Louis Proyect: The Unrepentant Marxist

June 27, 2018

Defending Karl Marx in Foreign Affairs…What’s that about?

Filed under: economics,social democracy — louisproyect @ 10:08 pm

On June 14th, Foreign Affairs, the journal of the Council of Foreign Relations that was formed in 1918 to develop strategies for the ruling class, published an article titled “Marxist World: What Did You Expect From Capitalism?”. (The article, which is behind a paywall, can be read below) The author was Robin Varghese, the Associate Director of Engagement at the Economic Advancement Program of the Open Society Foundations and an Editor at 3 Quarks Daily. In addition to those affiliations identified by Foreign Affairs, Varghese is also the Chairman of the Board of the Brooklyn Institute for Social Research, a kind of updated version of the Learning Annex modeled after the Frankfurt School. The roost for Max Horkheimer et al was actually called the Institute for Social Research at Goethe University. The knock-off is a place where hipsters can attend classes of the sort you might take in Duke University’s literature department but at a much lower cost.

So why would Foreign Affairs, the journal where George Kennan’s blueprint for the Cold War domination titled “Containment” appeared, be publishing something favorable to Karl Marx? Let me take a stab at answering that question.

To start with, it is necessary to say a few words about George Soros’s Economic Advancement Program. The Open Society website states its goal: “Because economic systems are complex, we deploy a mix of interventions. We make private sector investments through the program’s investment vehicle, the Soros Economic Development Fund, to yield social impact, we support civil society actors advancing economic justice, we advise governments on economic policy, and we build coalitions to foment progressive change.” Basically, this is a vehicle for microfinance of the sort pioneered by the Grameen Bank. In 2009, Soros teamed up with Pierre Omidyar, the eBay billionaire who funds Intercept, and Google to serve small businesses in India. Omidyar’s website described its aim:

“With this investment, we will meet the huge demand to serve smaller businesses in India that have little access to finance,” said Neal DeLaurentis, Vice President of Soros Economic Development Fund. “Long ignored by commercial capital markets, small and medium businesses are an attractive investment opportunity as well as an engine for economic growth for India.”

It is beyond the scope of this article to detail the failings of microfinance but I would advise reading this for a useful critique.

Turning now to Varghese’s article, it can easily be understood as just another in the series of articles that appeared immediately after the 2008 meltdown, crediting Karl Marx for diagnosing the contradictions of the capitalist economy but stopping short at his prescription for moving beyond it through socialist revolution. He writes:

Better than most, Marx understood the mechanisms that produce capitalism’s downsides and the problems that develop when governments do not actively combat them, as they have not for the past 40 years. As a result, Marxism, far from being outdated, is crucial for making sense of the world today.

As I pointed out in a 2016 article, this sort of testimony to Marx’s wisdom went viral a decade ago:

After 2008 there were deep worries in the financial punditocracy. You might remember that scene in China Syndrome when the first shudders took place in the nuclear reactor. Was this going to be the “Big One”? That is how Nouriel Roubini must have felt on August 11, 2011 when he told a Wall Street Journal interviewer:

Karl Marx had it right. At some point, Capitalism can self-destroy itself because you cannot keep on shifting income from labor to Capital without having an excess capacity and a lack of aggregate demand. That’s what has happened. We thought that markets worked. They’re not working. The individual can be rational. The firm, to survive and thrive, can push labor costs more and more down, but labor costs are someone else’s income and consumption. That’s why it’s a self-destructive process.

Even more shockingly, George Magnus, an economist with the UBS investment bank, advised Bloomberg News readers to Give Karl Marx a Chance to Save the World Economy just 18 days after Roubini’s interview appeared. Magnus quoted Marx’s Capital: “The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses.” But his solutions had more to do with Keynes than Marx, such as this one: “Governments and central banks could engage in direct spending on or indirect financing of national investment or infrastructure programs.” If Karl Marx confronted a crisis as deep as the one we faced in 2008, his advice would have been to nationalize the banks not use them as tools for fiscal pump-priming.

