Putting Power, Politics and Class back into the Study of Capitalist Economics

Capitalist economic development reflects class related distributive conflict and partisan politics. There is no un-governed logic of the market but economies embedded in socio-political contexts that change over time and space. Examining the structure of socio-politics will provide empirical clues as to why a particular economy favours particular powerful interests over others. Changes in actor strategies of conflict or cooperation reflect changes in the relations of power within context-specific institutions of national political economies. The current crisis provides a real opportunity to unpack the power relations governing the politics of an increasingly integrated European and global market economy. This article will argue that class and the politics of distribution is a useful heuristic to examine changing relations of political-economic power in the case of Ireland within the European Economic and Monetary Union (EMU).

In western democracies labour markets constitute the major arena structuring distributive conflict. The characteristics and similarities of specific individuals within the labour market can be usefully described using the heuristic concept of ‘class’. A latent class analysis enables one to identify the opportunities and constraints facing individuals in the politics of collective action. Class, however, is not a universalistic concept that can be applied to all people at all time in all places. It is context specific to particular labour markets that change over time and space. It is an empirical question to ask how, where and why class matters at a particular point in time. This is precisely why we need a context specific class analysis to understand the politics of distribution across European varieties of capitalism. It is why we need a contemporary class analysis for Ireland in 2011 to understand the distributional impact of the crisis.

There are clear winners and losers from the ‘great recession’ and to a certain extent what we are witnessing is a gradual shift to the right in the political choices available to government, reflecting the ascendency rather than the decline of orthodox neo-liberal economics in prescribing public policy responses to the crisis. This is all the more ironic given that national structures of governance (the state and institutions of corporatist governance such as social partnership in the Irish case) have taken blame and responsibility for the problems accumulated by reckless behaviour in the private sector. This shift toward the political right is presented as a technical necessity over which political actors have little or no control i.e. we cannot afford investment in jobs, we must provide a blanket guarantee to private bank debt, and we must adopt deflationary policies to bring down the fiscal deficit.

If it is the case that ‘political actors’ (primarily elected governments) have no choice over economic decisions then what we are witnessing is the end of liberal democracy. No longer can political scientists claim ‘autonomy’ for politics if we are now living through a period of capitalist-economic determinism. Thus, all economists, political scientists and technocrats who argue that there is no alternative to years of ‘austerity’ must accept that this implies the end of liberal democracy. This is hardly something to be celebrated or advocated unless of course it is being replaced by something more democratically progressive.

However, in practice, what we are witnessing is the structural dependence of the state upon capital and the de-politicisation of macro-economic policy. This is reflected in the public discourse on unemployment. The state, given the shift in international finance markets, requires access to credit in money markets more than it does full employment in labour markets. And, like any credit-debt relation all the bargaining power is with the creditor. The de-politicisation of this macro-economic process hides the real distributive conflict that inevitably results from strategic decisions over who gets what and when. All economic decisions are ultimately political in design. Granted they are mediated by institutional constraints beyond the immediate control of political actors but institutions do not determine politics, those with sufficiently organised power do.

During the 1970’s (the high tide of Keynesianism) most governments in Western Europe were explicitly committed to maintaining full employment (even if this required running a fiscal deficit during a recession). This is no longer the case under the institutional constraint of a shared monetary union with explicit rules that prohibit budget deficits. In 2011, the politics of banking is prioritised over the politics of employment. Banks rather than labour markets have organised power. Most capitalist economists consider full employment a luxury of economic growth and a mechanism for organised labour to drag up the price of wages. Those with the human-capital to get work will and those who do not should be mobile enough to get it. The role of the state, according to capitalist development institutes such as the OECD and IMF, is to incentivise those without human capital to retrain and get off welfare (despite the fact that there is no demand for employment) through structural ‘labour market reforms’. Again, this economic prescription masks a real distributive conflict in the labour market.

The achievement of full employment is capable through political decision-making. But, given the shift toward supply side policies in labour markets it is generally considered a ‘market intervention’. Labour markets require less not more regulation. High levels of unemployment act as a drag on the overall wage power of those in the labour market. It shifts the balance of power toward the interest of capital (hence it is easier for employers to walk away from a macro-corporatist institution such as social partnership). The new context which small capital owners face is the limited availability of credit. If government really want to increase the tax base (given Ireland’s low tax regime) it should develop policies for full employment rather than wait for the ‘market’ to do this. Thus, the politics of unemployment is a central socio-economic context that shifts the balance of power away from labour.

