With limited radical political imagination in the midst of pervasive crisis, one project for capitalist reform has garnered inordinate attention. Figures like Joseph Stiglitz and Thomas Piketty are slowly converging on a reinvigorated liberal reformism in which inherited wealth and capital gains are the enemies of fairness and meritocracy. What are the limitations of this intellectual project and how can the radical left push beyond it to a truly socialist alternative?
Joseph Stiglitz: The State and the Role of Government
The liberal American economist Joseph Stiglitz, in his recent book The Price of Inequality (Penguin, 2013), examines the crisis of 2007 onwards from a profoundly moral perspective, one relating as much to the cultural values of American politics as to 'the economy' or 'the market':
Much of what has gone on can only be described by the words 'moral deprivation.' Something wrong happened to the moral compass of so many of the people working in the financial sector and elsewhere. When the norms of a society change in a way that so many have lost their moral compass, it says something significant about the society. 
One of Stiglitz's career-long strengths has been to not treat economies as if they exist in splendid isolation from politics. Markets, he argues, are always imbued with cultural and political values. The book focuses on inequality and its malign effects on the American polity, a key concern of social movements like Occupy. Stiglitz works in a battered but not broken tradition of American liberalism and social welfarism, whose traditional arguments have – after decades of neglect under the pensee unique of neoliberalism – been partially reinvigorated since the beginning of the financial crisis. He claims, probably not unfairly, to have coined the moniker of 'the one percent.' Yet central to Stiglitz's thinking are highly specific conceptions about how the 'state' and the 'market' as separate entities interact in a capitalist system. Indeed, Stiglitz appears only to ask that politicians make good moral choices – the barrier to this being the malign influence of the very wealthy on the political process. As he puts it, 'Policy entails choices' – the consequences of which are either good or bad for the majority. From this moralistic and individualistic starting point, power figures merely as an after-effect, accruing to individuals and groups as a result of the distributional outcomes of bad policies, not as an active factor shaping the policy choices available. It was bad policy that increased the capital wealth of the rich; and it was subsequently the influence of the rich that increased their wealth yet further. Why, though, the bad policy in the first place? For all his talk of the 'one percent', Stiglitz lacks a theory of social class to explain this.
What does class have to do with the state and its ability to act on markets? In his book State, Power, Socialism (Verso, 2000) the Marxist theorist Nicos Poulantzas observed that most political philosophers understand the state to be a 'free-standing' entity – a solid, distinct kernel – 'which is only afterwards utilized by the dominant classes in various ways'.
For these thinkers, there is the 'shady' power of class interest and alongside it the 'sunny' power of the state. This adequately sums up Stiglitz's presuppositions about both the state and the influence of class on it. Somewhere in the mass of interests there is an effective, neutral instrument that can be used for a multitude of tasks. Poulantzas argued that on the contrary, the state is not a separate object but a relation that 'condensates' the dynamics of the whole of society. For Poulantzas the state is the 'material condensation of the relations of class forces.' Society's 'unstable equilibrium of compromises' (to use a phrase of Antonio Gramsci's) is supervised and partly composed by the state. Rather than a neutral object, then, the state is a relation which expresses and regulates the dynamic force of class in society. State activity always comes with the imprint of wider class struggle.
So when Stiglitz asserts that governments have had choices over whether or not to allow gross increases in inequality to take effect, he is to an extent right; however, the extent to which a radical government can achieve its goals by assuming power in a capitalist state depends on the wider balance of class forces – i.e., the strengths and weaknesses of the contesting classes. Not only this, but it also depends on how the power of particular states manifests itself in relation to the balance of international power as a whole (a set of dynamic links between states that Trotsky termed 'uneven and combined development'): Greece, for example, has a more limited ability to intervene in capital markets than the United States; yet despite this Greece may turn out to harbour revolutionary potential that the United States does not.
It is not, as Stiglitz argues, that the 'one percent' simply got more selfish during the later twentieth century (though that undoubtedly did happen). It was deep changes in the processes of American capital accumulation which required certain 'fractions' of the American working and lower-middle class, and capitalists to wage a successful war against the rest of the population, and particularly against organised labour. Thus the inequality Stiglitz describes is the complex result of collaboration between classes, working both through the state and outside it. Through this process the state, too, is transformed, since its capacities extend into society and are the 'condensation' of society as a whole. Both markets and states are, therefore, inherently political spaces structured by the historical and contextual conditions of a particular time. Importantly, however, this also means that they can be challenged.
Piketty, 'Capital', and Class
The French economist Thomas Piketty met with much fanfare following the translation into English of his book Capital in the Twenty-First Century (Harvard, 2014). A moderate social democrat, Piketty had amassed an extraordinary amount of data on the dynamics of wealth concentration and inequality in the West. Contradicting Kuznets's optimistic equality curve, Piketty concluded that, following a brief squeeze during the mid-twentieth century, inequality was returning to its pre-war heights. Where the rate of return on capital is higher than growth of output (determined by productivity and population growth), capital (or really wealth) will concentrate in the hands of a few and the relative income to labour will decline. Since population growth in the West is slowing and the era of postwar catch-up by Europe and Japan is over, growth is declining, while the rate of return to capital remains steady. After the external shocks of the 1914-1945 period and the resulting compression of incomes and inheritance, by 2010 the ratio of capital to income had returned to its Gilded Age state (with wealth at between six and seven times annual income).
