Austerity & Interventionism: Political Effects of Economic Decline (Part 2)

Robert Brenner

THE LONG-TERM decline of U.S. industry, compounded by the deepening systemic crisis of the international economy, has profoundly shaped the evolution of U.S. politics since the end of the 1960s and is largely responsible for the current political impasse. In the face of declining U.S. industrial competitiveness, the decreasing attractiveness of U.S. manufacturing as a field for investment, and the growing dynamism of the newly developing capitalisms of Japan and Southeast Asia, successive governments, both Democratic and Republican, have found it increasingly difficult to frame a response which speaks to the worsening problems of capital, let alone to the needs of U.S. working people. Yet, paradoxically, these very same problems of the economy in decline have vastly complicated the task of building a coherent political opposition.

On one point, of course, all elements within the political establishment are at one: that is, the necessity of continuing the assault on the working class in order to undermine wages, working conditions, and social services, to weaken if not destroy the unions, to redistribute income in the direction of profits, and, in general, to improve the climate of investment. But beyond their agreement to seek to resolve the crisis at the cost of working people, U.S. policymakers have found themselves subject to powerful, conflicting pressures. They have had to seek ways to elicit greater investment in U.S. industry, so as to renew manufacturing. They have been obliged to devise political and military means to protect the drastically increased presence of capitalism in general and U.S. capital in particular in the unstable Third World. Finally, they have had to find ways to cope with, and to ameliorate, the succession of increasingly severe international economic downturns which have rocked the world economy since the beginning of the 1970s, each one threatening, to a greater degree than the previous one, to bring about not only higher unemployment, but the collapse of the whole international economy.

It is the central thesis of this essay that, especially from the beginning of the last economic downturn in 1979, U.S. policy makers have found these requirements impossible to reconcile with one another, and have ended up sacrificing any systematic attempt to restore U.S. industry, with momentous political consequences. After a brief and failing attempt during the early and middle of the revival of manufacturing at home, they have moved decisively to step up U.S. military-political commitments to the defense of capitalism in the newly­developing regions. After a similarly brief and unsuccessful attempt to restore the vitality of the industrial economy through recourse to traditional deflationary measures at the end of the 1970s, they have adopted an aggressive policy of deficit military spending as the key to international economic stability.

Nevertheless, both the renewed militarism and interventionism and the unprecedentedly vigorous Keynesian measures have further severely sapped an already decaying domestic industrial economy. The result has been that the establishment’s policies for promoting growth and social welfare, not to mention peace and nuclear disarmament, appear more bankrupt daily. But the questions which must be confronted by the left, are why the intensification of industrial decline and the rise of military economy, with their enormous costs for working people, have not as yet provoked significant movements of opposition and what can be done to turn the situation around.

I. Economic Decline & Contradictions of Policy

The Employers’ Offensive Continues

Although the implementation of Nixon’s New Economic Policy (NEP) in 1971 marked the start of the employers’ offensive, through much of the 1970s, the successive Republican and Democratic governments made no definitive break from the general postwar accord between capital and labor. The employers unleashed a powerful effort to stem the rise of wages and to erode shop floor conditions, while the President and congress sought to reduce social spending. But though welfare and social service benefits were, throughout the 1970s, eroded to a significant degree by inflation, the government did not initiate a wholesale assault on the so-called safety net for the poor and other basic services. Meanwhile, there was no dishonoring the commitment to use Keynesian methods of demand management and monetary manipulation to keep the economy moving and keep employment up.

Ironically, it was Jimmy Carter, a Democrat and supposed liberal, who undertook to make the break. With the help of the Chairman of the Federal Reserve Board Paul Volcker, Carter introduced both austerity in government spending on social services and tight money in the economy in the latter part of 1979. He thereby triggered a recession which ended in 1982, but not before it brought unemployment rates over 12 % , thus contributing mightily to weakening labor’s capacity to resist the employers, while preparing the way for the return of hunger and homelessness to American cities.

It was also Carter who took the first decisive steps to destroy the myth that unionized workers could count on traditional collective bargaining arrangements at least to maintain the gains they had achieved in the course of the postwar boom. The turning point here was the government’s bailout of Chrysler in 1979, which Carter engineered. As the condition for its intervention, the government compelled the Chrysler workers to give back millions of dollars won in contract negotiations in order to keep “their” company afloat in the face of powerful international competition. The Chrysler deal ushered in the new era of concessions, and ultimately of union-busting.

The Reagan administration has, of course, called into question all of the old arrangements of the liberal state of the post war boom. When Reagan smashed the Professional Air Controllers (PATCO) strike in late summer 1981, the employers cast off any reticence they might have had about simply taking back what they needed, assuming that the union officials would go along and, that, where they did not, the unions could be crushed. Meanwhile, of course, Reagan, with at least the partial collaboration of the Democrats, has carried through an across-the-board attack on basic welfare and services for the poor-aid to dependent children, food stamps, school lunches, housing, and so forth. Finally, again with the cooperation of the Democrats, Reagan carried through the greatest orgy of tax cutting for the rich in U.S. history. Overall, in the space of a few short years, Reagan and the employers have succeeded in achieving the first significant redistribution of income in perhaps half a century.

The Renewal of Interventionism

At the time of the NEP, Nixon explicitly sought to reshape American foreign policy to conform with the broader goal of restoring U.S. competitiveness. During most of the post war period, the U.S. had carried out an aggressively interventionist policy, designed to put down revolutions wherever they occurred, not only (or even mainly) to support particular capitalist interests, but generally to keep the world safe for the capitalist system. In the unprecedented boom, which extended into the later 1960s, it was unnecessary to choose between guns and butter: with the economy growing rapidly, huge military expenditures, like rising wages and social spending, were quite compatible with high capitalist profits.

