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Nigel Harris

Nigel Harris

Frontiers of control

(September 1985)

From Socialist Worker Review, No.79, September 1985, pp.10-11.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

The popular picture of the right wing orientation of government policy sees it as the result of the coming to power of Mrs Thatcher in this country and President Reagan in the United States.

We know this is not true since the real change occurred in the preceding administration – under Callaghan and Healey in 1977 in Britain, and under Carter in the United States.

Indeed, in general, major changes of economic policy do not coincide with changes of government. All major changes since 1945 in Britain have taken place in the mid term of governments, not between them. That is because such changes are the result of change in the objective circumstances facing the whole ruling class, (changes in external competition, war rivalries, the domestic class struggle). The rhythms of the economy do not coincide with the timing of elections.

But the shift to the right in economic policy is not just a matter of timing. A major change in the dominant economic theory has also occurred over the last fifteen years.

That has coincided with a long drawn out change in the policy standpoint of almost all the governments in the world. In retrospect, the Chilean coup can now be seen as the beginning of that change.

The most dramatic change is in economic theory. Forms of Keynesianism dominated almost totally in the fifties. By the seventies it was neoclassical economics (of which Friedman’s monetarism is one variety).

Economic theory is a sensitive reflection of the combination of the objective evolution of the system and the changing policy options facing different dominant interests – governments, national ruling classes, sections of the world capital. A major shift of opinion of the kind that has occurred suggests either a simultaneous change in the dominant factions within most of the national ruling classes of the world, or a change in the structure of the world system affecting most governments in similar ways.

The change is most easily seen in economic policy. This is especially so in the Third World which remained committed far longer than the industrialised countries to the strongest forms of Keynesianism (hardly distinguishable from Stalinism in many cases). What are some of the issues?

In the fifties, it was universally believed that it was impossible for the Third World to export manufactured goods. They could only develop by depending on the domestic market and excluding imports.

Today, there are hardly any governments not committed to the most rapid growth of manufactured exports. Note that this changes the target, ‘economic development’ from being a fully diversified national economy depending on its internal market, to a highly specialised contributor to a world product.

Foreign capital in the fifties was seen as ‘capitalism’ and solely exploitative. Today, most Third World governments are hotly competing in bribes to foreign capital to induce investment. The most dramatic cases are Vietnam and North Korea, among the front runners in offering concessions. The Philippines government has defeated the constitution by making land exclusively available to foreign businessmen. Mexico has effectively ended the rule that foreign business can hold only up to 49 percent of Mexican assets.

Foreign borrowing used to be anathema, but is today universal. In the early eighties, the Indian left protested vigorously at the terms of India’s borrowing from the IMF.

Not many had read the sixth Five Year Plan which, long before the loan was considered, had laid out the same terms, as Indian government policy.

In the fifties imports were to be reduced to the bare minimum. They are now seen as the only spur to improving domestic output so that exports can be increased.

In the fifties, the state could be an unlimited substitute for private capital, and could guarantee certain services regardless of cost. Today, everywhere public welfare and health systems are under attack. The Chinese are privatising both health services and housing. And most governments are selling off or planning to sell off major parts of public sector industry; privatisation is the universal fashion. There is a general campaign against subsidiaries, a shift from direct to indirect taxation, and a subordination of all elements of working class consumption to the ‘market’.

There are many different routes and stages in the change – the violent coups in Chile and Turkey, the slow reform in India (accelerating in the sixth and seventh Plans), the faster pace in China. Financial crisis is forcing Mexico and Brazil in the same direction. Declining oil prices are pushing Indonesia and Nigeria.

Others have resisted (like Egypt, made possible by dollar subventions). Yet others have been major failures – Chile, Uruguay, Argentina, Philippines.

In the fifties, the commitment of the Third World to state capitalism was embodied in a legion of local ‘socialisms’ – Arab, African, Cambodian, Burmese, Indian. Every new ruling class had its local variant. It is still a slight shock to hear that Tanzania is socialist, but encouraging ‘capitalism’, or that what is still the ‘socialist republic’ of Sri Lanka is busily bribing multinationals.

The shift to the right in economic thought is part of a much broader change. The great interwar slump – and the military rivalries that culminated in the Second World War – pushed most of the world into one or other form of state or managed capitalism. From Roosevelt’s New Deal to the Nazi organisation of the German economy, ruling classes everywhere could see their only defence as state intervention.