By grounding the work of critics of growing inequality like Stiglitz and Paul Krugman in some general, observable capitalist tendencies, Piketty has constructed a very powerful position (hence the attacks by the Financial Times on his data, not his argument). Capital naturally exhibits strong tendencies to accumulate. According to Piketty, returns to capital have been high since time immemorial, while growth rates were traditionally miniscule. The change came during the nineteenth century, when growth rates leapt from 0.5% to 1.5% under the animus of the Industrial Revolution. Freakishly, growth then jumped to 4% due to the rapid pace of post-war re-industrialisation and global economic catch-up with the USA. With growth rates declining it is likely, Piketty argues, that capitalism is returning to its nineteenth century norms of extreme inequality and wealth concentration. The implication is there is little anyone can do to prevent rates of return increasing over dwindling growth rates: this is a fixed tendency inherent to capitalism that, once initiated, can be interrupted by nothing short of extraordinary destruction and global warfare like that seen in the period of the two world wars.
Despite observing the trend, however, Piketty lacks any theory of why capital was driven from its tidy returns on the land in the run up to the industrial revolution. Why, that is, industrial take-off was initiated under capitalism and not under feudal or other preceding systems. 'The nature of capital has changed: it once was mainly land,' he says, 'but has become primarily housing plus industrial and financial assets.' The answer offered by the Marxist economist Robert Brenner lies in a feudal-agrarian crisis and a class struggle which pitted wealthy landowners against peasant smallholders
. Through this process of struggle and crisis in early-modern England, the old mode of production collapsed to be replaced by a new set of social relations, whereby the free labourer sold her or his labour to the capitalist. Brenner's key point is that labourers were forced to produce for the capitalist while capitalists were forced to exchange commodities via the market. As such, capitalists were coerced into competing with each other to produce goods more quickly and efficiently in order to survive. Thus, in Brenner's words, the 'uniquely successful development of capitalism in Western Europe was determined by a class system... in which the methods the extractors [i.e. the capitalists] were obliged to use corresponded to an unprecedented, though enormously imperfect, degree to the needs of development of the productive forces.'
Capitalism was thus not adopted by some wily landowners because it looked like a promising way to make a buck. The preceding crisis on the land drove them to compete with one another via the market. The result was a system of steadily increasing productivity and the means for a rapid growth in population size – the two factors underlying economic growth. In short, then, without understanding class conflict and the system of exploitation on which capitalism rests we cannot understand either increasing or decreasing economic growth.
The End of Growth and the End of Capitalism?
The global growth rates of the mid-twentieth century may, as Piketty argues, be over for good. Yet it is quite clear that capitalism has only managed to command popular legitimacy for so long through high compound growth rates. Wolfgang Streeck, writing in the New Left Review, has recently pointed to mounting evidence that capitalism is reaching the limits of its own elasticity
. A combination of factors, he suggests, are contributing to its long-term breakdown (though not necessarily to its replacement by anything better). In a 'mutually reinforcing' vicious cycle, declining growth is contributing to inequality, which in turn is contributing to growing debt, which in turn is further hampering growth. It is even possible that the age of growth fuelled by productive reinvestment, technical development and rising productivity – all of which were made possible by the establishment of specifically capitalist social relations in western Europe – is coming to an end as a result of western capital's own insuperable barriers. All of these processes are undermining the legitimacy of capitalism, even in strong parliamentary democracies. This combination of factors hampers the standard Keynesian recipes proposed by, for example, Paul Krugman (who continues to 'deny the deficit' and advocate state borrowing
) and has weakened the impact of liberal and progressive arguments on the austerity stalemate. Piketty wisely doubts the contemporary effectiveness of public borrowing as a means to debt-finance reductions in inequality: in its dependence on inflation (which has anyway slowed) it is a 'blunt' redistributive mechanism.
Piketty's strategy, proposed in the book's final section, is really a liberal policy strategy for winning back fading capitalist legitimacy in volatile conditions where the old Keynesian prescriptions no longer cut it. Ever increasing financialisation – driven by expansion of both public and private debt – are here being brought into question as an effective means to continue capitalist development in the West.
As argued above, the state is composed of and supervises the 'unstable equilibrium of compromises' that makes up society at large at any given moment. Declining population growth and the end of the post-war catch-up era have irrevocably changed the structural conditions in which capitalist social reproduction takes place, threatening that very 'equilibrium.' Capitalism is finding it increasingly difficult to 'incorporate' a large enough chunk of the working class into society. Politically, this has manifested itself since the 1970s as a conservative counter-revolution under the name of neoliberalism, the driving state project of financial globalisation. Piketty's contribution has transformed the moribund debate between Keynesian stimulus prescriptions, on the one hand, and the more free market deficit hawks on the other, principally by introducing the subject of inherited and unearned wealth. Up until now the likes of Krugman and Stiglitz could not mount a convincing counter-attack because of the Keynesian commitment to deficit spending. But Piketty argues for progressive taxation and the revival of the social state of the twentieth century, while making the further case for a global tax on capital wealth as a 'new tool... adapted to today's challenges.'