However, Umair Haque probably spoke for most of these commentators—including Sean McElwee, I imagine—when after posing the question Was Marx Right? in the Harvard Business Review he came down squarely on the side of capitalism. After giving Marx his due (“Marx’s critiques seem, today, more resonant than we might have guessed”), Haque sides with McElwee on the “recipe” question: “Now, here’s what I’m not suggesting: that Marx’s prescriptions (you know the score: overthrow, communalize, high-five, live happily ever after) for what to do about the maladies above were desirable, good, or just. History, I’d argue, suggests they were anything but.”

Using a combination of common sense and what he has absorbed from reading Marx, Varghese describes the current epoch as one consisting of chronic stagnation even if it is producing billionaires by the wheelbarrow full:

Since the 1970s, businesses across the developed world have been cutting their wage bills not only through labor-saving technological innovations but also by pushing for regulatory changes and developing new forms of employment. These include just-in-time contracts, which shift risk to workers; noncompete clauses, which reduce bargaining power; and freelance arrangements, which exempt businesses from providing employees with benefits such as health insurance. The result has been that since the beginning of the twenty-first century, labor’s share of GDP has fallen steadily in many developed economies.

There’s not much to quibble with in the middle section of his article that describes the growing inequality in the USA and other advanced capitalist countries. It cites Thomas Piketty and Branko Milanovic who have produced outstanding work even if their analysis is not necessarily grounded in Marxist theory.

In a section titled “The Keynesian Challenge”, he sounds skeptical at first blush about the possibility of a new New Deal, a “Swedish model” or any of the other solutions proposed by the Sanders wing of the Democratic Party:

Under capitalism, Marx predicted, the demands imposed by capital accumulation and profitability would always severely limit the choices available to governments and undermine the long-term viability of any reforms. The history of the developed world since the 1970s seems to have borne out that prediction. Despite the achievements of the postwar era, governments ultimately found themselves unable to overcome the limits imposed by capitalism, as full employment, and the labor power that came with it, reduced profitability. Faced with the competing demands of capitalists, who sought to undo the postwar settlement between capital and labor, and the people, who sought to keep it, states gave in to the former. In the long run, it was the economic interests of capital that won out over the political organization of the people.

But the last three paragraphs are a dead giveaway that Varghese is for Marx’s economic analysis but not his life-long goal to “change it”. The only thing he seems bent on changing is the sort of neoliberal austerity that Sanderistas find so loathsome. However, forming revolutionary parties and overthrowing capitalism is even more loathsome apparently as indicated from the reformist pap below:

The challenge today is to identify the contours of a mixed economy that can successfully deliver what the golden age did, this time with greater gender and racial equality to boot. This requires adopting Marx’s spirit, if not every aspect of his theories—that is, recognizing that capitalist markets, indeed capitalism itself, may be the most dynamic social arrangement ever produced by human beings. The normal state of capitalism is one in which, as Marx and Engels wrote in The Communist Manifesto, “all that is solid melts into air.” This dynamism means that achieving egalitarian goals will require new institutional configurations backed by new forms of politics.

As the crisis of the golden age was ramping up in the 1970s, the economist James Meade wondered what sorts of policies could save egalitarian, social democratic capitalism, recognizing that any realistic answer would have to involve moving beyond the limits of Keynesianism. His solution was to buttress the welfare state’s redistribution of income with a redistribution of capital assets, so that capital worked for everyone. Meade’s vision was not state ownership but a broad property-owning democracy in which wealth was more equally distributed because the distribution of productive capacity was more equal.

The point is not that broader capital ownership is a solution to the ills of capitalism in the present day, although it could be part of one. Rather, it is to suggest that if today’s egalitarian politicians, including Bernie Sanders in the United States and Jeremy Corbyn in the United Kingdom, are to succeed in their projects of taming markets and revitalizing social democracy for the twenty-first century, it will not be with the politics of the past. As Marx recognized, under capitalism there is no going back.

