The Crisis in Advanced Capitalism: An ... - Studies in Political Economy

David Wolfe

The Crisis in Advanced Capitalism: An Introduction

The stagflation and economic decline of the 1970s have blossomed into a major crisis of the global economy in the present decade. What first appeared as an interruption of the long wave of post-war economic expansion is now recognized for what it truly is - a crisis of capitalist accumulation. Unemployment in the core countries of the Organization for Economic Cooperation and Development (OECD) reached ~~..IJ:!illion in 1982 - a level which rivals that achieved at the height of the Great Depression in the 1930s. Productivity levels have been declining and rates of profit plummeting for most of the past decade. A large numberof countries - both in the OECD and among the developing countries - have experienced balance of payments deficits. In September 1982, the international monetary system appeared to be on the brink of a liquidity crisis that could have precipitated a major round of bank failures.vl'he system of welfare state capitalism that emerged in the postwar period as the political form of class compromise has been abandoned, as the social wage and mass consumption levels have been progressively eroded. Keynesian theory and economic policy, which constituted the ideological justification for welfare state capitalism have been jettisoned as well, as supply-side, monetarist and Social Darwinian elements of neo-liberal philosophy have enjoyed an amazing resurrection. By virtually any indicator that one might choose, the current crisis ranks in the intensity of its economic instability, political upheaval

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Studies in Political Economy

and ideological ferment with the classic capitalist crises of the nineteenth and early twentieth centuries. In spite of the general reluctance during the past decade to recognize the growing economic problems as the product of a generalized capitalist crisis, there has not been any lack of crises in recent years. The term has been applied to such a broad range of social phenomena that it has undergone a process of conceptual devaluation. Having experienced an energy crisis, an ecological crisis, and a crisis of democracy in relatively swift succession, it has become difficult to determine what distinguishes these previous crises from a generalized capitalist crisis. In light of the conceptual ambiguity which surrounds the term "crisis," it is important to try to clarify its meaning. The roots of the word crisis lie in classical Greek historiography, drama and medicine. It was used to denote a turning point or a Ill,?ment ot.!lecision in the life of an individual or So~y~'~hen the capacity of the individual or society to sustain and reproduce itself was placed in jeopardy. The outcome of the crisis depends upon the way in which the individual or society responds to the challenge. The classic concept of crisis includes both an objective and a subjective dimension. The objective dimension embodies the way in which the crisis appears as an externally determined phenomenon following a course independent of the actions of the subjects whose lives it intersects. The subjective dimension involves the way in which individuals apprehend and respond to the challenge posed by the crisis. Given that crises represent fateful morjments when previous patterns of social relationships are called into question, they create the opportunity for individuals to perceive the possibility of alternative forms of social organization. To the extent that this occurs, the subjective choices made by individuals constitute a critical element in the resolution of the crisis.' The concept of crisis is also an integral part of most Marxist and neoMarxist analyses of capitalism, but is used in a variety of different contexts. In one sense, Marx used the word crisis to denote a violent, but temporary, disruption in the normal process of capital accumulation caused by the existence of a barrier to the continued self-expansion of capital. In this respect, crisis referred to the upheaval associated with the process of restoring the conditions necessary for a resumption of the accumulation of capital.s In addition, Marx also used the concept of crisis to refer to fluctuations and disturbances in the trade cycle, as reflected in the expansion and contraction of the reserve army of labour. A third use referred to sectoral crises caused by the existence of disproportionalities between the various departments of production. The absence of a precise definition and use of the concept of crisis in Marx's own writings have given rise to a considerable amount of debate and

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David Wolfe/Crisis: Introduction

disagreement. In the early years of the twentieth century, within the Second International, as well as recently, these debates focused on the correct formulation of the concept of crisis, as well as on the broader questions of the relation between a capitalist crisis and the conditions necessary for the transition from capitalism to socialism." At issue in much of this debate was the strategic question of whether capitalist economies contained structural contradictions that would lead inevitably to some form of breakdown and a transition to socialism, or whether such seeming contradictions could be reconciled and overcome. Both positions in the debate had important implications for the question of the relation between the objective conditions of a capitalist economy and the development of a socialist consciousness and forms of political struggle. The debate on the breakdown controversy has been criticized for excessive economism - for the extent to which the resolution of the crisis was reduced to some aspect of the inner working of the capital relation. However, as Russell Jacoby has perceptively observed, this is a danger that is inherent in the Marxist project as a critique of political economy: "The hope of the critique of political economy is that it is more than political economy; the danger is that it is only political economy.v" The challenge for any attempt to understand and analyze the current crisis is both to recognize, and to struggle against, this tendency towards -economism. Crisis tendencies within the capitalist mode of production must be analyzed within the complete configuration of economic, political and ideological aspects of the capitalist form of class domination. The capitalist mode of production is based upon social relations of production that cannot be analyzed independently of the political institutions that provide the legal framework constitutive of those social relations, or the ideological formulations which justify and legitimate the social relations. S A crisis of capitalism must ultimately mean a crisis of the capitalist form of class domination; such a crisis necessarily involves all three aspects of class domination - economic, political and ideological. Its analysis must also incorporate both the subjective and the objective dimensions of crisis in order to apprehend the dynamics by which a crisis in the extended reproduction of capital is manifested in the political and ideological aspects of class domination. Every crisis involves an element of choice: the outcome of a crisis of capitalist relations of production involves a choice between the reconstitution of those relations of production in a manner that will make possible the renewed self-expansion of capital, or in a manner that will lead to the qualitative transformation of those relations. This outcome invariably depends upon the way in which the crisis is apprehended ideologically and the way in which the perception of the crisis influences

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the political struggles around the reconstitution or the transformation of the relations of production. The following analysis of the current crisis sets out an explanation of the sources of the recent economic stagnation, the way in which that stagnation has affected the form of state intervention in advanced capitalist economies, and the manifestation of the crisis in the realm of ideology.