Nevertheless, the defeat in Vietnam coincided with the onset of capitalist crisis and the first manifestations of U.S. manufacturing decline, and provoked a serious reconsideration of U.S. foreign policy options. The government was seriously restricted in mounting new interventions by powerful opposition at home. But it was also clear that the ongoing diversion of massive productive resources into wasteful military spending was undermining U.S. productiveness at a time when U.S. producers were becoming subject to sharply increased competition at home and abroad. Nixon thus made a virtue of necessity: in order to reduce U.S. military costs and commitments, he accomplished a small diplomatic revolution, moving toward detente with the Russians and toward a policy of sub-imperialism in the Third World.

Through detente, the U.S. hoped to reduce tensions, and, on that basis, to reduce the requirement for massive expenditures on perpetually-improved strategic weaponry. It was obviously hoped that the Soviet Union would help prevent further Vietnams, if the U.S. offered greater security to the established Soviet sphere of influence. It also was hoped that the Russian market could be opened up for U.S. manufactured exports. The idea of sub-imperialism was to shift the responsibility for policing the Third World to powerful regional reactionary powers, which would assume the military and political costs of putting down revolutionary insurgencies. States like Iran, Indonesia, Brazil, Israel, and South Africa were nominated to carry out this task in their respective areas.

Both sub-imperialism and detente began to be pursued in the early part of the 1970s when there seemed to be no choice but to cut arms spending in order to help improve the U.S.’s decaying competitive position and when the level of anti-interventionist political sentiment made further overseas commitments difficult in any case. By the later 1970s, the government had succeeding in reducing military expenditures in absolute terms to the lowest levels since before the Korean War, and arms spending fell to 5 % of the GNP after averaging just under 10% for the previous period of peace between the Korean and Vietnamese conflicts. Nevertheless, neither detente nor sub-imperialism lasted out the decade, to the great cost of U.S. manufacturing.

Up until around 1970, the overwhelming mass of U.S. direct investment and loans had gone to the stable advanced capitalisms of Europe and Canada. Capitalist investment in the Third World was relatively quite small, and had gone largely into raw materials production. But from the later 1960s, as noted, manufacturing capitalism experienced a sensational expansion in parts of the Third World-especially in Southeast Asia, Mexico, Brazil, and the Middle East. During the 1970s, U.S. business, especially the banks, poured hundreds of billions of dollars into these areas, mainly in loans.

Simultaneously, the Third World, and especially the Pacific Rim, suddenly emerged as a leading area for U.S. trade. The reason for this dramatic growth was, in the first place, cheap labor. But cheap labor was only made possible through the maintenance of viciously repressive dictatorial regimes-as in Korea, Taiwan, Iran, South Africa, and throughout most of Latin America. However, rapid industrialization on the basis of political repression, with the associated growth of a factory proletariat, brought profound political instability, creating the conditions for working class revolt, especially as the downturns accompanying the capitalist crisis got progressively more severe.

To make matters worse for the U.S., some of the very regimes upon which it had counted most to play sub­imperial roles turned out themselves to be vulnerable to working class revolt, incapable of keeping order even at home, let alone of policing their regions. As early 1974-5, the Portuguese revolution gave an indication as to what could be expected in relatively backward economies which were experiencing rapid industrialization under repressive conditions, especially as the international economic crisis began to deepen. But the turning point, unquestionably, was the Iranian revolution in 1979. The collapse of what had appeared to be the impregnable sub­imperial state of the Shah, in the Third World region of greatest moment to the U.S., showed that henceforth the U.S. would have to take care of business around the world by itself.

Liberal President Jimmy Carter implemented the new interventionist approach in his bellicose responses first to the Iranian hostage crisis and then to the Soviet invasion of Afghanistan, a nation which was of no strategic significance to the United States and long recognized as within the Soviet sphere of influence. Shortly thereafter, Carter reversed what hitherto had been a relatively liberal policy in Central America and dramatically stepped up U.S. commitments in El Salvador. To underwrite the new interventionism, Carter initiated a vast new military buildup which has continued to this day. The whole policy of improving relations between the U.S. and the U.S.S.R., shifting imperial responsibilities, cutting the military budget, and increasing East-West trade in the interests of reducing overseas commitments and renewing U.S. manufacturing had thus been completely overturned, and with it went any hopes of reversing U.S. industrial decline.

Under Reagan, we have witnessed a continuation of the greatest peacetime military buildup in U.S. history and a return to an increasingly open interventionist stance. Reagan has vastly increased the U.S. nuclear force with the immediate aim of achieving sufficient “nuclear superiority” to blackmail the Soviet Union into restricting its support for Third World liberation movements. Elements within his administration also entertain the hope that, through radically increased military spending, they can force the Soviet Union to devote so much of its national output to defense as to induce an economic crisis of such dimensions as to destabilize it politically and discredit the Soviet system internationally.

Reagan has also, of course, rapidly increased the U.S.’s conventional military capacity for direct intervention in the Third World. By strengthening the Navy, rebuilding the old special forces, and constructing new rapid deployment forces, he has significantly improved U.S. capacity for quick imperial invasions anywhere. Finally, the government is spending hundred of millions of dollars to support “covert” U.S. “insurgencies” throughout the Third World, designed to topple unfriendly, revolutionary regimes, most notably in Nicaragua, but also in Cambodia, Angola, and elsewhere.

Given the growing stake of capitalism in general, and U.S. capital in particular, in the unstable economies of the Third World, we can expect a continuation of the militarist-interventionist trend, no matter what section of the political establishment holds office. Because the capitalist commitment in the Third World is now to be found in a growing and, increasingly critical, manufacturing sector, rather than in decreasingly important raw material producing regions (oil of course excepted), and because revolt in these developing economies comes more and more from a new factory proletariat threatening real democratic control over production, rather than from the peasantry, it has become almost inconceivable that any section of the Republican or Democratic parties could stand by and allow a successful revolution.