Let’s take apart this pile of crap that probably is first cousin to the Vivek Chibber Catalyst article that Robert Brenner objected to. It is the sort of thing you routinely hear from Jacobin, the DSA old guard, Dissent Magazine and The Nation.

To start with, let’s examine: “This requires adopting Marx’s spirit, if not every aspect of his theories—that is, recognizing that capitalist markets, indeed capitalism itself, may be the most dynamic social arrangement ever produced by human beings.”

The most dynamic social arrangement? Is this guy serious? Capitalism is not primarily about markets. It is about coercion. Slavery, debt peonage, child labor, union busting and other forms of extra-market forces were midwives to capitalism and continue to this day. Books like Michele Alexander’s “The New Jim Crow” and Douglas Blackmon’s “Slavery by Another Name” offer ample evidence of how racialized capitalism retains many of the coercive features that were present in its infancy. All you need to do is go to your local grocery store and make a list of all the different imported agricultural products, especially from Mexico. A 2014 LA Times article describes anything but a “dynamic social arrangement”:

Ricardo Martinez and Eugenia Santiago were desperate.

At the labor camp for Bioparques de Occidente, they and other farmworkers slept sprawled head to toe on concrete floors. Their rooms crawled with scorpions and bedbugs. Meals were skimpy, hunger a constant. Camp bosses kept people in line with threats and, when that failed, with their fists.

Escape was tempting but risky. The compound was fenced with barbed wire and patrolled by bosses on all-terrain vehicles. If the couple got beyond the gates, local police could arrest them and bring them back. Then they would be stripped of their shoes.

Martinez, 28, and Santiago, 23, decided to chance it. Bioparques was one of Mexico’s biggest tomato exporters, a supplier for Wal-Mart and major supermarket chains. But conditions at the company’s Bioparques 4 camp had become unbearable.

They left their backpacks behind to avoid suspicion and walked out the main gate. As they approached the highway, a car screeched up. Four camp bosses jumped out. One waved a stick at them.

“You’re trying to leave,” he said, after spotting a change of clothing in a plastic bag Martinez was carrying.

“I’m just going for a walk,” Martinez said.

“Get in the car or I’ll break you,” the boss replied.

The next day, Martinez and Santiago were back at work in the tomato fields.

Varghese endorses James Meade’s solution to saving “egalitarian, social democratic capitalism”, namely to redistribute capital assets, so that capital worked for everyone. This “broad property-owning democracy” would supposedly insure that both you and the Koch brothers would have about the same amount of “capital assets”, including land, machinery, securities, etc. Fat chance of that, I’d say. I don’t have much time or motivation to plumb the profundities of Meade’s economic ideas but suffice it to say that Wikipedia describes them as based on neo-Classical assumptions such as: (1) The economy in question is a closed economy with no relationship with the outside world. (2) There is no government activity involving taxation and expenditure. (3) Perfect competition exists in the market.

Am I that surprised that someone who is paid by George Soros recommends the economic ideas of James Meade? Commentary Magazine, the leading voice of neo-Conservatism, wrote a rave review of Meade’s 1975 “The Intelligent Radical’s Guide to Economic Policy: The Mixed Economy”:

James Meade, a former president of the Royal Economic Society, has published (in England) one of those rare economics books that one can recommend to every thoughtful person who takes an interest in the fundamental problems of contemporary societies. Some enterprising publisher should bring it out also in the United States. So far as my acquaintance extends, nothing of this character, scope, and quality has been published on our side of the Atlantic.

Starting to get the picture? Varghese’s article found exactly the right outlet in Foreign Affairs.

