A Reply to Robert Stewart – The State within Capitalism

Mr Stewart paints quite a caricature of the operation of the State as regards taxation.

Despite his claims, the majority of the electorate fully understands that the State is funded primarily through taxation — the question for politics is more one of where to allocate the funds so raised (and also whether more needs raised) — and, crucially, which class primarily shoulders the burden.

Marxism has a large body of work analysing the State itself, far too large for me to even outline here. What I will do, however, is outline a common interpretation of the role of the State that I largely agree with, and which is largely shared even by non-Marxists.

One function of the State, under capitalism, is to serve as both as a mediator between competing capitalist interests and to provide those functions without which modern capitalism itself could not function, but which provides no individual profit to any one capitalist. That is, the State helps save capitalism from itself, and provides collective infrastructure and services that facilitates capitalism in a collective sense.

While the State itself is not neutral (bureaucracy has its own interests), it can be influenced by the class struggle, both in the formal sense of parliamentary power and the informal sense of extra-parliamentary power. A strong labour movement can win concessions from the collective capitalist class, with these concessions enforced by the State. Think restrictions on the workday, health and safety laws, bans on child labour, and so forth — all concessions won through a strong labour movement. These can be achieved either through a pro-labour government or a pro-capital government under extra-parliamentary pressure (and making concessions to avoid losing power, to “buy peace”).

As much as the capitalist class seeks to mystify it, class war has never gone away, and the question of what role the State has in redistributing wealth, and/or where it allocates the “social wealth” (public monies) is subject to the balance of class forces.

The State can redistribute wealth away from workers and to the capitalists, and vice versa. Regressive tax systems disproportionately take from workers’ wages rather than the surplus labour value appropriated by the capitalists. Similarly, the social wealth can be used for benefiting the many (through public education, public health systems, public infrastructure such as public transport systems, etc), or for the wealthy (shifting public wealth to private hands through privatisation, funding police and military forces to protect private property, enhancing the value of private property, etc).

The Austerity Ideology

Similarly, the ideology of austerity, in terms of reducing taxes on the wealthy (further shifting the burden on to the working class), privatisation (shifting social assets into private hands) and cutting back on social infrastructure (both physical and services) is an ideological approach that strengthens capitalist power — at least in the short term.

I say in the short term, as eventually the law of unintended consequences comes back to haunt capital, be it in terms of increased crime and instability (which threatens stable profits), or reductions in the skill-sets and health of workers, which ultimately reduces productivity, further harming profits. Even the lack of investment in key public infrastructure eventually physically hinders capital.

In the long term, the austerity ideology threatens the very stability of capital.

The austerity ideology argues that there is no alternative to it — debt needs to be paid and the only way to do it is through budget cuts — with all the wage reductions and service cuts that entails.

There can be no denying the existence of public-sector debt. However, unlike private-sector debt (households and corporations), governments have the option of increasing revenue through taxation. Governments can resort to increased taxation to mobilise resources needed to meet their interest and amortisation commitments as a way out of debt. At the very least, this can be part of a cohesive strategy towards sustainable debt management. And yes, increased efficiency in the use of public monies can, and should, also play a role here, too.

Such revenue could also be used to improve the domestic economy (through redistribution and “prime pumping” local consumption) and, especially, in maintaining and improving infrastructure (as well as human capital) to improve Bermuda’s attractiveness for tourism and international business (as well as facilitating a more diverse economy). In doing this, the State can play a key role in facilitating economic growth — which in turn leads to expanded revenue accruing to the State, which can then be used to address the issue of debt.

The austerity ideology seeks to largely ignore this key difference between private sector and public sector debt — and prescribes a remedy for the latter, which applies strictly to the former.

This is an ideological position, which, by tying the hands of the State (by dismissing the option of revenue generation), forces one to rely solely on austerity. To put it another way, if the debt burden needs to be reduced, to avoid a sovereign default on the part of the State, without the option of increasing revenues through taxation, then the immediate option available becomes a singular focus on a cutback in expenditures.

This cutback cannot include the interest and amortisation payments on debt, and so austerity measures are pushed on to wages and social services. This amounts to an increase in higher indirect taxes for workers as real incomes are reduced, as well as an increase in a reserve army of the unemployed, leading to greater competition for jobs, depressing wages overall.

Ultimately, the debt must be reduced by taxation. The only question is “who pays?” — the “man on the street” or the oligarchy? It is simply a question of class war, and the austerity ideology is an instrument that benefits the oligarchy — it forces the working and middle classes to shoulder the debt burden. The austerity ideology is not an iron law of economics, nor is it “common sense” — it is a weapon in the class war, and one directly aimed at the workers.