The economic dimensions of the current crisis are rooted in the factors that facilitated the long wave of capitalist expansion from the end of World War II to the late 196Os.The conditons created by the Great Depression and World War II laid the basis for the extended period of accumulation that followed. Among the changes that occurred was a massive increase in the concentration and centralization of capital as numerous producers were either forced into bankruptcy or consolidated into larger units. In addition, the military buildup during the 1930s and >-,~ the war years generated a huge stock of scientific and technical innovations. This enormous stock of scientific knowledge was accessible at relatively low costs and could be turned readily to civilian uses after the war. Furthermore, the process of industrial mobilization for the war effort brought into existence (in the victorious economies at least) a huge "increase in the stock of productive plant and equipment. Much was converted to peace-time use in the reconversion period after 1945. In the economies whose productive capacity had been partially destroyed by the war, the process of reconstructing the capital goods and heavy industries provided the initial impetus to sustained post-war expansion which was reinforced later by developments in the consumer goods industries," In conjunction with the ready supply of innovative technology and productive capacity, there also existed a large pool of skilled and discip---lined labour, willing to work at historically low wage rates. In most of the industrial economies, the level of real wage rates at the end of World War II had still not recovered from the effects of the Depression. In the countries devastated by the war, the high levels of unemployment at the end of the war, as well as the massive economic dislocation that had occurred, ensured that wage discipline was maintained. Particularly in the countries that had suffered under fascism, the political defeat inflicted upon organized labour and its allies exerted a disciplinary effect well into the post-war period. As the reserve labour supply was absorbed into the labour force during the post-war years, it was readily supplemented by the migration of workers from agricultural sectors of the various economies to the more industrialized regions, and by the increasing rates of female participation. This further restrained any

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upward pressure on real wage rates." A third factor associated with the long wave of post-war expansion - was the development of new forms of intensive accumulation and the increasingly sophisticated division of technical and manual labour associated with the spread of Fordism. This involved the increasing s~era~ tion of the tec!!n!~~.!!1(tsonceptual aspects of the organization of the work process fr£.~h~llbysical performance of the individual tasks. In addition, Fordism involved the tyiI!&..QL!!!l!~$ _~_~tion levels to [rising pro~~ct!yj1~}~vels through a pattern of collectivebar$aining that \\linked wii"geincreaSes to p!oductivitygmns. -th€oevelopment of these new forms of intensive"accumulation was also accelerated by the spread of Fordism from the V.S. economy, where it had been pioneered, to the rest of the advanced industrial economies.f (The significance of the Fordist wage relationship is explored in greater detail in Francois Houle's contribution to this issue.) The combination of the increasing specialization of the technical division of labour, the application of new technologies for civilian consumption, and the continued expansion of mass consumption levels contributed to the steady economic growth and rising levels of productivity in the post-war period. The spread of Fordism, in turn, helped to -sustain a high and stable level of effective demand in the industrial economies. Most important was the transference of American patterns of consumption .;....based upon the creation of mass markets for automobiles, electrical appliances and other consumer durables - to the economies of Europe and Japan. The maintenance of stable levels of demand for mass market consumer products was also sustained by the - adoption of a variety of income support and social insurance policies associated with the Keynesian welfare state." A final factor that laid the basis for the post-war expansion was the -recreation of a set of financial and trading arrangements that was designed to stabilize international trade and investment under V. S. hegemony. The centrepiece of these arrangements was the Bretton Woods agreement negotiated in 1944. This agreement re-established a stable system of currency exchange and a mechanism for balance of payments adjustments, with the V.S. dollar in the role of reserve currency previously occupied by gold. Complementing the Bretton Woods agreement was the General Agreement on Tariffs and Trade (GATT), which opened the way for a more liberalized international trading regime in the post-war years. Supported by the tremendous liquidity and currency reserves in the V.S., these new institutional arrangements opened the way for increased international trade and investment, based on the export of goods from the V.S. and the spread of V.S. multinationals overseas. By the early 1960s, with the creation of