The final paragraph makes it clear that his project is to breathe life into social democracy. Bernie Sanders and Jeremy Corbyn must succeed in taming markets and revitalizing social democracy for the twenty-first century. However, it will not be with the politics of the past. Of course, you know what the “politics of the past” is about—socialist revolution and all that other utopian nonsense.

Let me conclude with a few words about the Brooklyn Institute for Social Research. A 2012 New Yorker Magazine article looked in on a class given by its founder Ajay Singh Chaudhary, who has a Columbia University PhD, and Abby Kluchin, another Columbia PhD. For people in their shoes, the teaching jobs at the Institute are about the same as what adjuncts earn. Courses are held at night and cost a few hundred dollars. Faculty members receive eighty per cent of tuition, which amounts to more than they would make at a major university—at least if they are adjuncts.

Most of the classes are geared to the kinds of people who would find MLA conferences worth attending, such as “Jane Austen and the Problem of Other Minds” but they do have one on “Crisis and Capitalism” that sounds like the sort of thing you might have taken at the Brecht Forum but for a lot less than the $315 the Brooklyn Institute charges. The class was given by Raphaële Chappe, who used to be a Goldman Sachs Vice President in the Tax Department. So I guess she knows something about capitalism.

A while back she was interviewed by Laura Flanders in a show titled “Eat the Rich?”. Laura asked her about whether finance capital could be used to redistribute power and resources. If this sounds a bit like the microfinance and James Meade type strategies indicated above, you are on the right track. It turns out that Chappe had started what she called a Robin Hood Hedge Fund that incorporated this redistribution agenda. She explained what made it tick:

We have an algorithm, we call it the parasite. What it does is, it replicates the investments of what we consider to be insiders in Wall Street. We form a portfolio that replicates those investments, and so far we’ve gotten great returns. I think last year was 40% return, which made it the second hedge fund in the world. Of course, it’s a little bit of impertinence. We’re trying to hack it, derail it…I think that it’s just a very small dent if you think about all the types of strategies out there that hedge funds are using to make investments. We’re basically mimicking a very small segment. There are things that we cannot track, or trace. High frequency trading, for example. You have hundreds of trades happening every minute, we wouldn’t be able to do that. We do our best to hack it with the tools we have.

I wouldn’t want to discourage anybody from taking her course. After all, night school is a good way to develop social relationships in a very lonely city but if I had $315 to invest and if I was single, I’d sign up for a salsa dancing class instead.


Foreign Affairs, July/August 2018 Issue
Marxist World
What Did You Expect From Capitalism?
By Robin Varghese

After nearly every economic downturn, voices appear suggesting that Marx was right to predict that the system would eventually destroy itself. Today, however, the problem is not a sudden crisis of capitalism but its normal workings, which in recent decades have revived pathologies that the developed world seemed to have left behind.

Since 1967, median household income in the United States, adjusted for inflation, has stagnated for the bottom 60 percent of the population, even as wealth and income for the richest Americans have soared. Changes in Europe, although less stark, point in the same direction. Corporate profits are at their highest levels since the 1960s, yet corporations are increasingly choosing to save those profits rather than invest them, further hurting productivity and wages. And recently, these changes have been accompanied by a hollowing out of democracy and its replacement with technocratic rule by globalized elites.

Mainstream theorists tend to see these developments as a puzzling departure from the promises of capitalism, but they would not have surprised Marx. He predicted that capitalism’s internal logic would over time lead to rising inequality, chronic unemployment and underemployment, stagnant wages, the dominance of large, powerful firms, and the creation of an entrenched elite whose power would act as a barrier to social progress. Eventually, the combined weight of these problems would spark a general crisis, ending in revolution.

Marx believed the revolution would come in the most advanced capitalist economies. Instead, it came in less developed ones, such as Russia and China, where communism ushered in authoritarian government and economic stagnation. During the middle of the twentieth century, meanwhile, the rich countries of Western Europe and the United States learned to manage, for a time, the instability and inequality that had characterized capitalism in Marx’s day. Together, these trends discredited Marx’s ideas in the eyes of many.

