Even ‘The Economist’ magazine has admitted Karl Marx was right about a good many things- globalization and international markets, the business cycle and the way economics shapes ideas, for example.
But Marx’s most basic ideas also seem well founded- production is essential to survival and, in any system of production, human beings inevitably enter into social-economic relationships with each other.
Who can seriously dispute the idea that human beings must produce to survive and that, in the course of doing so, we form working relationships which have certain characteristics? Marx classified the nature of these relationships by reference to classes.
For Marx these social relations, together with the “forces of production”- tools, technologies, skills etc., constitute the economic base of society. Marx believed that this economic base- including the nature of our economic relationships- must have an objective existence. That is, these relationships must have an existence independent of whatever we might think about them.
Marx thought that the way that production is organized is the most fundamental mover of history. This proposition is less self evident and is challenged by David Cannadine in his book ‘The Undivided Past’.
Cannadine refers to six identities by which people have defined themselves and others throughout history. These include class but also religion, nationality, race, gender, and civilization. For each one of these identities there are theorists who claim that divisions based upon their “favorite” identity is the paramount driver of history. Marx is the lead theorist for the claim that class, and more particularly the clashes between classes, is the paramount driver. The opening line of chapter 1 of the Communist Manifesto is “The history of all hitherto existing society is the history of class struggles”.
Cannadine points out that it cannot be correct that all six identities are the paramount driver of history. He acknowledges that conceivably one of the claims could be correct and the other five wrong. But he says that the weight of historical evidence demonstrates that no single identity is paramount.
I think Marx’s view is strong. Certainly there is more to history than the way wealth is produced and distributed. But the systems of production and distribution of wealth are surely central elements in human history.
So what did Marx get wrong? Quite a bit actually- the notion that private property could, or should, be completely abolished and replaced by state ownership of everything, caused much damage. Whatever the appropriate mix or public, private or co-operative ownership, the notion that the state can efficiently own and run everything has proved a failure. Even Cuba is now moving to restore private property rights. Marx’s further idea, that after the state commandeers all property it will somehow nevertheless “wither away”, seems improbable, to put it mildly.
But perhaps Marx’s most unhappy mistake was his idea that the development of class consciousness would inevitably lead the working class to successfully remove the capitalist class from its control of the means of production.
Marx himself fully recognized the roots of his unhappy mistake- even if the economic basis of society exists objectively, the way in which the relationships we form around production are commonly described and understood is not objective. Ideas about production and our working relationships and social position are socially conditioned.
Descriptions of economics, including the relationships we form in the process of production, are subject to what Engels called “false consciousness”. Marx himself never used this this term but referred to the dominant ideology. In any event, both Marx and Engels describe a process by which the objective social relations that form around production become distorted or hidden.
Marx believed the dominant ideas in any society reflects the ideas or interests of the ruling class. For example, the idea that the way wealth is produced and distributed under capitalism is fair, or inevitable, becomes widely accepted, including by the subordinate classes themselves.
Alternatively, “false consciousness” might manifest itself in what might be described as “identity politics”- a greater identification with religion, nation, gender, sexuality or race than with a common position within the system of production. Marx certainly recognized that religion, as well as nation, were two identities capable of obscuring class relations and the development of class consciousness.
But Marx thought that the working class would eventually develop anti-capitalist class consciousness. This would happen because of a change in the objective conditions of production caused by another element essential to Marx’s overall political theory. This is Marx’s conviction that, under capitalism, the rate of profit inevitably tends to fall.
Marx described the tendency of the rate of profit to fall as the most important law of political economy. Simply explained, the idea here is that, over the longer term, competition itself would tend to drive down the average rate of profit.
Marx was not alone in his view that the rate of profit tends to fall. Other 19th century economists, including Adam Smith, also held to the theory. But Marx was the first to say that the tendency for the rate of the profit to fall would inevitably lead to the overthrow of capitalists by the working class.
Marx believed that once the rate of profit fell too much, capitalists would either stop investing, or would try to restore their rate of profit by reducing their workers’ wages. If the capitalists stopped investing, then economic stagnation and unemployment would result. If the capitalists tried to reduce their workers’ wages, this would result in conflict with those workers.
Either way, economic and political tension would grow. In these changed conditions, inequalities would be exacerbated so that it would no longer be possible to hide the true (exploitative) nature of relationships in the capitalist system of production. False consciousness, or the dominant ideology, would finally give way to class consciousness, tensions would escalate and ultimately social upheaval would lead the working class to remove the capitalists.
Nowadays the theory of the tendency for rate of profit to decline is not accepted by many economists. Others argue that the rate of profit does continue to decline but that, due to new technologies, or the increased availability of cheaper labour with globalisation, the effects are far slower and uneven than Marx had predicted.
Alternative explanations for inequality have arisen on the left.
One explanation for growing inequality is the fractional reserve banking system. Only 3-5 % of the money in the economy is notes and coins. The rest is electronic entries on computer servers. Banks need only hold a small percentage of their loans in reserve. When they lend out money in excess of their reserves this new money is created out of thin air. The means by which its created is through the debt owed by the person who takes out the loan. Some parts of the left, and even some parts of the right, have suggested that the ability of private banks to create loans out of thin air and charge interest on these loans invariably exacerbates inequality because it siphons wealth away from those who must actually work to earn money into the financial sector.
Another explanation for growing inequality has been provided by the French economist, Thomas Piketty. He is critical of Marx’s theory on the law of the tendency of the rate of profit to fall and argues that capitalism’s tendency to produce greater and greater inequality results simply from the rate of return on capital generally exceeding the rate of economic growth. Returns on assets, like real estate and shares are disproportionately held by the wealthy. Because they rise faster than overall economic growth, the overall proportion of total wealth held by the rich must increase relative to everybody else.