The recent refusal of erstwhile doves like Ted Kennedy and Christopher Dodd to oppose aid to the Nicaraguan Contras on the principled ground of opposition to U.S. interventionism and support for Nicaragua’s right of self­determination-and their backing of a “compromise” measure which would open the way for U.S. aid upon the (likely) failure of diplomatic initiatives-is indicative of the trend. In the face of the growing requirements of capital for politico-military security in the Third World, liberal politicians, committed as they have always been to the health of world capitalism, can offer no long-run alternative strategy to interventionism and thus find it difficult to offer resistance to particular instances of intervention, no matter how unnecessary for U.S. interests and no matter how morally reprehensible. On the other hand, most of the political establishment is so strongly committed to pursuing the attack on Nicaragua, despite that nation’s lack of strategic or economic significance for the U.S., precisely because they wish to re-establish, at home and internationally the general principle that the U.S. has the right to intervene whenever and wherever it deems its vital interests are at stake.

In the early 1970s, sections of the political establishment believed that the peaceful expansion of the world market into Eastern Europe, the Soviet Union, and China might render the Third World economically irrelevant; but their hopes have proved to be totally utopian, and we have entered a new phase of imperialism designed to protect a much less stably rooted industrial capitalism in the newly developing regions. As the current economic upturn gives way to recession, the U.S. market will cease to pull along Third World export-dependent economies like Korea, Brazil, and Mexico, and we can expect even deeper economic and political crises in the periphery, with greater political instability and greater pressures for U.S. intervention.

The Fall and Rise of Military Keynesianism

At the onset of the international economic cns1s m 1970-1, Nixon, it will be remembered, broke with Republican tradition and implemented a strong Keynesian policy, a program of deficit spending and easy money to get out of the recession (and get Nixon elected). “We are all Keynesians now,” he declared. Nevertheless, the continuation of Keynesian policies by successive Republican and Democratic administrations throughout the 1970s proved increasingly self-defeating.

In the first place, each deficit-induced expansion had the effect of stimulating the manufacturing production of the U.S.’s leading competitors to a greater extent than it did that in the U.S., thus accelerating industrial decline and exacerbating the trade deficit. More generally, the problem was that, as the crisis deepened throughout the period, the potential for profitable production both in the U.S. and internationally declined. As a consequence, each additional injection of federal debt to subsidize demand and keep the economy turning over brought de­ creasing response in terms of increased investment and employment. There was less bang for the buck, as the economists put it.

Failing to increase production, the increased demand created by debt simply brought increased prices and, ultimately, runaway inflation. Inflation made all of the problems of production worse by threatening existing investments, especially those of the banks, and steering investment funds toward speculative ventures, especially in land. Ultimately, inflation forced up interest rates, directly undermining the potential for growth. By the end of the ’70s, we had inflation plus recession, the famous stagflation, and the apparent bankruptcy of Keynesianism.

It was, as noted, Jimmy Carter, not some Republican, who ultimately put an end to the Keynesian inflation by reducing government expenditure and tightening the money supply, and in that way engineering the worst downturn of the post World War II period. Carter, along with Paul Volcker of the Federal Reserve Board, hoped that the recession would eliminate inflation, shake out the economy, and restore the conditions for growth. Intensified competition would eliminate inefficient firms; growing unemployment would reduce wages; and slackening demand and multiple bankruptcies would reduce the costs of machinery and raw materials. Hopefully, the bigger more efficient firms would then hire labor and buy up the means of production at bargain basement prices and set off a new investment boom.

At the start of his term, Reagan appeared to be continuing Carter’s policy of deflation-which was, of course, the old Republican religion. But by 1981-2, unemployment was above 12 %, bankruptcies were at record levels, and it appeared that any worsening of the downturn would lead to the bankruptcy of the world’s debtors, and the collapse of the entire world economy. In the space of few years, in other words, not only liberal Keynesianism but conservative monetarism had proved themselves totally incapable of coping with the deepening economic crisis. The defeat of the Republicans in the 1982 congressional elections only underscored the depth of the problem facing Reagan.

Military Economy and Industrial Decline

In the end, Reagan’s cure for the economy’s disease was to treat its symptoms. He pursued, of course, the massive military buildup through unprecedentedly large military expenditures. Meanwhile, he engineered an historic tax cut for the rich and for business, ostensibly designed to put the economy on its feet. The resulting deficit, as we know, helped to fuel a new upturn.

Regan’s military Keynesianism-the stimulation of the economy through deficits produced by military spending and tax cuts-appeared, on the surface, to speak to all of the U.S. government’s chronic problems. In the first place, it obviously fit in very well with Reagan’s need and desire to build up the military, so as to underwrite the interventionist foreign policy needed to defend the unstable capitalisms of the newly-developing regions. Secondly, it staved off a possible crash. Reagan’s deficit has provided the stimulus not just for the U.S. boom, but for the (limited) upturn of the world economy as a whole.

Today, more than ever before, the health of the entire world economy depends upon the U.S. economic “locomotive” to drive it forward: without the growth of the U.S. economy, itself dependent upon the massive federal deficit, and the consequent growth of U.S. demand for their exports, most of the world’s national economies are, in this period of world crisis, simply unable to grow. Thirdly, Reagan’s deficit spending reduced unemployment and restored his political support, assuring his election. Fourthly, Reagan’s military budget made his Sunbelt supporters of the military-industrial complex very happy and very rich.

Finally, Reagan’s Keynesianism seemed to stimulate a good deal of investment and economic growth, which would not have occurred naturally, given the lack of competitiveness of the U.S. sector. Indeed, Reagan’s military expenditures have amounted to the only “industrial policy” for restoring manufacturing competitiveness that the U.S. can undertake. The astronomically large expenditures on such space-age boondoggles as Star Wars (the Strategic Defense Initiative) are, in themselves, a total waste; but they will go, in part, to subsidizing basic research which is bound to have some spinoffs relevant to industry. It is an extraordinarily inefficient way for the government to support research and development, but it is the only way currently available. For all these reasons, military Keynesianism seems to be the necessary, almost inevitable, program of the coming period.

Nevertheless, the pursuit of military Keynesianism, under current conditions, is bound to exacerbate the already serious problems of U.S. industry, without in any way resolving the underlying international economic crisis.