Yet despite the disasters of the Soviet Union and the countries that followed its model, Marx’s theory remains one of the most perceptive critiques of capitalism ever offered. Better than most, Marx understood the mechanisms that produce capitalism’s downsides and the problems that develop when governments do not actively combat them, as they have not for the past 40 years. As a result, Marxism, far from being outdated, is crucial for making sense of the world today.

A MATERIAL WORLD

The corpus of Marx’s work and the breadth of his concerns are vast, and many of his ideas on topics such as human development, ideology, and the state have been of perennial interest since he wrote them down. What makes Marx acutely relevant today is his economic theory, which he intended, as he wrote in Capital, “to lay bare the economic law of motion of modern society.” And although Marx, like the economist David Ricardo, relied on the flawed labor theory of value for some of his economic thinking, his remarkable insights remain.

Marx believed that under capitalism, the pressure on entrepreneurs to accumulate capital under conditions of market competition would lead to outcomes that are palpably familiar today. First, he argued that improvements in labor productivity created by technological innovation would largely be captured by the owners of capital. “Even when the real wages are rising,” he wrote, they “never rise proportionally to the productive power of labor.” Put simply, workers would always receive less than what they added to output, leading to inequality and relative immiseration.

Second, Marx predicted that competition among capitalists to reduce wages would compel them to introduce labor-saving technology. Over time, this technology would eliminate jobs, creating a permanently unemployed and underemployed portion of the population. Third, Marx thought that competition would lead to greater concentration in and among industries, as larger, more profitable firms drove smaller ones out of business. Since these larger firms would, by definition, be more competitive and technologically advanced, they would enjoy ever-increasing surpluses. Yet these surpluses would also be unequally distributed, compounding the first two dynamics.

Marx made plenty of mistakes, especially when it came to politics. Because he believed that the state was a tool of the capitalist class, he underestimated the power of collective efforts to reform capitalism. In the advanced economies of the West, from 1945 to around 1975, voters showed how politics could tame markets, putting officials in power who pursued a range of social democratic policies without damaging the economy. This period, which the French call “les Trente Glorieuses” (the Glorious Thirty), saw a historically unique combination of high growth, increasing productivity, rising real wages, technological innovation, and expanding systems of social insurance in Western Europe, North America, and Japan. For a while, it seemed that Marx was wrong about the ability of capitalist economies to satisfy human needs, at least material ones.

BOOM AND BUST

The postwar boom, it appears, was not built to last. It ultimately came to an end with the stagflationary crisis of the 1970s, when the preferred economic policy of Western social democracies—Keynesian state management of demand—seemed incapable of restoring full employment and profitability without provoking high levels of inflation. In response, leaders across the West, starting with French Prime Minister Raymond Barre, British Prime Minister Margaret Thatcher, and U.S. President Ronald Reagan, enacted policies to restore profitability by curbing inflation, weakening organized labor, and accommodating unemployment.

That crisis, and the recessions that followed, was the beginning of the end for the mixed economies of the West. Believing that government interference had begun to impede economic efficiency, elites in country after country sought to unleash the forces of the market by deregulating industries and paring back the welfare state. Combined with conservative monetary policies, independent central banks, and the effects of the information revolution, these measures were able to deliver low volatility and, beginning in the 1990s, higher profits. In the United States, corporate profits after tax (adjusted for inventory valuation and capital consumption) went from an average of 4.5 percent in the 25 years before President Bill Clinton took office, in 1993, to 5.6 percent from 1993 to 2017.

This sharp divergence in fortunes has been driven by, among other things, the fact that increases in productivity no longer lead to increases in wages in most advanced economies.