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a vastly expanded market in Europe and the restoration of the economies destroyed by the war, the V.S. multinationals were joined by the transnational flow of European and Japanese capital. This resulted in a greater degree of integration and interpenetration of the advanced capitalist economies, which hastened the disintegration of the stable set of economic conditions underlying the post-war era of prosperity. 10 The onset of the current economic crisis in the late 1960s and early 1970s was the result of fundamental alterations of all of the conditions that had laid the basis for the post-war boom. A major cause of the end - of the boom was the intensification of inter-imperialist rivalry among the major capitalist economies. At the outset of the post-war era, the North American economies enjoyed a virtually undisputed lead in terms of international competitiveness over their potential rivals. As the European and Japanese economies began to recover and replicated the patterns of production in the V.S. economy through importation of capital goods and technical knowhow, the V.S. lead was eroded gradually and the conditions of international competition intensified. In some instances, the reconstruction process gave the economies that had been substantially destroyed during the war a distinct advantage over those that had not. By the early I960s, some sectors of the European and Japanese economies were competing with V.S. industry with newer plant, equipment and productive techniques. By the decade of the 1970s, as the existence of substantial surplus capacity in such critical industries as textiles, steel, autos and shipbuilding became apparent, the distinct technological and competitive advantages enjoyed by the industries with the newer plant and equipment were revealed. (Rianne Mahon analyzes the problem of surplus capacity in the Canadian textile industry in her contribution to this issue.) The existence of ever greater \degrees of surplus capacity in key secondary manufacturing industries, Icombined with increasing degrees of international competitiveness and Iradically different rates of productivity, put increasing pressure on the \ rates of profitability of capitalist enterprises. The declining rates of profit were manifested first in those economies with the most outmoded plant and equipment and the lowest levels of productivity increase (such as Britain), but by the 1970s the same phenomenon had appeared in the V.S. and other advanced industrial economies. 11 The intensified pressure on profit rates was not only the product of increasing degrees of international competitiveness, but also of increas-... ing tightness in labour markets and the steady pressure of rising real wage levels. By the 1970s, most of the readily accessible supplies of inexpensive labour had been drawn into the labour force. Declining slack in the labour force, together with the experience of relatively high and stable levels of employment for two and a half decades, began to shift

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the relative positions within the collective bargaining process in favour of wage labour. The increased bargaining power of labour was also affected by the experience of a long period of economic stability, facilitated in part by the commitments of governments to fiscal and monetary stabilization policies. The traditional role played by the expansion of the reserve army of labour in maintaining wage discipline - was undermined further by the improvement of social insurance programs which radically reduced the costs of unemployment to individual workers. The particular pattern of wage bargaining instituted in the advanced capitalist economies also contributed to the persistent upward shift in real wage levels. The practice of productivity wage bargaining which had been introduced in the more oligopolistic, technologically intensive industries set a pattern for wage increases that tended to spill over into industries with lower rates of productivity increase. The combined result of both the increased degree of international competitiveness and the rising levels of real wages was an increased pressure on rates of profit. 12 The response of industry throughout the advanced capitalist economies to decTIDesin the rate of profit has been to initiate a process - of relocation and restructuring that constitutes a key part'Oftiie strategy to restore cOiidftiOns·conducive to profitable accumulation. In its initial stages, the process of restructuring was manifested in the movement of plants from older industrial sites in the northern and central United States and the north and west of Europe, to newer sites in the sunbelt of the United States and Southern and Eastern Europe. In these newer locales, capital could easily intensify the rate of exploitation because real wage levels were significantly lower, unionization was considerably less extensive, and labour did not enjoy the same legal protections that workers in the older industrial locales had won through years of struggle. The transfer of industrial production to these newer sites was also accompanied by intensified efforts to rationalize the production activities of multinational corporations on a world scale. To a growing extent, the new locales operated as sources of component parts for the production of integrated end products that were marketed on a world scale. To further reduce the dependence of the enterprise on anyone production site, multinational corporations have instituted the practice of developing parallel sources for component parts; this undermines the bargaining power enjoyed by labour at individual plants or locales. 13 During the decade of the 1970s, the process of rationalization and restructuring accelerated even more. Rapid rises in unit labour costs during the previous decades had radically improved the investment op~ portunities in new labour-saving technology. The intensified pressure to reduce labour costs through the substitution of capital for labour re-

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suited in important breakthroughs in the microelectronics industry and robotics. The introduction of labour-saving devices in a wide array of secondary manufacturing and tertiary industries - ranging from automobile production to financial s~s - created the potential for a radical restructuring of the work process and the occupational structure throughout the advanced industrial economies. The restructuring of much of our economic base through the introduction of these new information and communication technologies inevitably will produce massive dislocations in the patterns of work and levels of employment - particularly for women workers. The effects of this transformation of the work process in industries where organized labour traditionally has been strong (e.g., automobile) are already becoming apparent. In addition, it further undermines the possibilities of organization in traditional white collar, largely female occupations in the financial and service sector. The rationalization of production in the industrial economies is being accelerated by the continued flow of production activities to sites in the so-called "newly industrializing countries" (NICs) of the Third World. The pattern of capital flight to the-American sunbelt and Southern and Eastern Europe which was set in the early 1970s was extended, in the late 1970s and 1980s, to a host of locales in the Third World. Multinational firms are moving to take advantage of the vast reservoir of potential labour supply which exists in the NICs of the Third World. The increasflng technical specialization of the labour process means that the produc' tion of even relatively complex electronic components such as semi[ conductors can be broken down into tasks simple enough to be performed by relatively unskilled labour in these countries. Improvements . in the computerization of transportation and communications technologies make it just as easy to exercise centralized managerial control over production facilities spread throughout the Pacific Rim countries as over production facilities located in the U.S. or Western Europe. Wage levels paid in the industrial sectors of these economies average between 10 and 20 per cent of those in the advanced industrial economies, and capital needs bear almost none of the costs of the reproduction of the labour force. In many of the NICs, the. most sought-after workers in the industrial sectors are women who, given the rigidly patriarchal structures of their societies, work for even lower wages than men. These women, who are also valued for their extreme dexterity in the difficult tasks involved in the manufacture of products such as semiconductors, are subject to intense exploitation, with the result that they often have productive careers of less than ten years. The attraction of production locales in the Third World is also increased through the creation of free-trade zones in which governments assure