In longer run terms, Reagan’s deficits have not-and will not-stimulate the massive investment in new plant and equipment which is required to renew U.S. industry because, as emphasized in the first part of this essay, the best opportunities for profit making are not to be found in U.S. manufacturing, but in finance, in largely unproductive services, and in industry overseas. Even during the current boom, investment in new plant and equipment has continued to stagnate and decline. As a result, the crisis of productivity has gotten even worse. The investment which has taken place in the last few years has occurred almost entirely in equipment (machinery), not in plant (the new structures which would be necessary if output was to be really significantly expanded). In fact, out of the total increase in expenditure on new plant and equipment which took place between 1979 and 1984, a staggering 93% was on office equipment and company leasing or purchase of automobiles! Much of the remaining investment in equipment which is occurring is in the form of foreign machinery imports.

As the opposite side of the same coin, deficit-financed military spending continues to have the effect of diverting ever-increasing resources into non-productive military production. Most of what’s produced in the military sector is neither capital goods nor wage goods; the labor and means of production expended therefore improve neither the economy’s ability to equip its workers with new means of production nor its capacity to raise its workers’ living standards. Rather than developing the economy, military spending saps its strength. Any temporary stimulus to the economy which has come from deficits resulting from military spending has thus been purchased at the cost of accelerating the long term decline of manufacturing.

In fact, even in the short run, Reagan’s Keynesian program has been no better than those of his predecessors in creating the conditions for sustained growth. For this reason, despite the promises of supply-side economics, the increases in tax revenues which have come with the upturn have been nowhere near large enough to offset the radically increased expenditures on arms and the reductions in revenue resulting from the Reagan tax cuts. The consequence, of course, has been record federal deficits. Through most of the boom, record borrowing has covered the deficits, but has put a huge strain on the availability of funds, driving interest rates up. Relatively high U.S. interest rates have attracted a flood of capital from all over the world, above all from Japan. But the flow of capital into the country to take up U.S. government debt has forced up the value of the dollar, making it vastly more difficult to sell U.S. goods abroad and a good deal easier to sell foreign goods in the U.S. market. In other words, the high dollar which has resulted from the federal deficit, has amounted to a big stimulus both to foreign imports and the export of capital by American business, and over the past several years, right through the boom, it has helped produce record trade deficits of gargantuan proportions.

To cover the trade deficits, as well as the federal deficit, it has been necessary for the U.S. to incur massive debt. Today, the U.S. stands, with the Third World countries, as a debtor nation. If present trends continue, the U.S. will become the world’s greatest debtor nation in the course of only a few years.

Over time, continuing the same policies which stimulated the boom are sure to help to bring it to an end, with possibly disastrous consequences. As U.S. manufacturers are less and less able to compete with imports-an already existing problem made significantly worse by the over-valued dollar-they are reducing their rates of in­ vestme t even further. If allowed to continue, the import-induced decline in investment will likely exacerbate the economy’s built in tendency to cyclical downturn, intensifying what would be the fourth serious recession since the world crisis began around 1970.

An American recession would, however, be very problematic for the world economy, for it would mean the collapse of demand and the consequent decline of production domestically and internationally, which would undermine the ability of debtors to fulfill their obligations to the banks. In view of the mass of outstanding debt held by Third World nations, by U.S. farmers, by producers of oil drilling machinery and a host of others, the risk of financial crash would therefore be very real.

Most of the political establishment is acutely aware of this problem. It is likely therefore that they will take great risks to avoid a new recession. We will probably see a continuation of the deep federal deficits and a new round of loose money designed to keep interests rates down and to keep demand up in order to counteract the cyclical pressures toward economic downturn. Nevertheless, staving off recession in this way would likely mean the continuation and the intensification of the problems already plaguing the American economy-i.e. further large federal deficits, the additional growth of imports, the increase of trade deficits, and the growth of debt outside the U.S.

Whatever the government’s policy, the U.S. economy faces no easy road beyond the current impasse. U.S. deficit military spending seems the only way to support capitalism’s and U.S. capital’s increasing commitments in the unstable Third World, to keep a crisis-bound world economy from sinking into recession and perhaps financial collapse, to stimulate industrial innovation, and, incidentally, to attract the political support of all those who depend directly (through the arms industry) or indirect!y (through the stimulus the arms industry gives to economic growth and employment) on military spending for their well-being. But military Keynesianism will only exacerbate U.S. industrial decline in the long run, while proving unable to maintain international economic stability in the short- to medium-run.

II. Collapse of Liberalism & Drift to the Right

Ironically, the deepening problems of U.S. capital, and world capitalism, throughout the ’70s and into the ’80s have thrown liberalism and social democracy into profound crisis. This is not really surprising since, as is well­known, the success of liberalism and social democracy in the postwar period was profoundly dependent upon the boom of the economy.

The labor bureaucratic, parliamentary politico, Black petit bourgeois, and service professional elements which constitute the core of official reformism in the U.S. have at no point during the entire postwar period shown the slightest willingness to risk their own organizations in confrontations with the employers and the state, let alone challenge the capitalist property system. Nevertheless, all these elements rose to great heights during the economic boom by virtue of their ability to make pluralism work. Because the employers were willing and able to pay a price for labor quiescence and social peace, the forces of official reformism could play a broker role between capital and their constituencies-winning continual improvements for their followers in exchange for cooling out resistance, on the shop floor or in the communities. It was the fundamental premise of official reformism that they could keep the the capitalist economy healthy through the application of Keynesian policies to stimulate growth and smooth out the business cycle, through institutionalized collective bargaining to regulate labor­management conflict, and through the maintenance of certain fundamental social welfare arrangements to support the poor and temporarily unemployed. The growing pie would keep up employment and allow everyone to rise together. Each social interest would get its “fair share”; the class struggle would be exposed as illusory. All that was required was to elect Democrats to office so that the appropriate policies could be continued.