Yet in advanced democracies, the long recovery since the 1970s has proved incapable of replicating the broad-based prosperity of the mid-twentieth century. It has been marked instead by unevenness, sluggishness, and inequality. This sharp divergence in fortunes has been driven by, among other things, the fact that increases in productivity no longer lead to increases in wages in most advanced economies. Indeed, a major response to the profitability crisis of the 1970s was to nullify the postwar bargain between business and organized labor, whereby management agreed to raise wages in line with productivity increases. Between 1948 and 1973, wages rose in tandem with productivity across the developed world. Since then, they have become decoupled in much of the West. This decoupling has been particularly acute in the United States, where, in the four decades since 1973, productivity increased by nearly 75 percent, while real wages rose by less than ten percent. For the bottom 60 percent of households, wages have barely moved at all.

If the postwar boom made Marx seem obsolete, recent decades have confirmed his prescience. Marx argued that the long-run tendency of capitalism was to form a system in which real wages did not keep up with increases in productivity. This insight mirrors the economist Thomas Piketty’s observation that the rate of return on capital is higher than the rate of economic growth, ensuring that the gap between those whose incomes derive from capital assets and those whose incomes derive from labor will grow over time.

Marx’s basis for the condemnation of capitalism was not that it made workers materially worse off per se. Rather, his critique was that capitalism put arbitrary limits on the productive capacity it unleashed. Capitalism was, no doubt, an upgrade over what came before. But the new software came with a bug. Although capitalism had led to previously unimaginable levels of wealth and technological progress, it was incapable of using them to meet the needs of all. This, Marx contended, was due not to material limitations but to social and political ones: namely, the fact that production is organized in the interests of the capitalist class rather than those of society as a whole. Even if individual capitalists and workers are rational, the system as a whole is irrational.

To be sure, the question of whether any democratically planned alternative to capitalism can do better remains open. Undemocratic alternatives, such as the state socialism practiced by the Soviet Union and Maoist China, clearly did not. One need not buy Marx’s thesis that communism is inevitable to accept the utility of his analysis.

Marx predicted that competition among capitalists to reduce wages would compel them to introduce labor-saving technology. Over time, this technology would eliminate jobs, creating a permanently unemployed and underemployed portion of the population. NOAH BERGER / REUTERS A Kiva robot moves inventory at an Amazon fulfillment center in Tracy, California December 1, 2014.

LAWS OF MOTION

Marx did not just predict that capitalism would lead to rising inequality and relative immiseration. Perhaps more important, he identified the structural mechanisms that would produce them. For Marx, competition between businesses would force them to pay workers less and less in relative terms as productivity rose in order to cut the costs of labor. As Western countries have embraced the market in recent decades, this tendency has begun to reassert itself.

Since the 1970s, businesses across the developed world have been cutting their wage bills not only through labor-saving technological innovations but also by pushing for regulatory changes and developing new forms of employment. These include just-in-time contracts, which shift risk to workers; noncompete clauses, which reduce bargaining power; and freelance arrangements, which exempt businesses from providing employees with benefits such as health insurance. The result has been that since the beginning of the twenty-first century, labor’s share of GDP has fallen steadily in many developed economies.

Competition also drives down labor’s share of compensation by creating segments of the labor force with an increasingly weak relationship to the productive parts of the economy—segments that Marx called “the reserve army of labor,” referring to the unemployed and underemployed. Marx thought of this reserve army as a byproduct of innovations that displaced labor. When production expanded, demand for labor would increase, drawing elements of the reserve army into new factories. This would cause wages to rise, incentivizing firms to substitute capital for labor by investing in new technologies, thus displacing workers, driving down wages, and swelling the ranks of the reserve army. As a result, wages would tend toward a “subsistence” standard of living, meaning that wage growth over the long run would be low to nonexistent. As Marx put it, competition drives businesses to cut labor costs, given the market’s “peculiarity that the battles in it are won less by recruiting than by discharging the army of workers.”