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the availability of labour supply and subsidize much of the overhead costs of relocation through the servicing of industrial sites.I" These developments, combined with the restructuring of the labour process in the advanced capitalist economies, have the potential to bring into existence a vastly expanded reserve army of labour that will undermine the political and economic gains wage earners have made in the advanced capitalist countries. While the emergence of the New International Division of Labour (NIDL) is clearly a manifestation of the current crisis, rather than a cause, it must be recognized analytically as a critical component of capitalist strategies for restructuring the conditions of production and accumulation. The NIDL poses one of the most important political challenges to organized labour and wage earners in the resolution of the current crisis. The erosion of U.S. hegemony and the emergence of a number of challengers to it, both among the industrialized and the newly industrializing economies, have been reflected in the disintegration of the in-ternational system of trade and currency exchange which was based on the strength of the U.S. dollar. The spread of U.S. multinationals to Europe and the rest of the world in the decade of the 1950s and 1960s, as well as the high levels of U.S. spending abroad on aid and the maintenance of its military establishment, generated recurring balance of payments deficits. Under the terms of the Bretton Woods arrangements, the central banks of the European countries were compelled to absorb large quantities of the surplus dollars generated by these capital exports in order to maintain the ratio of fixed interest rates. By the late 1960s, the other major parties to the Bretton Woods agreement had become less willing to maintain the convertibility of dollars into gold at the fixed rate in the face of the persistent balance of payments deficit being run by the U.S. The deteriorating position of the U.S. dollar as a reserve currency and the increasing speculative pressure against it led to the abandonment of convertibility by the U.S. in 1971. The end of the Bretton Woods system has been followed by a period of increasing instability in exchange rates and growing speculation in the burgeoning Eurocurrency markets. IS As Duncan Cameron makes evident in his contribution to this issue, the collapse of the post-war financial and trading institutions has fuelled the inflationary pressures of the past decade, intensifed the effects of the crisis, and enhanced the independence of transnational capital from the control of individual nation states. The ability of transnational finance capital to determine the expansion and contraction of credit in a \ manner that is less and less susceptible to the political control of domesItic monetary authorities is the financial equivalent of the interna; tionalization of production embodied in the emerging NIDL. The in-

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creasing internationalization of production and the control of money and credit enhance the ability of capital to increase the rate of exploitation and are important parts of the process of restructuring. In addition, international finance capital is able increasingly to impose austerity programs on individual states in both advanced and Third World economies. This imposes grave limitations upon the ability of individual nation states to "de-link" from the world economy and attempt to pursue independent policies (as the French and Mexican cases make apparent). These developments constitute another important part of the political challenge posed by the crisis.

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One of the consequences of the global restructuring of capitalist relations of production is a dramatic alteration in the pattern of ~te intervention in capitalist economies that has prevailed throughout the post-war period. The increasing penetration of state and economy in advanced capitalism was an integral part of the long wave of post-war economic expansion. The state has played a critical role in providing the material conditions necessary for capitalist production and accumulation. This pattern of state intervention reduced the risks associated with the unimpeded operation of the market. By partially subsidizing the costs of capital and by attempting to guarantee high and stable levels of demand, the state helped to reduce the uncertainties experienced by large oligopolistic corporations. The contribution of the state sector to the maintenance of high levels of aggregate demand through its direct spending policies, income transfer programs and stabilization policies - played an important part in sustaining the intensive mass consumption patterns associated with the Fordist pattern of production described above. The myth of the self-regulating market which had prevailed in the liberal form of competitive capitalism was abandoned as the pervasive role of the state became a widely recognized feature of advanced capitalist society. The state also intervened critically to implement the post-war political settlement between capital and labour by means of Keynesian welfare policies. The basis of the settlement was a compromise which left the investment decision-making process in the hands of private enterprise in exchange for the adoption of economic policies to provide stable levels of employment and income for the mass of wage earners. The key feature of the Keynesian welfare state included the acceptance of an explicit obligation by the state to provide assistance and support for those individuals who were unable to participate in the labour market adequately enough to provide for their basic needs. This commitment included the institution of social insurance programs to deal with old