In Britain, the Tories in the thirties were committed to the control of imports, currency and the organisation of state monopolies in major industries. They nationalised airways, electricity, and even tried to take over the coal mines. This commitment to state direction remained intact until the fifties when a new and quite unanticipated boom began the erosion of controls (what had been a defence against slump now appeared as inhibiting growth), including making sterling convertible.

The unwinding of the structure of controls took a very long time for different political interests had grown up around them. Heath came to power in 1970 – a rehearsal for Mrs Thatcher in 1979 – on a programme of all-out assault on restrictions to the market. He was politically defeated. But Labour had learned lessons. The failure of the Wilson government in 1967 to prevent the devaluation of sterling vividly illustrated to Labour’s leaders that a ‘socialist Britain’ could not control its currency.

Working class confidence blocked Heath’s attempt to derestrict the economy, but once that confidence weakened (and the scale of objective problems grew even greater), it was a Labour government that returned to the task – with Healey’s commitment to monetarism in 1977.

In the Third World, the process was more mixed. Four Asian countries – South Korea, Taiwan, Hong Kong and Singapore – demonstrated the possibility of successful manufactured exports in the sixties, but they did so with an opportunistic mixture of state capitalism. There were a host of imitators, but it took the economic crises of the seventies to push most governments to begin the changes.

Mrs Thatcher’s rhetoric is unusual in the Tory tradition, which has always stressed the importance of a strong state for the defence of the ruling class. The change is reflected in her fringe militants, the university students who lean towards a Utopian anti-statism. This is very different from the old crypto-fascist right who believed in a powerful state.

The same shift – from the traditional authoritarian and statist right wing of Europe, to the new ‘let the market decide everything’ can also be seen in France where the Gaullist right has swung very sharply against the state and for markets. There is a contradiction in the militant position, for they are also aggressive nationalists, racialists, and for nastier prisons: that is, they need a powerful state to hit foreigners, blacks, women.

What does the change in economic policy in the Third World represent? First, the arrival of new national capitals that, through the forced capital accumulation of the fifties and sixties, are now in a position to compete in the world market. The Third World countries with significant manufacturing are now crossing over from a defensive state capitalism to an offensive private capitalism (albeit, still employing much support from the state). Sections of business in particular countries resist the shift for they lack the confidence to compete, but the trend is against them.

Second, the system has changed. In the fifties, the market in the industrialised countries was defended against imports, and most Third World countries had not developed the capacity to produce competitive goods. By the eighties, the markets were opened, the capacity developed.

Third, the slump – and the need to increase export revenues to purchase imports and service loans – has driven all to market. They are urged on by the World Bank, the IMF and sundry others, but this would not be effective if it did not go with the grain.

Fourth, the more developed are using access to their market as a bargaining lever to gain access to Third World markets.

Finally, but of greatest importance, the world system has become integrated to the point where the effectiveness of national economic policy is increasingly in doubt except where it conforms or exploits the world market. It is this change in structure which has forced both the change in economic theory and in economic policy, and which means that the trends are likely to continue. The shift to the right is not simply rhetoric, nor a function of eccentric individuals.

The new right thus reflects a new phase in the system, world capitalism, or rather, does so in its economic thought. The social and political components are, however, archaic, reflecting a past world of state, empire and race.

The contradiction reflects the contradictory position of a national ruling class. On the one hand, it is obliged to integrate economically in the world as the condition for survival and growth. On the other, it is dependent upon one national group, one population, the ideological cement of which is aggressive nationalism and racialism. An adventure in the Malvinas is part of the strategy of assuring international capital its assets are safe in Britain – nationalism is the guarantee of internationalism.

There will be no return to the past, to the good old days of Wilsonite social democracy, the green years of Mitterrand. Whether Mrs Thatcher is defeated in the next election or not, it will not put the clock back for the world has already moved on. The crisis for the left is thus not about this electoral battle or that, but about the crumbling of a whole world of theory.

Those who called themselves socialists have been allied to the imperatives of state capitalism for many decades, but that is now being superseded. For many it is frightening. Yet it makes possible a real rethinking about what socialism was supposed to mean – the self-emancipation of the working class, not the liberation of the state.

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Last updated: 28 March 2010