The end of “neoliberalism”?

What the critics of “neoliberalism” want is a “regulated capitalism”, but they are not the only ones.

"Let us", President Sarkozy of France told the UN on 23 September, "rebuild together a regulated capitalism in which whole swathes of financial activity are not left to the sole judgment of market operators, in which banks do their job, which is to finance economic development rather than engage in speculation."

This would normally be regarded as a position taken up by leftwing critics of what they call "neoliberalism". Thus Green Party MEP Caroline Lucas, when asked for her views on the global financial crisis by the Guardian (17 September), answered that "we are going to have to return finance to its role as servant rather than master of the global economy".

Neoliberalism is not a word that Sarkozy would use. In fact, when he was elected President in May last year he was widely seen as France's equivalent of Mrs Thatcher. But then "regulated capitalism" is not how Greens and the other critics of free-market capitalism would describe what they stand for either.

Neoliberalism is a term coined by opponents of the policies pursued by many governments since the 1980s of privatisation and deregulation, of allowing market forces to operate with less state interference. "Neo" because it was seen as a revival of the anti-state, laissez-faire philosophy of 19th century liberalism. As supporters of these policies often call them simply "capitalism", some opponents also presented themselves as "anti-capitalist".

But this is a false distinction. Capitalism is not just private enterprise, free market capitalism. That is just one of the forms it has taken historically. To see this as the only form of capitalism, and therefore to use the term "capitalism" to refer to it only, is to ignore two important experiences of the last century: the nationalisation measures carried out by Labour and Social Democrat (and other) governments, and of course what existed in the ex-USSR and its satellites. Capitalism, in other words, can also take the form of state capitalism.

The essence of capitalism is not any form of ownership – whether legal property rights vested in individuals or companies, or state property from which bondholders draw a legalised income, or state property where a bureaucratic elite exercises a de facto control of it. Capitalism is indeed based on the exercise of a monopoly over the means of production by a minority, but so have other class societies such as ancient slave society, feudalism and oriental despotism.

What distinguishes capitalism from them is the way in which the producing class is exploited – via the wages system. Denied free access to the means of production, the vast majority of the population are forced to sell their working abilities – what Marx called their "labour power" – to an employer for a wage or a salary. Labour-power has the unique property of being able to produce a greater value than its own, but the employers have to pay only the value of the labour-power not the total value it produces. Marx called the value which workers produced over and above their wages, and which went to the employer, "surplus value".

Capitalism is this economic mechanism of the extraction of surplus value from the wage-labour of the producing class and of the accumulation of most of it as new capital. Marx called it "the self-expansion of value". Capitalism is an economic mechanism rather than a form of property ownership, a mechanism which is in fact compatible with various different forms of ownership. Wherever there is the exploitation of wage-labour for surplus value, there there is capitalism. Which is why the ex-USSR where there was state property and a strongly regulated market was still (state) capitalist.

In any event free market capitalism without any state regulation has only ever existed on paper. Capitalism and the state are not opposites or incompatibles. They have always co-existed and in fact capitalism could not have come into existence or survived without the support of the state. It was the state that helped dispossess peasants of their land so that they became factory fodder for the capitalist factory owners. It is the state that creates and enforces private property rights, without which the capitalist class would not be able to monopolise the means of production and extract surplus value from the wage-labour of their employees. The predominant form of capitalist enterprise – the limited liability company – is in fact entirely the creation of the state. The state has to issue the currency and set up bodies to interpret and enforce commercial contracts. It has to maintain armed forces, both to keep law and order internally and to protect and further the interests of the capitalist class abroad. It has to set up bodies to make laws and regulations at national and local level and other bodies to apply, police and enforce them. All these activities essential to the functioning of capitalism have to be paid for. So the state has to levy taxes.

There is, then, no such thing as capitalism without the state. That said, there are still degrees of state regulation at different times and in different countries. The state is supposed to represent the general capitalist interest, but in practice is subject to all sorts of lobbying and pressures from special interest groups who want it to make laws and regulations in their interest, to which it often gives in.

 From time to time, however, the state does genuinely intervene in the overall capitalist interest. A classic case was state intervention in the 19th century to regulate the working day. Having machines which could be kept going 24 hours a day, seven days a week, and faced with a glut of factory fodder, capitalist factory owners profited from laissez-faire to extend the working day. A large part of Marx Capital is devoted to describing what he called "capital's drive towards a boundless and ruthless extension of the working day" and how "the immoderate lengthening of the working day produced by machinery in the hands of capital leads later on to a reaction on the part of society, which is threatened in the very sources of its life, and, from there, to a normal working day whose length is fixed by law" (Capital, Vol I, Ch.15, section 3c). Society was threatened "in the very source of its life" in that factory owners so ruthlessly overworked their workers that their wealth-producing capacities, on which the future of society depended, were being undermined. Marx supported state intervention to stop this happening but he did not regard it as being in any way socialist. Others did and socialism and state intervention unfortunately became associated.

It seems to be a pattern that, whenever capitalists are given a free hand to do what they want, they exaggerate and go for short-term benefits, even at the expense of their long-term interest so that eventually the state has to intervene to restrain them in their own interest. This seems to be the situation that has been reached today after twenty or more years of deregulation of financial markets. The banks and other financial institutions are now widely seen by other sections of the capitalist class as having abused their freedom and thus landed the world capitalist system in the crisis it now finds itself in. This is why the cry is going up for the re-introduction of a stricter state regulation of financial institutions and dealings. And not just from the usual suspects on the Left, but from open supporters of capitalism such as Sarkozy and Gordon Brown.

It looks as if the opponents of “neoliberalism” might well get their way, at least as far as financial sector of capitalism is concerned. But there will be nothing anti-capitalist about this. Just a return to the "regulated capitalism" that used to exist in this sector.

ADAM BUICK