With the end of the boom from the early ’70s, the forces of official reformism saw the economic foundations of their political strategy collapse beneath them, not only in the U.S. but throughout the world. With the onset of world economic crisis, made worse in the U.S. by the accelerating decline of American manufacturing, the employers were increasingly unwilling to allow working people to achieve gains without a fight. Under these conditions, the forces of official reformism were at a loss; for they were simply unwilling to risk their own positions, or the survival of the organizations from which they drew their lifeblood, in confrontations with the employers and the state.

The Reformists’ Alternatives to Reform

Unable and unwilling to launch a fightback, the forces of official reformism have been compelled to search for alternatives. During the early ’70s, when it was still hoped that recession would soon give way to renewed growth the labor officialdom, left and right, played a vicious and systematic role in undermining the nascent rank and file movements which emerged in response to the initial wave of the employers’ offensive, making particularly dramatic interventions in auto, the mines, and the public sector, where workers’ resistance was relatively strong. They hoped, in the meantime, that electing Democrats to office would help them win back through legislation some of what was being conceded on the shop floor.

Nevertheless, following the deep recession of 1974-5, it became clear that the Democrats would refuse to pass any reforms which could possibly discourage capital in&vestment and that the employers’ offensive at the level of the corporations would continue to accelerate. As recently as 1976, the Democratic Party had a crushing 2-1 majority over the Republicans and the party as a whole, as well as many of its individual congressmen, were committed on paper to wide ranging programs of social reform. Nevertheless, the actual achievements of the Democratic congresses revealed the political shift which had occurred. The Humphrey Hawkins bill for “full employment” was first totally gutted, and then passed (as if to rub the noses of its sponsors in the dirt). The bill for common situs picketing was soundly defeated. National Health Insurance, the rallying cry of the Democratic Party left wing, never got a hearing. Perhaps most humiliating, the extremely moderate Labor Law Reform bill was crushed.

With no hope of prying gains from capital, either directly or via the government, the forces of official reformism, above all the labor bureaucracy, have seen no alternative but to help U.S. capital get back on its feet. Perhaps more than any other group, including the capitalists, the official reformist forces are concerned about the systematic decline of U.S. industry and developing a national program to counteract it. Only through the revival of the U.S. economy as a whole can the labor officials have a hope of regaining their old position as brokers between capital and labor. At one time the reading apostles of Keynesianism, the labor officialdom 1ave therefore become today the leading exponents of v-hat is termed “industrial policy” to restore the competitiveness of U.S. industry.

What some sections of labor officialdom have thus seen proposing is that the U.S. government launch a new version of the New Deal’s Reconstruction Finance Company, which would channel funds to subsidize both the development of new, high-technology, science-based industries and the technological regeneration of the mainline manufacturing which they believe must remain the core of any advanced economy. To this end they have sought to involve the unions in a tripartite partnership with business and the government to launch a vast cooperative effort to revamp the American economy from top to bottom. (Proposals for an industrial policy of this sort have also been advanced in recent years by the well­known investment banker Felix Rohatyn, who managed the New York City austerity program.) Meanwhile, to buttress industrial policy-and simply to defend manufacturing in the short term-the labor officials have also become strong advocates of protectionism, to defend U.S. industry against “unfair” foreign competition.

Nevertheless, what is perhaps most striking about all of the various proposals for an industrial policy is how little support any of them have elicited from either capitalists or government policy makers. What accounts for this lack of interest in what appears to be the vital task of developing a plan for reviving manufacturing?

The failure of industrial policy to elicit much support from U.S. business needs to be explained in much the same terms as the decline of manufacturing itself. It is true that some companies, especially in the new science­based industries, could benefit from industrial policies, and have in fact supported it (eg. Hewlett-Packard). Nevertheless, they are a distinct minority. The generality of U.S. capitalists oppose industrial policy for the simple reason that the combination of taxation and subsidy/ loan policies and industrial policy it would entail would, in their view, compel them to allocate their funds in ways which would yield them lower returns than otherwise. These capitalists believe, in other words, that to allocate their investment funds to the attempt to rebuild manufacturing under government auspices would prove far less profitable than to allocate these same funds, as they are already doing, to finance, to the service industries, and to lending overseas (often to foreign manufacturers), as well as to the lucrative military sector. This is especially so because the nations of Southeast Asia are already opera­ ting their manufacturing under one or another form of government industrial interventionism and, in many cases, on the basis of ultra cheap labor.

It is not by chance that, today, perhaps even more than in the past, representatives of capital are singing the praises of the free market, demanding tax cuts, and pushing hard for de-regulation in every sphere, while opposing any sort of government intervention to re-direct investment and supporting further reductions in social spending. They need total freedom to use their funds where profits are greatest, irrespective of the consequences, for the disjunction between the requirements of profitable investment and the requirements for industrial growth and social welfare in the U.S. has never been greater.

The attempt to introduce an industrial policy would thus require a direct struggle with U.S. capital over the allocation of the economic surplus, a task obviously well beyond the trade union officialdom, or any of the other forces of official reformism in the U.S. Protectionism, on the other hand, has a much better chance. Indeed, a creeping protectionism is, bit by bit, extending itself across a huge range of U.S. industries (cars, steel, textiles, electronics, some chemicals, etc.) and is about to encompass even such high-technology manufacturers as micro­chips.

Of course, to protect industry from foreign competition and to renew it are two very different things. So far, the former has not helped the latter, but merely allowed certain industries to continue to make profits without their having to pay the cost of renewing their plants and equipment.

Without much hope of winning a national strategy for industrial renewal, since they would have to impose it, labor officialdom has more and more been obliged to put its hopes for eliciting investment and improving the competitiveness of American manufacturing in cooperative arrangements between the employers and the unions at the level of the firm. They have thus increasingly placed top labor leaders on boards of directors of the corporations, while beginning more and more to accept corporate proposals for profit sharing. On the shop floor, they have become the advocates of so-called Quality of Worklife (QWL) programs, aimed at increasing worker participation to improve productivity.

The reformist officials’ increasingly desperate turn to corporatist solutions during the late ’70s and early ’80s is understandable in view of their refusal to confront capital, but has nonetheless proven self-destructive. By recommending policies which bring workers objectively into alliance with their own employers, the officials have in effect argued that unions, the instruments of workers defense, are increasingly irrelevant.

