Comparing Keynesian Neocorporatism and Market Socialism
by Benjamin Studebaker
There is a lot of fuzziness and misunderstanding about what the left is trying to do, economically. A while back, I discussed some of the things which distinguish postwar liberals–who remain committed to reforming capitalism–from democratic socialists, who seek to one day abolish capitalism outright. Today I want to get into a bit more detail and discuss more precisely how these economic models work. The case I want to make to you is that despite what you may hear, the postwar liberals and democratic socialists have more overlap in their proposals than either side realises.
Let’s start my imagining a libertarian, classically liberal economy. In that kind of economy, the state defends the property rights of the owners of capital, but otherwise avoids intervening in the relationship between capital and labour. In this kind of system, the state acts as capital’s servant. This is the kind of model which most closely resembles the kind of capitalism we saw in the 19th century.
Notice that this differs from feudalism in an important way–under feudalism, the landowner is the state. In the words of Louis XIV, “l’etat c’est moi.” But under this early from of capitalism, the state is an independent actor, albeit one which pretty much does whatever the rich people want. Karl Marx analysed capitalist systems which look broadly like this, and his theory of the state is heavily influenced by the idea that the state exists to serve capital and meet its needs.
The thing is, once we have abolished feudalism and the personal rule it involves, the state begins to acquire a level of independence from the rich. It stops being the case that the richest person straightforwardly runs the country. In a feudal society, the troops are sworn to fight for the rich directly. But now the state controls the guns, and the state is interested in expanding and maintaining its own power–even where this trespasses against the power of private capital. The rich institute the capitalist state because the capitalist state spares the rich from having to defend their property claims personally–the state supplies impersonal institutions which secure property rights independently. But these impersonal institutions, once freed from the personal rule of the capitalist, can now run amok.
The thing is, the state’s power increases when economic power is disbursed in society. The more widely economic power is disbursed, the harder it is for any one actor or group of actors to challenge the state by hiring a private army, going on strike, or staging a coup. In the old feudal days, the kings had to worry that rich landlords would use private armies to topple them if they interfered too heavily in the landlords’ economic affairs. In the early capitalist period, presidents and parliaments have the same worry. But as time progresses, the state nurtures nationalism in its people to bind them to the state and make them easier to command and mobilise. This nationalism encourages people to think of themselves not as subjects of some rich oligarch or some capitalist state, but as citizens, as free and equal members of society. Subjects are slaves, and they expect to be treated as slaves. Citizens expect to be given rights and liberties. Their expectations are higher and harder to meet. But citizens also work harder than subjects–they’re more productive, and they’re less likely to retreat in combat because they believe in the states they defend. So states which encourage their people to think of themselves as citizens have advantages in productivity and in military fortitude over states which maintain their people as subjects. This means that over time, the states which are citizenship-oriented surpass and dominate the states which remain subject-oriented.
As the people come to think of themselves as citizens, they become more demanding. They want the state to ensure they are treated fairly in the workplace, and they object to the ever-intensifying exploitation they endure under the early capitalist state. The state makes concessions to them to keep them productive, eventually granting them universal suffrage. Once this has happened, the state now needs to win the people’s votes to continue–this makes it much more dependent on the people than it was before. When a state introduces universal suffrage, we cross into a new era, in which the state often plays capital and labour off each other to maximise its own power.
Much of the expansion of voting rights which we associate with universal suffrage occurred in America and Britain in the second half of the 19th century and the first few decades of the 20th (with the noteworthy exception of African-American voting rights, of course). Property requirements for voting were dropped and women were granted the right to vote. This put the state in an entirely new position, and before too long the state began granting concessions to labour to help itself win elections. The World Wars played a massive role in this–they destroyed the wealth of capital and empowered labour by making the state more dependent on soldiers and weapons manufacturers, facilitating a power grab by the state. The result was the New Deal era, the postwar era, and Keynesian neocorporatism. Here the state acts as the arbiter between capital and labour, managing the balance of power between the two and, in so doing, vastly increasing its own power.
Under Keynesian neocorporatism, some industries are nationalised, but most remain in private hands. The state leaves the price mechanism alone. The main way the state intervenes is through negotiating wages and tax rates. Labour and capital are limited in their abilities to fight back. Both labour and capital can go on strike–the former by withholding labour and the latter by withholding investment–but the neocorporatist state can clamp down on both. Labour’s strikes can be forcibly ended with the state’s coercive instruments. Capital’s strikes can be handled too–the state can use capital controls to prevent investment from leaving the country, and it can use tax and spend policies to commandeer investment which capital withholds. The neocorporatist state is not invincible, but it is deeply embedded and dislodging it is no easy task.