One of the best ways to mask the reality of distributive conflict underpinning all macro-economic policy is to make unilateral economic decisions through the legislature with little or no debate either with political parties in parliament or with organised socio-economic interests outside it (i.e. in civil society).This is exactly what Thatcher did in the UK and Reagan in the USA. Thus, all economists who prescribe the natural laws of neoclassical economics as a policy response ignore the political conditions which make this possible.  In effect, hiding the distributive impact of economic decisions (often presented as natural economic laws by economists) conceals the relations of power that underpin all economic transactions. Power not markets determines the winners and losers of crisis in the ‘politics of adjustment’. Now more than ever we need to bring politics back in and make power explicit in the study (and policy prescription) of capitalist development. Economics prescribes a very particular normative behaviour. In the case of prescribing huge austerity as a mechanism to tackle the crisis it is assuming that those most affected will not organise to resist. Thus, it has to assume the absence of political opposition or denigrate it as rent seeking behaviour. In reality, it requires the state to silence class opposition through force if necessary.

In the Irish case, one of the primary mechanisms to give ‘political voice’ to organised labour was through the macro-corporatist institution of social partnership. This national system of governance provided weak trade unions with access to cabinet government for over 23 years. Social partnership has many critics across the political spectrum primarily orthodox economists who consider it a process for ‘insiders’ to act as ‘rent seeking’ parasites. In practice, however, it provides a structured process for organised interests to interact with the political system. It reflects the changing role of the state in a market economy. Corporatist structures aim at governing the relationship between organised labour and capital. It is not about a ‘free market for pluralist lobbying’ but coordinated processes of collective action for peak level interests to represent their members.

Social partnership gave organised labour access to political decision making that would not otherwise have been possible in a pure liberal market system. But, is this a bad thing? Big business and corporate actors will always be able to influence the political process since they control significant economic assets that the state requires to survive. Corporatist institutions at least aim for a balance of interest in the public policy process and to a certain extent make explicit the real distributive conflict that exists in the labour market. Those who advocate an end to the structured interaction of organised labour with the political system, in a context of weak economic power, must acknowledge that the biggest beneficiary of such a strategy is capital. In the absence of any economic or political counter-power the politics of distribution will evolve in the interest of those with the real rent seeking capacity: holders of financial assets. Macro-corporatist institutions enable strategies of collective action outside of the free-market. It is therefore unsurprising that they have come under attack from capitalist economists who prescribe markets as the dominant means of economic coordination. But, free markets produce significant levels of wage inequality (as reflected in the UK and USA) amongst a whole host of other distributive outcomes.

In recognition of this most European economies developed structured tri-partite forums to enable a balance between capital and labour in the public policy process. This reflects different historical traditions of how the state evolved across Europe (and the political-electoral and industrial relations systems within which they operate). Every European country has now instituted liberal parliamentary democracy as the primary means of political representation. Political choice is determined through competitive elections amongst freely associating political parties. A system of one person one vote was considered the safest way to avoid authoritarianism (in its left and right forms that emerged in Germany, Italy, Spain, Portugal and Central & Eastern European countries). But, whilst the formal properties of liberal democracy make it look ‘representative’ and ‘democratic’ any empirical analysis of how the political system actually operates illustrates the priority accorded to market supporting mechanisms that are rarely make explicit which are a priori assumed to be in the interests of democracy.

Distributive conflict was central to the evolution of the European party political system. Social democratic parties and organised trade unions became the primary voice of the working class. Policies adopted by left leaning governments aimed at securing social rights for citizens against the risks associated with private markets (hence the emergence of disability, social welfare and old age protection etc). Most of this occurred through a structured relationship between various governments of the state and trade unions representing workers in the labour market. Class was the heuristic around which the politics of distribution was played out. The working class made gains because they had organised representational power in both the economic and the political sphere. There was a relative balance of power. Organised labour accepted the conditions for capital accumulation in return for a share in the productivity gains associated with economic growth.

The contemporary state, however, given its dependence upon a particular structure of capital accumulation no longer requires the support of trade unions to legitimise its public policy decisions. The crisis has provided the necessary legitimation for a new policy paradigm and it is reflecting the interests of those who have financial power. In the Irish case (as a region of Europe), what we are now witnessing is the development of a new political economy (one that is quite different to the post 87′ period and pre/post EMU period) governed in the interest of a political and economic elite. It is political decision making (within real institutional and economic constraints) that is determining the politics of distribution and the public policy response to the crisis. Now more than ever we need to politicise economic policy by making explicit the underlying power relations. We need to bring class back in.

To conclude, the outcome in the politics of distributive conflict we are witnessing is the direct result of shifting power relations in the labour market. The nature of the bargain and the type of social contract developed in Ireland and across Europe is the outcome of partisan politics not neutral economics. All democrats should have an interest in developing a counter-power to the growing hegemonic interests of finance capital. In the absence of a real counter-power in the economic and political realm liberal market capitalism will continue to aggressively pursue a short-sighted manipulation of economic resources at the expense of our societies. Capitalism left to its own devices will eat itself up. It needs to be democratised. Political instiutions at both the sectoral and national level (as opposed to the free market lobbying of liberal-pluralism) that give voice to organised labour have historically been one way to achieve this.

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