Indeed, to the extent that the labor bureaucrats have transformed their unions from weapons of class struggle into instruments of collaboration in production-and they have so far done so only to a limited extent-they have been to that degree less able to insure their own place within those corporatist arrangements through which they originally had hoped to manage the crisis alongside the employers. Under no compulsion to accept the trade unions as partners, the employers have seen no reason not to turn around and destroy them as they have done, with growing success, since Reagan ascended to the presidency.

While the strength of the trade unions and their officials has rapidly declined, those decreasing numbers of liberal politicians who have continued, as the crisis deepens, to advocate industrial policy and to demand improved social programs from the government have systematically failed to show how the capitalists could be made to bear their naturally high costs. In so doing, they have helped to discredit in advance any new offensive for reforms. Over the past twenty years, no section of the liberal reform establishment has lifted a finger to oppose the dramatic longterm decline in the level of corporate taxation. Nor have they sought to abolish Taft-Hartley and other legislation which cripples militant labor struggles. The great majority of workers, though in principle supporting most social legislation, have therefore come to assume that they themselves will have to pay through higher taxes the cost of any reforms won in Congress.

The Drift to the Right & the Working Class

Over the past decade, almost every section of the working class has found it increasingly difficult to fight back against the employers. Although rank and file workers all across the economy did launch significant responses to the employers’ initial attacks in the early 1970s, none of these were successful, and almost every section experienced major defeat. In no union, moreover, except perhaps the United Mine Workers, have rank file workers seriously challenged the stranglehold of the labor officialdom or developed a significant alternative to the bureaucrats’ collaborationist strategy. The combined effects of the employers’ offensive, the labor officials’ abject surrender, and the inability of the labor movement as a whole to launch either militant fight backs or new organizing campaigns have thus been disastrous. Today, unions embrace only 18% of the private sector labor force, down from 35% in 1950.

What makes the situation all the more difficult is that, as a result of manufacturing decline, workers in heavy industry, who have for an entire epoch constituted the most powerful and militant sections of the labor movement, confront unprecedentedly difficult strategic problems in seeking to launch a fightback. Facing the reality of declining profitability and declining competitiveness in their industries, and the reluctance of their employers to invest, these workers often view it as counterproductive to attempt to fight for better wages and conditions. If their struggle were to succeed, it would only increase the likelihood that “their” firm would go out of business or that their employer would disinvest and relocate. It often seems only the better part of valor, therefore, to accept the employers’ and the officials’ schemes for labor­management cooperation to restore the companies’ productivity and profitability.

The depressing effects of declining manufacturing competitiveness on labor militancy have not, moreover, been confined to workers in heavy industry. Public sector workers, throughout the whole period of the crisis, have provided perhaps the most consistent source of militancy within the labor movement. But these workers realize that unless the private productive sector is healthy, the state will experience financial crisis and that they will, in turn, face serious problems. It obviously requires a good deal more power to extract better wages and conditions from financially straitened governments. But more fundamentally perhaps, under conditions of industrial decline, public workers find it much more difficult to ask private sector manufacturing workers to pay the taxes upon which a healthy public sector depends. Manufacturing decline has not only weakened what were formerly the public sector workers’ strongest allies-the old CIO unions in heavy industry; it has also, to some degree, set the two groups of workers in conflict with one another.

As the economic pie has contracted in the face of international crisis and U.S. industrial decline, and as workers have failed, for the time being, to force the capitalists to proportionately reduce their share, the stronger and better off sectors of the working class have tended to defend their own share by means of strategies which ally them, at least implicitly, with the capitalists, against the weaker, worse off workers. As they have actually carried out these strategies in practice, they have naturally found more attractive those ideological conceptions which can make some sense of them. These, of course, are the ideas of the right.

To the extent then, that workers have been obliged to participate-at the level of the corporations or on the shop floor-in cooperative arrangements to improve their firms’ productivity, they are actually helping their own employers to defeat workers in other places. To the extent, moreover, that they have supported protectionist measures, they have allied with their own capitalists against workers around the world.

To the extent that workers, unable to make the corporations pay for maintaining social services, have turned to tax reductions to avoid having to pay for these themselves, they have, unavoidably, joined in the attack on the living standards of those who are dependent upon welfare and other social services, above all Blacks and women. To the extent that workers have protected their own jobs through defending the seniority list in a “color­blind” and “sexblind” manner against affirmative action, they have attacked Blacks and women (who are still “last hired, first fired”) in still another way.

It is quite true that many working people who actually defend themselves by these means do not intend to profit their employers or to gain at the expense of other workers. It is also true, and very important, that, in poll after poll, right through the Reagan presidency, large majorities of workers have continued to give their verbal support to the full range of policies of the traditional liberal welfare state: the maintenance of spending on social security, welfare and relief programs, education, health, and urban aid; continued state regulation of the environment, industrial safety, auto emission and safety standards, and even expanded affirmative action. Nor have workers, in the polls, given their backing to Reagan’s new militarism and interventionism: they have opposed increased involvement in Central America, supported nuclear disarmament, and failed to give any increased backing to stepped up military spending.

The fact remains that lacking, in practice, the ability to impose the costs of government programs on the capitalists, to compel the employers and the state to provide more jobs, or, indeed to break from a belief in the Communist menace, they have ended up taking actions which are in effect increasingly chauvinist, racist, and sexist. Inevitably, they have been opened up to the reactionary worldviews which rationalize this conduct. It would be wrong to believe that right-wing ideas have achieved a definitive hold on large numbers of workers; but it would be equally naive to ignore the very material pressures which are today working in that direction.

III. Strategic Problems for the Left

The complicity of U.S. capital in the various processes leading to industrial decline, combined with the near-total inability of liberalism either to win reforms or to offer a credible program for transcending the crisis, has opened up unprecedented possibilities for the left, but also enormous dangers, especially given the left’s very weakened condition today, both organizationally and politically.