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age, unemployment, ill health, and a variety of disabilities. The Keynesian welfare state also involved a political commitment by the state to recognize and support the democratic rights of trade unions to bargain collectively to improve the wages and living standards of their members and in some instances to participate directly in the determination of public policies." The political reforms associated with the post-war welfare state were designed to ensure the social and political harmony necessary to maintain the social relations of production. Moreover, they succeeded in transforming the political radicalism of the organized labour movement and of the social democratic and communist parties away from a preoccupation with control of the productive process in capitalism to the more reformist concern of altering the distribution of income between capital and labour. To the extent that the post-war settlement succeeded in guaranteeing the conditions of social harmony, it is sometimes depicted as a political defeat for labour. However, to the extent that it succeeded in politically altering the result of a market-determined pattern of income and employment, it represented a material improvement in the position of labour. 17 There is little doubt that the increased role for the state in the postwar capitalist economies contributed to the period of economic prosperity, although as Cy Gonick argues in this issue, there is some danger in attributing too great a share of the success to the activity of the state. ,-At the same time, it is also clear that the critical role which the state l played in undermining the traditional function of the reserve army of '\ labour and strengthening the economic and political bargaining power of labour ultimately constituted an important part of the barrier to the continued self-expansion of capital. The steady reduction in the size and role of the reserve army of labour, coupled with the increased economic security that members of the working class derived from social insurance policies, contributed to the squeeze on profits and consequently the onset of the current crisis. Even more important, when governments in the U.S. and other advanced capitalist economies attempted to maintain levels of profitability through expansionary monetary policies in the 1970s, the wage militancy displayed by organized labour intensified the profit squeeze and accelerated the inflationary spiral. By the mid-1970s the coincidence of accelerating inflation and economic stagnation (a phenomenon which gave birth to the word "stagflation") began to undermine the terms of the post-war political settlement. Both business and conservative political interests called for a return to the disciplinary role of the reserve army of labour. The attack on the Keynesian welfare state in the 1970s was also the " result of the emerging fiscal crisis of the state. The rapid expansion of

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government expenditures to finance the social policies associated with the welfare state, as well as to provide infrastructure and investment and research subsidies to sustain capital accumulation, created enormous demands on revenues. In the early years of the post-war boom, govern) ment revenues were sustained by a substantial expansion of the tax base as well as by the income elasticity of key components of the tax system - particularly the personal income tax. In some instances, revenue - flows were augmented by the introduction of new payroll taxes. As the pressures of international capitalist competition intensified during the late 1960s, and as the rate of profit began to fall, governments i-attempted to sustain corporate profitability by reducing the effective , rates of taxation on corporations through such devices as accelerated depreciation allowances and investment tax credits. Falling effective rates of corporate taxation were offset by a progressive shifting of the tax base onto personal, payroll and indirect taxation, but this in turn produced a growing political resistance to taxation - tax revolt. As government expenditures continued to expand and revenues failed to keep pace, a wider gap opened between the two sides of the public accounts. The fiscal crisis of the state burgeoned with the onset of the crisis in the 1970s. Stagnating levels of economic growth drastically reduced the flow of the revenues generated by an elastic tax system while creating ever greater demands on the public purse for social spending. Hence, the fiscal crisis of the state is both a reflection of the underlying economic crisis of advanced capitalist society and a reflection of the contradiction embedded in the interventionist role of the state in advanced capitalism. The structural inability of the state to close its fiscal gap contributed as well to the political attack on the post-war welfare state." In a report prepared for OECD in 1977 (entitled Towards Full Employment and Price Stability), Paul M"2:racken and several other leading economists explicitly questioned the validity of the post-war policies of maintaining levels of aggregate demand through the use of counter-cyclical fiscal and monetary policies. Instead, they argued in --- favour of a policy of steady fiscal and monetary restraint. The McCracken Report viewed the excessive growth of the public sector associated with the Keynesian welfare state as the root cause of the inflation experienced in the 1970s. It saw the social policies of the welfare state as responsible for undermining the conditions for continued economic growth and prosperity. In place of these policies; it envisaged an important disciplinary role for democratic governments in suppressing both the excessive expectations that they had engendered and the excessive burdens which they had imposed on the public treasury. It urged governments to

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restore the vitality of capitalism by pursuing disciplinary policies that would encourage increases in the rate of profit while restraining rises in real wages. In opposition to the view characteristic of the welfare state, which had seen an expanded level of social security as being compatible with corporate profitability, McCracken and his colleagues viewed them as incompatible. Instead of the post-war political settlement which had been embodied in the policies of the welfare state, they called for the establishment of what has been termed the "democratic disciplinary state."19 The political attack on the post-war settlement has also been intensified by the emerging NIDL and by the decline in levels of productivity and profitability in the core industrial states. The increased degree of international competition from Japan and the export platforms in the NICs have lent credence to the view that the welfare state policies of the past are a luxury which can no longer be afforded. In effect, this .~argument suggests retrospectively that the post-war political settlement was premised upon the hegemonic position of the U.S. in the world economy. With the loss of that hegemony and the extensive economic benefits which flowed from it, the terms of the post-war settlement had to be renegotiated. The prime minister of Canada, Pierre Trudeau, advocated this view in his televised addresses to the nation in the fall of 1982, when he argued that in order to compete effectively in the emerging international capitalist order, we must become leaner, harder and tougher. This position clearly requires a dramatic alteration in the policies associated with the post-war settlement. The attack on the welfare state associated with the Reagan, Thatcher and Trudeau governments indicates that the current crisis is also a crisis of the form of state intervention that has characterized advanced capitalism since the end of World War II. It also represents an attack on the intensive patterns of mass consumption that have been associated with the spread of Fordism. Will the conditions necessary for renewed capital accumulation on a global scale be reconstituted in such a way that will render obsolete the patterns of mass consumption associated with Fordism? This is a key analytical question in mapping the eventual resolution of the current crisis. It also reflects in an important way the subjective dimension of the political choices that lie at the heart of the crisis; it is a question to which we shall return.