The primary purpose of this global progressive tax on capital wealth would not be to fund the social state but to 'regulate capitalism.'
Much in the manner of revolutionary French republicanism, it would be a 'cadastral financial survey of the entire world.'
No exceptions; no loopholes – just transparent data (uniting Piketty's two great passions: rationalism and empirical data collection). In combination, then, a progressive income tax, estates tax, and capital tax would serve to rationalise the state and to re-legitimate it through fiscal nourishment. Most importantly of all, these taxes would reinforce the 'meritocratic', 'earned' nature of wealth by cutting back income from capital gains and inheritance, and regulating skyrocketing pay-checks in the financial sector. One key effect of the wider measurements of wealth used by Piketty is to highlight the kind of income middle-class economists are quickest to dismiss as unfair: inheritance, which has ballooned since the 1980s. Reviewing Piketty, Krugman writes that much of the income inequality 'action' comes from either capital gains or from inheritance 'not earnings.'
.' The cause? Bad policy! In the same review, Krugman then has a nervous thought: 'Why didn’t the universally enfranchised citizens of [post-revolutionary, republican] France vote in politicians who would take on the rentier class?' His answer: 'Well, then as now great wealth purchased great influence—not just over policies, but over public discourse.' This concentration on increasing unearned income allows Piketty, Stiglitz, Krugman, and others like them, to avoid the class nature of the capital-labour relation, which creates inheritable wealth in the first place. The social question is sidelined by focusing on 'unearned wealth's' corrosive effect on political equality. And the idea may be catching: Labour MP David Lammy has suggested a shift from income taxation to unearned wealth in his book Out of the Ashes: Britain After the Riots. The analysis, however, mistakes symptom for cause: capitalist social relations, which allow capitalists to control production and circulation, produce gross concentrations of wealth, not the secondary, malign influence of the already-wealthy on the distributive policies of the state. It is not the accumulation of wealth and power by particular individuals that is threatening the political order of capital; rather it is blockages and limitations to Western-led capitalist development, arising directly from its class system of exploitation, that are threatening capitalism as such in the twenty-first century.
The Crisis of Neoliberalism: Liberal or Socialist Solutions?
It's easy to see why both Stiglitz and Krugman admire Piketty's theoretical outlook and his proposals for regulating capital. The three gave a joint talk at CUNY this year
in which Stiglitz and Krugman voiced their admiration for Piketty's project. Stiglitz was quick to endorse the 'simple changes' proposed by Piketty – including the taxes on capital he advocates
. This solution is, as Piketty admits, utopian; but for reasons other than a lack of 'will power' in national states as a result of the competition to lower taxes on financial capital. His solution is utopian in a very specific sense: it implies the bourgeois utopia of the French Revolution, in which rights would be evenly distributed and state income would be rationalised, thus creating a 'meritocratic' system. The reason it cannot succeed is not the undermining of the republican or national state by globalised financial capital. According to this account the democratic accountability offered by the nation-state has been universally undermined by globalisation, with financial markets fatally calling the shots over taxation. In reality, not all states have been undermined in this way: Piketty cites Chinese capital controls but one could equally draw attention to the institutional 'internationalisation' of the American state in the era of globalisation. As Leo Panitch and Sam Gindin have shown in their book The Making of Global Capitalism (Verso, 3013), the US state has massively expanded its capacity to regulate global financial markets in its own interests since the Second World War. Rather, the world system is afflicted by 'uneven and combined' state 'development', with deeply unequal inter-state dynamics being reinforced by growing financial volatility. With such an unequal system of states, there's little wonder that international 'will' cannot be summoned to regulate global capital.
Piketty and Stiglitz, along with other liberal and social-democratic economists (one thinks of Will Hutton in the United Kingdom) do not take account of the historical specificities of capitalist development; the history of class struggle that characterises both the state and the market; or the ongoing dynamics of capitalist class exploitation and unequal development in the world system – dynamics that are ultimately restricting western capital's growth capacities. As a result they have produced a set of analyses and proposals that, though serving the ideological needs of progressive liberalism , are deeply inadequate either for making the state more democratic, or for regulating global capital. In an era when the neoliberal project appears to be faltering under the burdens of structural crises, it is more necessary than ever to argue clearly for a socialist alternative. Piketty suggests that the era of high growth is ending, and that spiralling inequality and growing unearned income are the result. A socialist strategy then would seek to address inequality, but also to break the power and control acquired by the dominating class through capitalist social relations. This long process of transformation can be initiated democratically through the capitalist state; but it will require a class victory – calling not on the goodwill of politicians but on classes as political and social actors – to fundamentally alter the balance of power in the state first.
Adam Blanden is a blogger and contributor to Dissent Magazine, Red Pepper, and New Left Project, among others. Follow him @adam_blanden.