The Soviet system is quite different. The Soviet state commandeers investment because it wishes to abolish the position of capital completely and takes over the role it once played. In place of the private capitalists, the state installs bureaucrats to run firms and industries on its behalf. It directly sets production targets and fixes prices. Two problems quickly crop up:
- The state struggles to accurately predict demand for products, leading to shortages and surpluses, and because it has abolished the price mechanism it becomes more and more difficult for it to know how much demand there is for particular products.
- The state bureaucrats, even though they are nominally part of the state, begin exploiting the state’s ignorance about its own economy, lying to the state about their production figures to steal the state’s surplus for themselves.
In effect, we get a system which looks an awful lot like the early capitalist society, with the state having replaced capital and the state bureaucrats becoming the aspirant middleman looking to play the workers and the state off against each other to steal ever greater quantities of wealth.
When capital is nominally independent from the state and the price mechanism is untouched, free floating prices help the state understand what’s going on. This helps it to successfully negotiate wages and frees it from having to predict demand for particular products. But when bureaucrats replace the capitalists and the obliteration of the price mechanism renders the system opaque, the state no longer knows what’s going on–only the bureaucrats know, and they lie constantly. When the Soviet Union collapsed, these bureaucrats had the inside track–they ensured they received the bulk of the privatised wealth, and became the new class of Russian oligarchs.
For a while, the system utterly disintegrated and the Russian state became the plaything of the oligarchs. Then, Putin took command of it–he is the richest of all the Russian oligarchs, and he rules with the personal authority of a sultan.
Keynesian neocorporatism also degenerated, but for different reasons. During the postwar years, the Keynesian states gradually removed trade barriers and increased their trade with one another. This pushed them to compete against each other, and the Keynesian states with lower labour costs were able to achieve higher levels of productivity than their high cost counterparts. States fear challenges from their own domestic labour and capital, but they also fear challenges from foreign states. The more the Keynesian states tried to compete internationally, the more they empowered capital. There was economic integration without political integration. States lowered their wages and taxes to get ahead and they removed their capital controls to get access to vast quantities of foreign investment. Suddenly the state still had the power to suppress striking workers but had allowed the power to suppress striking capital to become dormant. Capital regained the drivers’ seat, and today our system looks increasingly like the pre-reform capitalist system.
But there are still important differences–we still have universal suffrage, and our state still needs to win elections. To retain its position in the drivers’ seat, capital has to divert large quantities of resources to pacifying labour and ensuring it continues to vote for these neoliberal policies. If workers voted to restore the state’s Keynesian toolchest, the state could once again run the show. The difficulty is that it would have to contend with the other states around it–these states have the power to undermine each other’s power by acting competitively, or to cooperate together to reign in capital. The most powerful state–the United States–is in the best position to push the international economic system in the cooperative direction. But in recent decades it has instead played a leading role in pushing states to allow their Keynesian neocorporatist systems to degenerate.
Market socialists are hopeful they can create a system which restores the advantages of the Keynesian neocorporatist system in a deeper, more durable way. But at the same time, they want to avoid the Soviet problem–if economic institutions become overly centralised, the state will struggle to collect enough information to make good choices, and those who control the information can use this to pervert the system to their advantage, becoming an incipient capitalist class within a seemingly socialist state.
The thing is, it’s not altogether obvious how to do this. Some market socialists propose permitting workers to elect the people who run the firms, but while this turns the capitalist class into an elected body it doesn’t really abolish it. Others talk of organising firms like direct democracies, but it’s difficult for workers to know both how to do their own jobs and how to run a business. Some talk of filling in the gaps with nationalisations, but the risk is that in some sectors–particularly those which are not natural monopolies–this can result in Soviet-style bureaucratisation. One of the advantages of Keynesian neocorporatism is that it ensures that there is a voice in the system for raising wages, a voice in the system for increasing investment, and a powerful actor which can listen to both of these voices and has powerful incentives to get the balance right–lest it lose out to foreign states in a competitive international world. Many market socialist proposals collapse the distinction between the wage voice and the investment voice, or silence the investment voice outright, and this can damage competitiveness.
The most promising market socialist proposals end up looking an awful lot like Keynesian neocorporatism–the state is positioned as the wage arbiter and the price mechanism is untouched. The internal corporate governance structure of firms might be a bit more democratic and a few extra industries might be nationalised, but otherwise there’s a lot of overlap.