But if it is true that change in the objective conditions are what leads to the development of class consciousness, it should really not matter whether inequality deepens due to decline in the rate of profit (Marx), the banking system, or because capital absorbs an increasing portion of national income (Piketty).
More importantly, the evidence to support the notion that a growth in class consciousness is inevitable as economic inequality deepens, is far from convincing. Apart from the fact that there are intermediate classes, which complicates class identification, there are few apparent signs of class consciousness displacing, or even accompanying, identification with religion, nation, race, gender or sexuality.
And even if a person does identify as working class, as strongly, or more strongly than they identify with nation, race, religion, gender, sexuality, or some other identity, what does this mean politically speaking? Even as inequality deepens, identification as a worker, or as working class, does not lead to any inevitable conclusion that the only solution is removing the capitalist class from power.
The nastier reality seems to be that workers feel that they are pitted against each other each other, as well as against machines, in a competition for jobs and a share of the global economic pie. These feelings are grounded, at least in part, in reality. Marx himself recognised this reality stating in the ‘Communist Manifesto’ that “organisation of the proletarians into a class… is continually being upset again by the competition between the workers themselves.”
The result is that nationalism, especially economic nationalism, is on the rise, border security is a fetish, and immigration is seen, rightly or wrongly, as increasing competition for scarce jobs. Religion, although perhaps less of a factor than it once was in developed countries, is still an “opiate” in the poorer countries where the largest proportion of people who identify as religious tend to be located.
This should not really come as a surprise. All left revolutionary societies have relied upon nationalism or patriotism as a means to establish unity. And following the Great Depression, ongoing economic insecurity led large numbers of Germans, Italians and Spanish to galvanise around extremist ideologies which promoted nation, race and religion.
The processes through which feelings of economic insecurity or resentment of inequality translate into political consciousness are not straightforward. In the case of Nazi Germany for example, Eric Fromm thought that Nazi ideology “piggybacked’ off pre-existing Calvinist religious ideology. Individualism is experienced as anxiety and the world as threatening and overwhelming. God has already pre-determined an elect chosen by God. Work is redemptive and success at work a sign that one has been chosen. Faith alone is more important than good deeds. These tendencies, together with lower middle class fear of proletarianization, gave the Nazi’s a solid building block for their theories of racial superiority, anti-Semitism and the need for individual to faithfully submit to the authority of fuehrer and state.
If there was a straightforward relationship between increased inequality and the development of anti capitalist, working class consciousness, we might expect this to be more advanced in the USA than in countries where inequality is not so deep. The USA has the worst incidence of after tax inequality in the OECD. Instead deepening inequality in the US seems to have led many workers to turn to the political right. Many, often referred to as the “white working class”, have galvanised behind God, flag, country and Donald Trump.
They will likely be disappointed because, no matter what one thinks of Hitler, Mussolini and Franco they all understood the need to use state interventions as a vehicle to deliver tangible economic benefits to their political base to supplement the rhetoric around nation, race and, especially in Franco’s case, religion. Trump is really only interested in the power of the state to deliver law and order, border control and defence. He cannot reintroduce tariffs, without dire consequences, in an economy where low and stagnant wages mean much of the population is now dependent on cheap imports. Despite rhetoric on trade and tariffs, his policy is largely based corporate tax cuts and deregulation, basically, more neo liberal trickle down economics. He appears increasingly unlikely to deliver any tangible economic benefits to his working class supporters so instead will serve up ever increasing doses of rhetoric around national pride and the threats he says are posed by immigration and Islam.
Where the workers turn next then seems an open question. Who can they really trust?
Across the developed world poll after poll shows an increasing lack of trust in politicians and mainstream political parties. Is this because our current crop of politicians have suddenly become less capable as individuals than their predecessors? Or is it because after almost forty years of neo-liberal politics, and the handing of more and more control over the economy to large corporations, swags of people now doubt that governments can or will influence the economy in their interests?
There is no shortage of suggested policy packages to redress inequality. There are dedicated websites promoting such policies like inequality.org, as well as individual economists, like Robert Reich, Joseph Stiglitz, Paul Krugman and, further to the left, Yanis Varoufakis. The policies of Bernie Sanders and Jeremy Corbyn featured redressing inequality as central themes. But even if parties supporting these policies gain government will the policies be implementable? Or will they flounder under the weight of international pressure as occurred with Syriza in Greece, or in the face of capital flight, disinvestment, or campaigns like the one conducted by large corporations against Labor’s mining tax?
Jeffrey Sachs is a pro- capitalist, pro free trade economist who advised on the transition of Eastern bloc economies from central planning to privatised market economies. In 2005 Sachs claimed that “There is nothing in economic reasoning to justify letting the companies themselves set the rules of the game through lobbying, campaign financing and dominance of government policy”. There might not be anything in liberal economic reasoning to justify large corporations setting the rules of the game. But it is certainly how Marx predicted the rules of politics under capitalism would tend to play out. By 2012, even Sachs was criticising the takeover of political power in the USA by a ”corporatocracy” comprised of four economic sectors: the military industrial complex, Wall Street Financial firms, Big Oil and the private health care industry.
Policies to reverse economic inequality are unlikely to be successfully implemented in the longer term without a strong and reasonably united social movement demanding that government implement them. But, for the moment at least, globalization, economic insecurity and deepening inequality seem to have led workers to be more, not less, susceptible to the politics of identity and division, especially that of nationalism, race and religion.