U.S. Interventionism as Anti-working Class

The area where the left, at this point, has the greatest chance to organize mass action, make broader practical and ideological connections between the movements, and to win people to its ideas is probably outside the workplace and in the anti-intervention struggles, the fights against the cutbacks in services, and the struggles against militarism. The left’s top priority should be to bring these struggles together, to explain that they have a real, material basis for supporting one another, and to give a working class orientation to these movements.

It can today be made clearer than ever before that the policies of growing interventionism and increasing arms spending, which dominate the political horizon in the U.S., are disastrous for the great majority of working people. The idea that U.S. workers benefit from imperialism, although still advocated by many on the U.S. left, has never been more than a half truth. The rising living standards and general prosperity enjoyed by the majority of working people in the U.S. and Europe during the post-war boom were attributable, for the most part, to the enormous increase in the productiveness of industry (output per unit of work), as well of course as the sheer growth of the economy overall. The Third World had very little to do with it. Correspondingly, as the economy has gone into crisis, all sections of the U.S. working class have been badly hurt, although some naturally more than others.

What gave a small amount of validity to the idea of an American “labor aristocracy” benefiting from the “crumbs of imperialism” was the U.S.’s ability, in certain cases, to use sheer politico-military force to gain access to raw materials at better than world market prices through various sorts of ripoffs. To what extent this imperialism of raw materials actually existed at various times in the past and to what degree it benefited U.S. workers may be debated. But, today, U.S. interventionism and militarism is, quite obviously, devoted overwhelmingly to another purpose-to support repressive Third World regimes with the aim of maintaining a cheap and repressed labor force for the growth of manufacturing. In short, the function of U.S. interventionism and militarism today is to facilitate the export of capital and jobs out of the U.S. and into the Third World.

Meanwhile, of course, the very military budget which goes to support runaway shops and the flight of capital is not only depriving increasingly broad sections of the working population of basic welfare and social services. It is also, more clearly than ever before, channeling to entirely unproductive purposes massive resources that could, in principle, be used to rebuild industry in the United States.

It should therefore be the left’s top priority in the anti­intervention movements to bring out the anti-working class significance of interventionism and militarism, and to develop means to struggle to redirect military spending toward the restoration of needed social services and the reconstruction of industry. This means that the anti­intervention movement needs to focus not only on why American intervention is wrong, but also on why it is against the interests of the American people.

The anti-intervention movement needs also drastically to expand its field of action. It should be concerned, in the first place, to help build any struggles that may emerge against budget cuts which are likely not only to be increasingly severe, but to touch much broader sections of the working class (eg. medicare and social security). It should be concerned, in the second place, to intervene directly in support of workers’ struggles of all sorts, strikes against concessions and especially fights against plant closures. It should therefore not only be attempting to win over individual workers and unions to the goals of the anti-intervention movement, as it is currently doing in the various union committees on Central America. It should also be trying to lend support to the workers’ own immediate goals in their ongoing defensive struggles and, in that context, seeking to explain how the fight to achieve these goals is undermined by U.S. interventionism and militarism. Developing a working class orientation for the anti-intervention movement means orienting the movement in action to the working class’ own activities.

The Perils of Industrial Decline

The employers’ offensive, set off by declining rates of profit for the capitalist system as a whole, has continued now for a decade and a half, and posed ever more difficult strategic problems for a working class response. A workers’ fightback has been made more difficult, first of all, simply because the employers today have no choice but to seek to cut costs by cutting wages and working conditions in order to remain competitive, and are therefore willing to pay a much heavier price in terms of direct conflict with the workers than in the past. At the same time, the employers have become much stronger as a result of the growth in size of the corporations, the diversification of corporate holdings into many different areas, the geographic dispersal of corporate operations, and the sheer increased mobility of capital.

To make matters worse, the employers now elicit from the state even more openly pro-capitalist policies than in the past-as witness Reagan’s strikebreaking, the destruction of the minimal NLRB protections, the use of Chapter 11 by the corporations to get out of labor contracts, and so on. Nevertheless, what today really complicates the task of preparing a viable response to the employers and therefore needs to be confronted as directly as possible by the left-is the declining competitiveness of U.S. industry and its declining attractiveness as a field of investment.

Actually to observe the effects of declining competitiveness on workers’ fighting capacity and political consciousness, one has only to notice what has happened to the British working class over the last fifteen years or so. In the late 1960s and early 1970s, Britain’s workers possessed as powerful a trade union movement and as much strength at the level of the shop floor as any in the world. Nevertheless, especially since the great miners’ strikes of the early 1970s, they have found themselves increasingly less able to cope with the employers’ offensive. Above all, the British working class has been able to mount relatively little resistance to the onslaughts of Thatcher-despite divisions among the capitalists themselves over her policies and despite the relatively clear lack of success of those policies in bringing about the regeneration of British manufacturing.

The fact that so powerful and well-organized a working-class movement has so far been largely stymied by Thatcher’s clearly retrograde, viciously anti-working-class policies is explicable only if one understands why so much of the British working class has felt that it can offer no alternative.

Historically, British workers have wielded power, above all, on the shop floor and at the level of industry, that is by means of their purely economic power to stop and control production. Nevertheless, as it became increasingly clear to British workers that “their” industries were not competitive and not very profitable, they have had to face the fact that, in reality, British industry could not grant them much more, and still survive under capitalism. It has been the point of Thatcher’s policy to unmask this lack of competitiveness-and expose it to the rigors of competition.

Nonetheless, through the ’70s and into the ’80s, most of the British left simply refused to face reality, and continued publicly to put forward the populist position that the British capitalists were making big bucks and should share this with the workers (illustrating the point with largely irrelevant facts about the size-not the rate-of individual firms’ profits or the outrageous consumption of individual capitalists). Their calls for activism and militancy, while absolutely indispensable, were insufficient to provide a winning strategy for workers in struggle in declining industries, let alone an overall alternative to Thatcher or capitalist rationality more generally.