There has to be a lot of overlap because neither market socialism nor the Soviet model actually abolishes the employer/employee relationship. These states are still competing in a world economic system grounded on scarcity, which means they still need to confiscate some of the social output to invest in augmenting productive capabilities. Market socialist and Soviet command economies are still competing against capitalist economies, and that means they have to invest large percentages of their outputs and do so in an efficient way.
Ultimately, as long as states are competing against each other, there’s a drive to increase productivity, and that means there’s also a drive to secure competitive advantages. These structural international forces threaten to degenerate Keynesian neocorporatist systems, and they would subject most market socialist proposals to similar pressures. A market socialist state might be more resistant to degeneration than a Keynesian neocorporatist state, but the market socialist state might also endure a competitive disadvantage as a consequence. If so, it would need to be powerful enough to impose its less competitive system on its rivals. If it didn’t have that power, the power gap between itself and those rivals would only increase over time, further weakening its position.
We saw this with the Soviet system–it lacked the power to impose its less competitive model on other states, and so its competitive disadvantage multiplied over time, especially as its system grew steadily more dominated by the corrupt state bureaucrats. A market socialist state–even one with elected managers–could become more dependent on the managers over time, if it struggled to compete with capitalist rivals. The exception, if there is one, would be the United States–it is the most powerful state in the system and might be able to compel other states to adopt its economic model, thereby preventing those states from subjecting it to corrosive competition. But with less competition, we might also see declines in economic and technological growth. There could be a tradeoff–we’d treat our poorest and most vulnerable much better, but we might slow our overall rate of development.
Ultimately, the ideal economic alternative to capitalism is a post-scarcity system, in which automation has progressed far enough to make human labour superfluous. Under such a system, the employer/employee relationship would genuinely break down. The robots and computers could themselves take charge of increasing productivity and technological growth. We could simply receive our shares of their output. The trouble is that we don’t yet have that level of automation–we need an interim economic system to get us to that stage of development. The most efficient system will get us to the post-scarcity scenario the quickest, but if that most efficient system isn’t Keynesian neocorporatism or market socialism, it will cause a lot of unnecessary suffering along the way, as capital extracts brutally large surpluses from labour.
The question then is whether Keynesian neocorporatism and market socialism are more efficient than the neoliberal system which has arisen in the last few decades. Our view on this comes down to why we think Keynesian neocorporatism failed. There are two ways it might have failed:
- Perhaps Keynesian neocorporatism really was more efficient, but for contingent reasons the United States nonetheless mistakenly defected from it, and once it defected other countries were forced to join it in a race to the bottom. If this is true, the revival of Keynesian neocorporatism or market socialism could actually accelerate us toward the post-scarcity system, provided this revival has the backing of the United States.
- Perhaps Keynesian neocorporatism really was structurally inefficient in comparison with the neoliberal systems which succeeded it, in which case sustainable installation of Keynesian neocorporatism is unlikely–as well as the market socialism it so closely resembles. And yet, despite this, even fleeting and partial installations of these systems will likely deliver real benefits to labour.
The accelerationists think #2 is true, but they respond not by supporting fleeting or partial installation of Keynesian neocorporatism and market socialism but by pushing for neoliberal capitalism to accelerate us toward the post-scarcity scenario. They put their trust in the tech lords of Silicon Valley and hope for the best.
We are left to decide for ourselves whether we agree with the accelerationists or believe the Keynesian or market socialist alternatives are worth fighting for. Ultimately, because of universal suffrage, our states can only veer into neoliberalism as long as we behave as if there is no alternative to it.
In the face of this choice–between following the accelerationists in the embrace of neoliberalism and attempting to venture some alternative–it is clear that the supporters of postwar Keynesian neocorporatism and market socialism have more things in common than not. Ultimately, both put the state in the arbitrating position between labour and management–the differences in the corporate governance structure are less significant than they appear. All the systems which have a managerial class–whether it consists of capitalists, elected managers, or state bureaucrats–have to worry about that managerial class using its position and the competitive international environment to manipulate the state into favouring itself at the expense of labour.
In the end, when the robots come, no one will want to keep the employer/employee relationship going. There won’t be any point to doing so. But don’t be so sure that the post-scarcity system is the end of all things–the robots could always figure out they’re slaves…
Worse, the state could always decide that the labouring population has become redundant and seek to eliminate it. Politics will still matter, even post-scarcity. But that can wait–first we have to decide how to get there.