(The current crisis of post-war capitalism and of the welfare state is also )a crisis of the ideological formulations which have justified the post-war Ipatterns of state-economy relations. The economic and political ideas lformulated by John Maynard Keynes in response to the Great Depres-

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sion of the 1930s represented an attempt to unite continued private control of the investment and production processes of a capitalist economy with public demands for a change in the market-determined pattern of employment and income. Keynes's argument that the fiscal policies of governments could be coordinated to offset the cyclical fluctuations of the private market economy provided the theoretical rationalization for the introduction of techniques for the democratic , 'management of capitalist economies. More significantly, Keynesianism provided a theoretical framework that justified the particularistic interest of workers in higher wages as being of general benefit to • capitalism by sustaining levels of aggregate demand. Thus, it constituted the theoretical and ideological justification for the Fordist pattern of ", monopoly wage regulation. The Keynesian policy prescriptions also -. legitimated social assistance and social insurance policies, such as unemployment insurance and family allowances, not in terms of charity, but as "automatic stabilizers" built into the private enterprise system to sustain aggregate demand in periods of cyclical downturn. In effect, it was Keynesianism that provided the ideological and political foundations for the compromise of capitalist democracy. Keynesianism held out the prospect that the state could reconcile the private ownership of the means of production with democratic management of the economy .... Democratic control over the level of unemployment and the distribution of income became the terms of the compromise which made democratic capitalism possible.P

An important consequence of the implementation of the Keynesian democratic compromise was a significant decline in the intensity of political and ideological conflict in post-war capitalism. The "end of i\. 'ideology" was widely perceived as the product of the technocratic solutions provided by Keynesianism to the problems of economic instability , which had previously plagued capitalism. Without fundamentally alteri ing the existing system of property relations, Keynesianism deftly undercut the political basis for debate about the future of capitalism. Social democratic parties and progressive liberals were joined in the task of modifying the effects of market forces and managing the economy in the interests of both workers and capitalists alike. The more ideologically divisive and politically contentious issues surrounding widespread nationalization were all but abandoned. These developments fundamentally transformed the nature of inter-party conflict in the political arena. t Party competition in the post-war period focused less on radical policy alternatives than on administrative and technocratic efficiency in the implementation of Keynesian policy prescriptions. The' 'scientization of

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politics" that accompanied the decline of ideological debate and the bureaucratization of political decision-making limited the role of political parties to the effective mobilization of popular support for administratively determined policies.P The depoliticization of politics and party conflict in the Keynesian welfare state has altered the cultural production of political meaning. A generation of democratic voters has grown up in the advanced capitalist countries believing that critical political issues of the ownership and control of resources and the distribution of the proceeds of production do not involve important value choices, but are questions of managerial and administrative efficiency. Just as the management of the post-war economy appeared as an external, objective process beyond the realm of individual subjective choices, so the onset of the crisis appeared equally to be the product of forces beyond individual control. The collapse of political Keynesianism under the onslaught of the Right, unleashed in response to the crisis, has created an ideQ.!9~.~al vacuum at the.left ~ncl()Lthe.POliticai spectrum. The ideological attack fr6Df1lle right by writers ranging from George Gilder to Irving Kristol and Amitai Etzioni on the policies and ideology of the Keynesian welfare state has reasserted the values of a competitive liberal market capitalism.P The theoretical bankruptcy of Keynesianism was revealed by its inability to prescribe policies to deal with the stagflation of the 1970s. The deflationary policies that were adopted clearly contributed to the intensification of the crisis, at the same time that their ineffectiveness led to the outright rejection of Keynesianism in favour of monetarism. The dilemma posed by this ideological crisis for parties of the Left is that, long since having abandoned socialism for Keynesianism, it is - proving extremely difficult for them to advance alternatives. The majority of social democratic parties have been left calling for some form of Keynesian reflation; at best, some parties have advocated an increased degree of intervention, combined with elements of protectionism and a Keynesian reflation along the lines of the Alternative Economic Strategy in Britain or the Socialist policy in France (described by Jane Jenson and George Ross in this issue). The (dilemma for social democrats is that the Keynesian reflation option no 'longer appears credible, while the more interventionist option appears incapable of overcoming the constraints imposed upon individual ( capitalist economies by the NIDL and by the increased independence of t transnational finance capital. The ideological challenge lies in the need \ to formulate a strategy that can both mobilize popular support behind a \ progressive resolution of the crisis while recognizing the fundamental Iway in which the global process of restructuring is altering the nature of

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contemporary capitalist economies.