The United States has been living this reality for nearly 20 years. For five decades, the labor-force participation rate for men has been stagnant or falling, and since 2000, it has been declining for women, as well. And for more unskilled groups, such as those with less than a high school diploma, the rate of participation stands at below 50 percent and has for quite some time. Again, as Marx anticipated, technology amplifies these effects, and today, economists are once again discussing the prospect of the large-scale displacement of labor through automation. On the low end, the Organization for Economic Cooperation and Development estimates that 14 percent of jobs in member countries, approximately 60 million in total, are “highly automatable.” On the high end, the consulting company McKinsey estimates that 30 percent of the hours worked globally could be automated. These losses are expected to be concentrated among unskilled segments of the labor force.

Whether these workers can or will be reabsorbed remains an open question, and fear of automation’s potential to dislocate workers should avoid the so-called lump of labor fallacy, which assumes that there is only a fixed amount of work to be done and that once it is automated, there will be none left for humans. But the steady decline in the labor-force participation rate of working-age men over the last 50 years suggests that many dislocated workers will not be reabsorbed into the labor force if their fate is left to the market.

The same process that dislocates workers—technological change driven by competition—also produces market concentration, with larger and larger firms coming to dominate production. Marx predicted a world not of monopolies but of oligopolistic competition, in which incumbents enjoy monopolistic profits, smaller firms struggle to scrape by, and new entrants try to innovate in order to gain market share. This, too, resembles the present. Today, so-called superstar firms, which include companies such as Amazon, Apple, and FedEx, have come to dominate entire sectors, leaving new entrants attempting to break in through innovation. Large firms outcompete their opponents through innovation and network effects, but also by either buying them up or discharging their own reserve armies—that is, laying off workers.

Research by the economist David Autor and his colleagues suggests that the rise of superstar firms may indeed help explain labor’s declining share of national income across advanced economies. Because superstar firms are far more productive and efficient than their competitors, labor is a significantly lower share of their costs. Since 1982, concentration has been increasing in the six economic sectors that account for 80 percent of employment in the United States: finance, manufacturing, retail trade, services, wholesale trade, and utilities and transportation. And the more this concentration has increased, the more labor’s share of income has declined. In U.S. manufacturing, for example, labor compensation has declined from almost one-half of the value added in 1982 to about one-third in 2012. As these superstar firms have become more important to Western economies, workers have suffered across the board.

WINNERS AND LOSERS

In 1957, at the height of Western Europe’s postwar boom, the economist Ludwig Erhard (who later became chancellor of West Germany) declared that “prosperity for all and prosperity through competition are inseparably connected; the first postulate identifies the goal, the second the path that leads to it.” Marx, however, seems to have been closer to the mark with his prediction that instead of prosperity for all, competition would create winners and losers, with the winners being those who could innovate and become efficient.

Innovation can lead to the development of new economic sectors, as well as new lines of goods and services in older ones. These can in principle absorb labor, reducing the ranks of the reserve army and increasing wages. Indeed, capitalism’s ability to expand and meet people’s wants and needs amazed Marx, even as he condemned the system’s wastefulness and the deformities it engendered in individuals.

For a period, it seemed that the children of the middle class had a fair shot at swapping places with the children of the top quintile. But as inequality rises, social mobility declines.

Defenders of the current order, especially in the United States, often argue that a focus on static inequality (the distribution of resources at a given time) obscures the dynamic equality of social mobility. Marx, by contrast, assumed that classes reproduce themselves, that wealth is transferred effectively between generations, and that the children of capitalists will exploit the children of workers when their time comes. For a period, it seemed that the children of the middle class had a fair shot at swapping places with the children of the top quintile. But as inequality rises, social mobility declines. Recent research by the economists Branko Milanovic and Roy van der Weide, for instance, has found that inequality hurts the income growth of the poor but not the rich. Piketty, meanwhile, has speculated that if current trends continue, capitalism could develop into a new “patrimonial” model of accumulation, in which family wealth trumps any amount of merit.

