Saturday, 14 July 2012


Dick Pountain/28 February 2009 12:37/Political Quarterly

TITLE: "The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too".
AUTHOR: James K. Galbraith
PUBLISHED: August 2008, hard cover, pp 221, £16.99


Neoliberalism and neoconservatism are central concepts in left-of-centre explanations of what has happened in history since World War II. The story runs roughly like this: Franklin D Roosevelt and his New Deal saved capitalism from itself and inaugurated a period of social democratic consensus that lasted from 1945 until the early 1970s, when two oil price crises and the resulting inflation destabilised social democratic/liberal governments throughout the Western world. This opened a door for neoconservative parties advocating neoliberal economic policies to achieve power, lead in 1979 by Margaret Thatcher in the UK and Ronald Reagan a year later in the USA. They proceeded to dismantle the New Deal institutions, with the result of increasing economic inequality and reducing welfare provision.

James K Galbraith challenges the simplicity of this story, claiming that the forces responsible for increased inequality over the last 30 years are conservative neither in name nor in policy, and that far from dismantling the institutions of the New Deal they have rather hijacked them and turned them into the instruments by which a corrupt elite has "asset stripped" the state and the economy. Galbraith is Professor of Government-Business Relations at the University of Texas, and the son of J.K.Galbraith, famous exponent of Keynesian economics. James Galbraith is perhaps better described as a post-Keynesian populist or a Scandinavian-style social democrat, who adheres to some central Keynesian doctrines like regulation and welfare spending but takes a political position more radical than such a description would suggest. He recommends policies more vigorous than anything New Labour or the US Democratic party has dared to propose - high, state-enforced minimum wages, economic planning, universal trade unionism and a strong welfare state. He appears to be immune to the free market virus.

"The Predator State" is organised into three parts. The six chapters composing Part One, "Another God That Failed", demonstrate that the wing of the US Republican Party that calls itself conservative is nothing of the sort. It preached an end to state intervention while growing the state to wage foreign wars, and paying for it by ever-increasing budget deficits. The intellectual and electoral collapse of US social democracy ("liberalism" in US terms) during the 1970s enabled conservatives to camouflage their real policies behind a smoke-screen of free market rhetoric which brow-beaten liberals are still barely able to contest today, as witnessed by Obama's tussle over his stimulus package. Galbraith persuasively reveals the emptiness of the Right's triple rhetorics of Free Market, Free Trade and Budget Balance: "From the early 1970s onward, one [ie. a nation] did not trade in order to pay one's bills; one espoused the doctrine of free trade in order to draw credits that would make it unnecessary, in the short or medium term, to pay one's bills."

In the four chapters that make up Part Two, "The Simple Economics of Predator and Prey" Galbraith dismantles the trickle-down theory with which "conservatives" opposed income redistribution and justified rising inequality. Inequality is Galbraith's specialist subject (he directs a research group on it at Texas U) and he analyses the example of Denmark to demonstrate the fallacy of Hayekian arguments that egalitarianism automatically leads to impoverishment. He contends that the Democrats under Clinton oversaw the biggest increase in inequality, by stimulating an IT-based bubble that ended with the crash of 2000, and he shows that the USA was never during this period a free-market economy, but an advanced postindustrial economy with a public sector responsible for well over half of economic activity (and with its manufacturing outsourced to China and Korea).

Chapter 10, "The Rise of the Predator State" is the one I found most illuminating. Galbraith's title is not mere hyperbole, and has nothing to do with Hollywood horror movies. Predation is a technical term employed by Thorstein Veblen, the Norwegian/American economist mostly remembered for his 1899 book "The Theory of The Leisure Class". It refers to a great division Veblen saw running through all human cultures, between those who take what they want (hunters, aristocrats, rentiers, robbers, gamblers, financiers) and those who have to work (everyone else). Paradoxically it may be Galbraith's reading of Veblen that makes him more radical than the Repentant Marxists of New Labour, because he's unencumbered by residual dogmas about class struggle and historically inevitable victory of the proletariat. It was Veblen before anyone else who saw that capitalism would adapt itself and defuse labour radicalism through consumption.

Galbraith's father, in "The New Industrial State", described a post-war capitalist world ruled by three big beasts - the big corporation, the big labour union and big government - which fought each other to a fairly peaceful compromise that lasted for 30 years. This interaction he called "countervailing power." Galbraith fils now describes how big labour disappeared (7% of Americans in the private sector belong to a union) and the big corporations were severely weakened by incompetence, international competition and a huge increase in the power of financiers. They became reduced to vehicles for the greed of a top management clique motivated solely by personal enrichment and ego fulfilment. Only big government still exists, but the power of lobbyists makes it no longer a countervailing power: instead it works for the executive clique that runs the surviving corporations (the likes of Dick Cheney). From such a perspective incidents like the Enron scandal, Hurricane Katrina, the subprime fiasco and many others fall into place. The Bush administration appeared incompetent in these affairs because promoting the idea of government incompetence is what it did, part of its camouflaging rhetoric. Not only did it not care to save New Orleans, but it taught the lesson that in future New Orleanses must look out for themselves.

In Galbraith's view: "Predation is the enemy of honest and independent and especially sustainable business, of businesses that simply want to sell to the public and make a decent living over the long run. In a world where the winners are all connected, it is not only the prey (who by and large carry little political weight) who lose out. It is everyone who has not licked the appropriate boots. Predatory regimes are, more or less exactly, like protection rackets: powerful and feared but neither loved nor respected. They cannot reward everyone, and therefore they do not enjoy a broad political base."

To general surprise the Republicans reaped the truth of this in the November 2008 presidential election, but it's too soon to know whether the Obama administration is prepared, or able, to go as far to stop the rot as Galbraith recommends in Part Three, "Dealing with Predators". Mindful of the wage and price controls his father administered during the war, he fearlessly calls for direct state intervention and planning in strategic areas of the economy: "You want higher wages. Raise them. You want more and better jobs. Create them. You want safer food, cleaner air, fewer carbon emissions. Pass laws and establish agencies to achieve this. Enforce the laws, staff the agencies, give them budgets and mandates... Politics may stand in the way, but economics does not. And there is nothing really to lose, except 'free-market' illusions." All to be paid for by extending the same budget deficits that conservatives railed against so stridently while practising behind their backs.

I can hear a chorus of tutting already, but the world economic crisis has deepened alarmingly since this book was written and policies that would have been dismissed as hopelessly discredited by 1970s experience (such is the penetration of Friedmanite dogma) no longer appear so unthinkably anachronistic. In fact they feel closer to current US government policy than at any time since the New Deal.

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