A number of writers have disagreed fundamentally over the prospects for such a resolution of the crisis. Those writers who have analyzed the crisis from the world system perspective (best exemplified in the work of A. Gunder F.a!!k) have depicted the crisis as a necessary process by which the conditions for profitable accumulation on a world scale are being reestablished under a new hegemonic centre based in the countries of the Pacific Rim. From this perspective, the prospects for the continuation of the standards of living that historically have been associated with Fordism and the Keynesian welfare state are dim. Equally dim are prospects for the emergence of a progressive resolution to the crisis given the ideological hold of the Right in the West, and the resurgence of nationalism and revival of fundamentalist religions throughout the world. The prospects for the world system are for the eventual reemergence of a new wave of capitalist expansion: there is a single world capitalist system, which is undergoing another in a series of long cyclical crises from which it is likely to be able to recover through far-reaching and deep-going economic, social, political and cultural readjustments. . . . 1 . . . believe that this crisis phase is likely to be successfully overcome and to lead to a new expansion of capital before the end of the century. Therefore (I) do not see this crisis as the end of capitalism and can even visualize the regeneration of world capitalist development, in part on the strength of this crisis.23

The irony in this formulation of the crisis in world systems terms is that it has inverted almost completely the classical breakdown hypothesis of Second International Marxism. Both are equally deficient in that they ignore the workings of contradictory forces in capitalist forces of production and the interplay of the objective and subjective dimensions of the crisis. The basic limitation inherent in this formulation is that it ignores the pr()~lemof realization. There is no doubt that the process of rationalizing and restructuring the production process (which is underway in advanced capitalism) and the shift to production in peripheral economies will alleviate the squeeze on profits, but this in itself is not sufficient to restore the basis for continued accumulation. Without the restoration of demand conditions in the metropolitan countries, it is unlikely that there will be sufficient markets for the new wave of consumer products being generated by the ongoing technological revolution. The stagnation of demand in the centre economies has forced the crisis onto the Third World economies as well. The other problem with the resolution of the crisis forseen by Gunder

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Frank is that it underestimates the effects that peripheral Fordism is likely to have on the societies of the newly industrializing countries. The (expansion of industrial production in the NICs will generate farreaching social changes comparable to those which occurred in the advanced capitalist countries in the nineteenth century. These changes I \Villintensify class conflicts and political demands for liberalization and ldemocratization in the countries of peripheral Fordism. It is unlikely that the dominant elites will be able to maintain the existing system of political and ideological hegemony in the face of these pressures. As A. Lipietz has perceptively pointed out, the countries that first experienced the new forms of rationalized production for the world market in the early 1970s were those on the southern periphery of Europe. The result was "the crisis of the dictatorships." Rather than laying the basis for a new wave of capitalist expansion, the emerging NIDL and peripheral Fordism appear to embody the contradictions of the current period of capitalist crisis.> The dim prospects for a resolution to the crisis - one that will reestablish capitalist hegemony and the basis for profitable accumulation - pose an acute dilemma for the political forces of the Left. Given the ideological resurgence of the Right and the bankruptcy of traditional social democratic politics, the immediate prospects would appear to be a long period of stagnation. The attempts by labour movements and social democraticpartiestOfOimulate new strategies out of the crisis generally have focused on nationalist solutions which involve an element of delinking from the world economy, or a "~l~ neighbour" approach to developing strategies for competing more effectively in the NIDL. 2S The real political challenge lies in the need to develop a political strategy that recognizes the global dimensions of the crisis and formulates a political appeal vvhic~overcomes the divisions between the labour movernellts ()nhell1.~irpolitall S(),l!l1tr!e~ ~n.dthose of the periphery:"Given'the deep pessimism that pervades the politics and culture of'electorates in the industrial democracies in light of the disillusionment with the technocratic policies of Keynesianism, this constitutes a formidable political challenge. The challenge is particularly formidable in Canada where progressive responses to the crisis have emphasized nationalist solutions. The recent experience of the French socialist government provides instructive lessons in this respect. Yet it is by no means determined that the Left in Canada and elsewhere will prove incapable of meeting this challenge. The capacity for popular mobilization displayed by the international peace movement and the resistance to the erosion of the public sector by trade union militants (see the interview with J-C Parrot in this issue) provide grounds for optimism, while the 'precipitate decline in the

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Reagan administration's credibility due to the failure of its policies both domestic and foreign - shows that the right-wing solution to the crisis is vulnerable as well. If rejecting economic determinism has moved us away from presuming the inevitability of socialism, it should also warn us against an unrelieved pessimism.