Both the British workers and the British left have been entirely unprepared to capitalize on the failure of Thatcherism. Thatcher’s policies have actually led to the further collapse of important sections of British industry but, rather than provoking successful counterattacks, they have, by and large, also led to the further demoralization of workers who could see more clearly than ever before that you can’t squeeze blood from a stone.

What makes the employers’ attacks so difficult to confront, in the context of declining competitiveness, is that the problems they pose for workers are basically insoluble by struggles confined to the firm, or even the industry, at least in many cases. Even in what would today be the unusual case where workers were militant enough to take over a firm which threatened to close down unless concessions were granted, they would still face the problem of what do with it once they had it. The problem is that, in many instances (not by any means all, of course), the employers demand unacceptable concessions on threat of closure because, in reality, they cannot operate the firm profitably unless the workers accept cuts. This might express the fact that the plant’s equipment is outdated, but it could also mean that, even with the best equipment, the capitalist cannot make as much from his/ her investment in this line as in another, given the level of wages and benefits.

For this reason, workers in possession of the firm would often face the same problems of insufficient competitiveness that their employer formerly faced. They would have to reduce their wages and conditions and perhaps eventually have to lay off workers. Even then, they might not be able to attract the necessary financing in the form of loans from banks or stock purchases, because potential lenders and stockholders would make the judgement that the firm was not, in relative terms, a good investment.

The problem posed for the left, therefore, is: (1) how to get across to workers in struggle the idea that it is suicidal to accept the profitability of the firm as the criterion for whether or not workers are to maintain their employment and their established living standards; (2) how to present realistic strategies for workers to fight for broader support from the state (via taxes and government expenditures on industry), so that they can begin to deal successfully with the financial problems posed by their firms’ declining competitiveness.

Preparing the ground for the rejection of the criterion of profitability is, in part, a critical educational task. It needs to be demonstrated to workers, both analytically and by summarizing the recent historical experience, that the various capitalist schemes to restore capitalist profitability and competitiveness by means of tax breaks, contract concessions, and worker-management cooperation cannot benefit the workers. This is first of all because, in the current circumstances of system-wide crisis of profitablity and intensified international competition, such schemes simply will not, as a rule, lead to new investment. It is, secondly, because the various programs for worker-capitalist collaboration in the interest of greater productivity–labor representatives on company boards of directors, profit sharing, quality of worklife programs–will only make the workers and the unions even more dependent upon the company, while placing them into conflict with workers in other firms, undermining any hope of solidarity. The ultimate result is to tie the workers entirely to the fate of their firms in a period when the trend is toward declining rates of profit and the increasing risk of bankruptcy.

Much more difficult, of course, than demonstrating the problems with schemes which further subject the workers to the logic of profitability is to advance a viable alternative strategy. Perhaps the most promising point of departure for doing so is by focusing on that point in the U.S. economy where the allocation of the surplus seems least “necessary” and most subject to political decision–i.e. the military budget. If the growth of the military budget is the characteristic expression of those processes which are today bringing about the declining competitiveness of the U.S. economy, its reduction offers the most palpable means of beginning to reverse those processes. The massive monies wasted every year on the military are direct evidence that the resources already exist to rebuild manufacturing and to restore social services, if only the struggle could be waged to make this happen.

If it could be made clear to workers in struggle that the employers and the state have refused to revive U.S. industry and social services and are in fact squandering a huge part of the social surplus on the military to make possible the rechanneling of their profits outside the country at the direct and indirect expense of working people, it might be possible to begin to raise the alternative of using those funds precisely to finance, via the state, the technical renewal of those plants taken over by workers.

It is obvious that such a perspective is not today actionable, given the level of struggle. But this does not mean it is irrelevant or utopian. Strategies of this sort are today on the agenda, because workers require them now to prepare themselves for problems which they will confront not on the day of the revolution, but the moment they enter into struggle. Finding ways, then, not only to orient the movements against intervention to the ongoing workers’ struggles, but also to raise the issues of U.S. military spending and interventionism in the struggles against concessions and plant closures might offer one promising way to begin to transcend the political impasse posed by U.S. industrial decline.

The Service Industries: Labor’s Unknown Continent

Perhaps the most spectacular expression of declining U.S. manufacturing competitiveness has been the radical shift in the composition of the labor force which has taken place in the relatively short period since the start of the economic crisis. Between 1970 and 1984, out of 23.3 million people added to non-agricultural payrolls, 94% were in the so-called service industries, but only 1% in manufacturing. Only a tiny proportion of these workers have been organized into unions. But, as has become increasingly obvious, they hold one indispensable key to any potential revival of the labor movement.

A significant part of the growth of the service sector has taken place, as is often emphasized, in restaurant employment, typically in small fast food outlets, staffed by teenage and part-time labor, which are very difficult to organize. Nevertheless, a large proportion of the growth of service employment also has taken place in what are in fact highly proletarianized . work environments, large institutions with huge, often concentrated, labor forces-above all, hospitals, universities, schools, and state and local governments.

The needed, serious discussion of the possibilities for labor organizing in such arenas as these is beyond the compass of this essay. Suffice it to state that what makes organizing in these workplaces so potentially explosive is that they are staffed overwhelmingly by women and minority workers. They therefore represent a potential point of intersection between a revived labor movement, a revitalized women’s movement, and nascent movements in the communities. It is certainly no accident that a disproportionate number of the most militant and successful labor struggles of the recent period has taken place in this sort of setting–the Yale University clerical workers’ strike of 1984-5, the Columbia University strike of fall 1985, the Oakland teachers’ strike of winter 1985–and that each of these battles involved creative linkups between the union struggles, independent women’s activity, and the communities.

Struggles such as these prefigure the labor fights of the coming period. They are less likely than ever before to follow strict trade union lines. They are more likely to involve solidarity actions beyond the immediate workplace, indeed beyond the labor movement, much more quickly and easily than in the past. They are more likely, indeed, to be open to directly political initiatives. They may therefore represent the place to begin in rebuilding the working-class movement from the bottom up.

May-June 1986, ATC 3