incomes and low unemployment. Nevertheless the defining characteris-tic of the strategy, now as then, is that it serves to link the interests of managers and shareholders, i.e. the different fractions of capital.
Before closing this section, let me illustrate how the German ―social market‖ operates in the nineties by citing some specific (albeit characteristic) examples. This, by the way, is a method very much favored by Hutton. The number of Volkswagen employees has fallen from 261,000 in 1990 to 241,000 in 1996. At BASF during the same period numbers have fallen from 135,000 to 107,000. At Thyssen from 149,000 to 123,000. At Daimler-Benz from 377,000 to 299,000. The downward trend in employment was followed by a steep increase in the share value of all these companies. From January 1996 to March 1997 the share value of VW increased by 95%, of BASF by 98%, of Thyssen by 30%, of Daimler-Benz by 75% (Stamatis 1997).
The comparatively low increase in the share value of Thyssen is related to the secret plans of Krupp (who had for this purpose paid more than 200 million DM to market analysts) to take over Thyssen by purchasing 66% of the company‘s shares (80% of which had already been dispersed) for a sum of 9 billion DM. In order to implement its plan Krupp did a deal with two major German banks (Deutsche Bank and Dresdner Bank) to borrow the entire amount of 9 billion DM from them, and in return to sell, immediately on takeover, seventeen of its own subsidiaries and four of Thyssen‘s subsidi-
aries, for the purposes of paying back part of the loan. It is worth noting at this point that from the viewpoint of the market value of its assets, the Thys-sen group is nearly twice the size of the Krupp group. The takeover of Thyssen by Krupp and the subsequent downsizing of the conglomerate was expected to push its shareholder value rapidly upwards, to the benefit of all ―stakeholders‖ in the plan (Krupp, the two major banks, shareholders of Krupp and Thyssen). After an upheaval of workers in both enterprises in March 1977 (the manager of Krupp could not enter or leave the company premises without police protection), the takeover plan was abandoned. In-stead the two companies agreed to merge their steelworks (with 60% of the shares held by Thyssen and 40% by Krupp). Under the terms of this agree-ment there was an immediate reduction in the workforce at the new steelworks from 66,800 to 58,900 workers.
Speculation, downsizing, raising shareholder values, increasing unem-ployment, all of these flow from the logic of capital, not from national “cultures.” The poverty of the ―stakeholder capitalism‖ analysis is glaringly evident in the sterility and ineffectuality of all reform programs of actually existent capitalist relations, at least wherever they lock themselves inside the ideological and strategic straitjacket of capitalist economic indices.