THE KEYNESIAN CHALLENGE

Marx’s overall worldview left little room for politics to mitigate the downsides of capitalism. As he and his collaborator Friedrich Engels famously stated in The Communist Manifesto, “The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.”

Until recently, governments in the West seemed to be defying this claim. The greatest challenge to Marx’s view came from the creation and expansion of welfare states in the West during the mid-twentieth century, often (but not only) by social democratic parties representing the working class. The intellectual architect of these developments was the economist John Maynard Keynes, who argued that economic activity was driven not by the investment decisions of capitalists but by the consumption decisions of ordinary people. If governments could use policy levers to increase overall demand, then the capitalist class would invest in production. Under the banner of Keynesianism, parties of both the center-left and the center-right achieved something that Marx thought was impossible: efficiency, equality, and full employment, all at the same time. Politics and policy had a degree of independence from economic structures, which in turn gave them an ability to reform those structures.

Marx believed in the independence of politics but thought that it lay only in the ability to choose between capitalism and another system altogether. He largely believed that it was folly to try to tame capitalist markets permanently through democratic politics. (In this, he ironically stands in agreement with the pro-capitalist economist Milton Friedman.)

Under capitalism, Marx predicted, the demands imposed by capital accumulation and profitability would always severely limit the choices available to governments and undermine the long-term viability of any reforms. The history of the developed world since the 1970s seems to have borne out that prediction. Despite the achievements of the postwar era, governments ultimately found themselves unable to overcome the limits imposed by capitalism, as full employment, and the labor power that came with it, reduced profitability. Faced with the competing demands of capitalists, who sought to undo the postwar settlement between capital and labor, and the people, who sought to keep it, states gave in to the former. In the long run, it was the economic interests of capital that won out over the political organization of the people.

MARXISM TODAY

Today, the question of whether politics can tame markets remains open. One reading of the changes in advanced economies since the 1970s is that they are the result capitalism’s natural tendency to overwhelm politics, democratic or otherwise. In this narrative, les Trente Glorieuses were a fluke. Under normal conditions, efficiency, full employment, and an egalitarian distribution of income cannot simultaneously obtain. Any arrangement in which they do is fleeting and, over the long run, a threat to market efficiency.

Yet this is not the only narrative. An alternative one would start with the recognition that the politics of capitalism’s golden age, which combined strong unions, Keynesian demand management, loose monetary policy, and capital controls, could not deliver an egalitarian form of capitalism forever. But it would not conclude that no other form of politics can ever do so.

The challenge today is to identify the contours of a mixed economy that can successfully deliver what the golden age did, this time with greater gender and racial equality to boot. This requires adopting Marx’s spirit, if not every aspect of his theories—that is, recognizing that capitalist markets, indeed capitalism itself, may be the most dynamic social arrangement ever produced by human beings. The normal state of capitalism is one in which, as Marx and Engels wrote in The Communist Manifesto, “all that is solid melts into air.” This dynamism means that achieving egalitarian goals will require new institutional configurations backed by new forms of politics.

As the crisis of the golden age was ramping up in the 1970s, the economist James Meade wondered what sorts of policies could save egalitarian, social democratic capitalism, recognizing that any realistic answer would have to involve moving beyond the limits of Keynesianism. His solution was to buttress the welfare state’s redistribution of income with a redistribution of capital assets, so that capital worked for everyone. Meade’s vision was not state ownership but a broad property-owning democracy in which wealth was more equally distributed because the distribution of productive capacity was more equal.

The point is not that broader capital ownership is a solution to the ills of capitalism in the present day, although it could be part of one. Rather, it is to suggest that if today’s egalitarian politicians, including Bernie Sanders in the United States and Jeremy Corbyn in the United Kingdom, are to succeed in their projects of taming markets and revitalizing social democracy for the twenty-first century, it will not be with the politics of the past. As Marx recognized, under capitalism there is no going back.

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