Post world war two, the dominant public policy paradigm in Europe was Keynesianism. This meant that economic activity was politically directed toward productive investment. The Fordist industrial mode of production was labour intensive. Therefore, the capital accumulation regime ‘put labour to work’. From 1950-1980, full employment was maintained across Europe and increased the bargaining power of labour. This acted as an effective constraint on capital, and made possible by a single-earner household family structure. Profit was accumulated and capital privatized but the surplus was used for expanding production – it was a labour inclusive regime (neither by default nor design but because of a given public policy-institutional structure).
From the 1980’s capital markets were deregulated as a response to a crisis of accumulation, and rapid changes in the labour market. The post-war growth model slowed down, inflation soared (partially because of a strong labour movement) and debt was accumulated by the state. To induce employment and economic growth the policy response by European governments was to ‘free up capital’ through financial re-regulation for credit growth. Labour was weakened and capital-business strengthened. Or, more precisely, large finance houses (rather than small artisan firms) became the new locus of investment. The new dominant public policy regime was ‘neoliberalism’. The underlying growth model was ‘post-Fordist’. Firms began to put money-finance rather than labour to work, and the state took on a developmental role, re-regulation for competition.
In a system where money rather than labour is prioritized, the character of the regime fundamentally changes. The assembly of wealth is less driven by the state and public policy but private-capital ownership. As argued by the varieties of capitalism theory, there was a shift from politics to the private market. Or, more precisely, from the state toward the private firm. Taxes on those who own capital were decreased (an empirical trend across the OECD) and national boundaries collapsed by financial markets. The outcome, contrary to the assumptions of neoclassical economic theory, was a concentration and centralization of capital, wealth and income. Whilst rarely described it such terms – it was a large wave of capital privatization (or creation).
Thus, neoliberalism as the dominant public policy paradigm was a) an idea that allowed capital accumulation to occur via the privatization of money in free financial markets (previously restricted), b) a practice that varied across space and time, but strongly backed by state-governmental actors and public policies and, c) a strategic project supported by elite power business-corporate actors seeking to expand markets. The outcome was a rapid increase in income inequality, weakened labour and a reconfiguration of state power. It varied across countries, but the commonalities are just as important.
This accumulation regime is the background to the 99 versus 1 percent debate in the USA. The richest 1 percent of the US population own 33 percent of net worth. The US has 400 billionaires, most of whom are the owners of firms such as Microsoft – Bill Gates. Income growth, according to all research, has proven to be incredibly uneven. From 1979-2007, the top 1 percent of US households saw their real after tax income grow by 275 percent. For the top 20 percent, it was 65 percent. For the 60 percent majority in the middle it was 40 percent, and for the poorest 20 percent of the population it was 20 percent. The reason for this dramatic increase in income inequality is the concentration of market income. The rich do much better in an economic system premised on aggressive and de-regulated finance markets, and unlike previous politically governed modes of capitalism, the rich are free to do what they want with the surplus.
Even in Marxist economic theory of M-C-M, it was assumed that the rich would invest their surplus into expanding production. This was based on a national-protectionist system, and was assumed to empower labour. This makes no sense in a world of global capital mobility. The state no longer takes away a large percentage of the private-capital surplus, as occurred in post-war social democratic regimes. Capitalists, and those who own financial assets, are free to do what they want with their capital. This is the logic of free markets and a powerful philosophical paradigm underpinning contemporary public policy.
Jumping forward to the current crisis (where we are living with the consequences of financial deregulation and the privatization of money). A debate is emerging about what to do with the 1 percent i.e. those who own most of the world’s income-assets-wealth. Most policy prescriptions have focused on taxing the income, the wealth or imposing a financial transaction tax. These are welcome developments. However, they ignore the more important question i.e. how to use the private ownership of scare resources for social gain.
The state can tax the 1 percent and generate a little bit of revenue. But, given the few numbers involved it wont raise much tax (unless a 90 percent tax was imposed). Furthermore, the state will use the revenue to pay off bad debt not strategic investment. Thus, the capital will not be used productively nor will it be socialized to compress and re-distribute income. Therefore, the focus on ‘tax the rich’ is somewhat misplaced. The question should be on the capacity of the state to nationalise/socialise the wealth for productive investment. Or, should governments develop a legal regime that imposes a regulatory obligation on those who own scare resources to use them for productive-labour use rather than a) private luxury consumption and b) finance stock-asset recycling. In the Irish case, this might involve a legal requirement for MNC firms to re-invest 20 percent of their surplus in local job creation.
The general point is that there are surplus money-resources for productive investment that can solve the crisis and re-distribute to minimize income inequality. But, because these resources are privately owned, and protected through legal guarantees, the state cannot touch them. Nor does it want to, for a whole variety of reasons, not least the stickiness of the ideational paradigm underpinning public policy. But, in the absence of restrictive capital controls or beneficial constraints to use these resources they will remain in private and unproductive ownership. Therefore, it is ultimately boils down to a strategic choice on how to use surplus private capital. Should it be maintained as a) private luxury for the 1 percent b) taxed as means to generate state revenue or c) socialized for productive labour-intensive investment? These are some just some policy considerations for the occupy movement and progressive political parties to consider. We need a new public policy paradigm to govern the production, distribution and exchange of scare resources for the next thirty years – premised on a labour intensive ecological revolution.