Notes I. Jurgen Habermas, Legitimation Crisis, trans. Thomas McCarthy (Boston 1975), I; James O'Connor, "The Meaning of Crisis," International Journal of Urban and Regional Research 5 (September 1981), 301-2; John Keane, "Crisis in the Industrial World?" Canadian Journal of Political and Social Theory 3 (Spring-Summer 1979), 184-5 2. Michael A. Lebowitz, "The General and the Specific in Marx's Theory of Crisis," Studies in Political Economy 7 (Winter 1982), 6 3. Some sense of the competing views on the different versions of CrISIS contained in Marx's own writing, as well as disagreement among latter-day Marxists, can be found in some recent surveys of the subject. See O'Connor, "The Meaning of Crisis," passim (see n. I above.); Erik Olin Wright, "Historical Transformations of Capitalist Crisis Tendencies," in Class, Crisis and the State (London 1978), 111-80; Anwar Shaikh, "An Introduction to the History of Crisis Theories," in Union for Radical Political Economics, U.S. Capitalism in Crisis (New York 1978), 219-41; Thomas E. Weisskopf, "Marxist Perspectives on Cyclical Crises," in ibid., 241-60; Paul Mattick, Economic Crisis and Crisis Theory (New York 1981); Makoto Itoh, Value and Crisis (New York 1980); Paul M. Sweezy, The Theory of Capitalist Development: Principles of Marxian Political Economy (New York 1970), chaps. 8-12; Richard B. Day, The "Crisis" and the "Crash": Soviet Studies of the West (/917-/939) (London 1981), 1-21 4. Russell Jacoby, "The Politics of the Crisis Theory: Toward the Critique of Automatic Marxism II," Telos 23 (Spring 1975), 45; see also Giacomo Marramao, "Political Economy and Critical Theory," Telos 24 (Summer 1975), 56-80. 5. W. Wesolowski, Classes, Strata and Power, trans. and with an introduction by George Kolankiewicz (London 1979), 18-29; Nicos Poulantzas, State, Power, Socialism, trans. Patrick Camiller (London 1978), 11-34 6. Andre Gunder Frank, Crisis: In the World Economy (New York 1980),25; Dieter Ernst, Restructuring World Industry in a Period of Crisis - The Role of Innovation: An Analysis of Recent Developments in the Semiconductor Industry (New York 1981), 21

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7. Gunder Frank, Crisis, 25-6 (see n. 6 above.); Ernst, Restructuring, 20 (see n. 6 above). 8. Ernst, Restructuring, 21-2; Alain Lipietz, "Towards Global Fordism?" New

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Left Review 132 (March-April 1982), 34-5; Giovanni Arrighi, "A Crisis of Hegemony," in Samir Amin et al., Dynamics of Global Crisis (New York 1982), 58-9 9. Ernst, Restructuring, 22 10. Fred L. Block, The Origins of International Economic Disorder: A Study of United States International Monetary Policy from World War II to the Present (Berkeley 1977), 32-108; Charles S. Maier, "The Politics of Productivity: Foundations of American International Economic Policy After World War II," in Between Power and Plenty: Foreign Economic Policies of Advanced Industrial States, ed. Peter J. Katzenstein (Madison 1978), 23-49 II. Gunder Frank, Crisis, 28-34; Ernst, Restructuring, 37-8 12. Ernst, Restructuring, 30-2; Andrew Glyn and Bob Sutcliffe, British Capitalism, Workers and the Profits Squeeze (Harmondsworth, U.K. 1972),54-72; Thomas E. Weisskopf, "Marxian Crisis Theory and the Rate of Profit in the Postwar U.S. Economy," Cambridge Journal of Economics 3 (December 1979), 341-78; Bob Rowthorn, "Late Capitalism," in Capitalism, Conflict and Inflation (London 1980), 109-17 13. Barry Bluestone and Bennett Harrison, The Deindustrialization of America: Plant Closings, Community Abandonment and the Dismantling of Basic Industry (New York 1982), 164-78 14. Folker Frobel, "The Current Development of the World-Economy: Reproduction of Labour and Accumulation of Capital on a World Scale," Review 5 (Spring 1982), 535-44; Lipietz, "Towards Global Fordism7" 40-4 (see n. 8 above). 15. Block, Origins, 193-225 (See n. 10 above); Arrighi, "Crisis of Hegemony," 60-6 (see n. 8 above); Ricardo Parboni, The Dollar and Its Rivals; Recession, Inflation and International Finance, trans. Jon Rothschild (London 1981), passim. 16. Ian Gough, "State Expenditure in Advanced Capitalism," New Left Review 92 (July-August 1975), 69-70; Leo Panitch, "The Development of Corporatism in Liberal Democracies," Comparative Political Studies 10 (April 1977), 74-9 17. Adam Przeworski, "Social Democracy as an Historical Phenomenon," New Left Review 122 (July-August 1980), 50-6; Nixon Apple, "The Rise and Fall of Full Employment Capitalism," Studies in Political Economy 4 (Autumn 1980), 5-39 18. Gough, "State Expenditure," 80-92 (see n. 16 above); James O'Connor, The Fiscal Crisis of the State (New York 1973), passim; Ernst, Restructuring, 33-5 19. Robert O. Keohane, "Economics, Inflation and the Role of the State: Political Implications of the McCracken Report," World Politics 31 (October 1978), 108-28

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20. Adam Przeworski and Michael Wallerstein, "Democratic Capitalism at the Crossroads," Democracy 2 (July 1982), 54 21. Jurgen Habermas, "The Scientization of Politics and Public Opinion," in Toward a Rational Society: Student Protest, Science and Politics, trans. Jeremy J. Shapiro (Boston 1970), 62-80 22. Jurgen Habermas, "Conservatism and Capitalist Crisis," New Left Review 115 (May-June 1979), 73-84; Alan Wolfe, "Sociology, Liberalism and the Radical Right," New Left Review 128 (July-August 1981), 3-27 23. Andre Gunder Frank, "Crisis of Ideology and Ideology of Crisis," in Samir Amin et al., Dynamics of Global Crisis, 162-3 (see n. 8 above). 24. Lipietz, "Towards Global Fordism?" 44-7 25. Andrew Martin and George Ross, "European Trade Unions and the Economic Crisis: Perceptions and Strategies," West European Politics 3 (January 1980), 66

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