William K. Tabb on Replacing Dependence on Financialization

William K. Tabb, The Restructuring of Capitalism in Our Time

We conclude our week-long feature on William K. Tabb’s The Restructuring of Capitalism in Our Time, with Tabb’s own conclusion in which he explores how the United States can reduce the impact of finacialization on the economy. Tabb argues that the much-discussed but rarely acted upon need to improve the United States’ infrastructure provides a real way to move away from a dependency on financialization. As he argues, government investment has worked for other nations and has worked for the United State in the past.

It may be argued that reliance on the market, on the U.S. capacity for self-renewal, will unleash an era of growth and job creation in the country if only taxes are lowered and government gets smaller. However, one needs to ask why China is the leader in wind power and other emerging alternative energy technologies such as solar panels. The answer is its government subsidies and insistence of policy makers that the country’s power grid utilize alternative energy before any other source and do so under long-term contracts that guarantee dependable markets for startups and their new technologies. Public financing for wind turbines, solar panels, and other low-carbon initiatives has also grown dramatically in European countries like Germany where government supports green technologies. China spends 9 percent of its GDP on infrastructure, Europe 5 percent, and the United States half of that—differences apparent to anyone who has traveled on European high-speed trains or landed at one of China’s new, efficient airports.

While other countries pursue active industrial policies that facilitate gaining leadership in twenty-first-century industries, in the United States such investment is portrayed as un-American. Such criticism reflects the same nostalgia and desire to go back to the world of an imagined past, erasing the role that government has in fact played in promoting investment, from subsidizing the transcontinental railroad to supporting state research universities. It seems shortsighted to reject serious government encouragement of industries that could promote more sustained growth and create large numbers of jobs. The usual answer given is that the government cannot do this. But in other countries there is a clear record of constructive use of incentives.

People who have done the math tell us that $100 billion spent to directly hire American workers would create 2.6 million jobs over two years and an additional half million indirectly—far more jobs than when this kind of money is spent on tax cuts. Producing 8.2 million jobs needed to put Americans back to where we were has been costed out to be $235 billion (Harvey 2011). This is less money than the government spent continuing the Bush tax cuts. If they had been allowed to expire, the federal government would have collected $295 billion in additional revenues in 2011—more than enough needed to create those jobs. One can argue about the math, and about whether jobs should be created in the public sector or only with private employers, but in principle employment creation could be achieved if Americans were willing to accept a greater role for the federal government in this process and were confident that, as in the New Deal, Washington could sufficiently resist political pressures and backroom deals to do this efficiently. As an alternative to the renewal of asset speculation as the accumulation strategy, this would require a dramatic change in public perception and ideological commitment.

This is because the logic of investment in alternative energy, rebuilding infrastructure, and educating young people to a higher level of achievement would appear to be common sense to many, probably most, Americans, but people do not trust their government. There are right-wing and left-wing reasons for this. The Right fears a Big Government takeover reducing liberty, requisitioning taxation, and wasting money for poor return and the undermining of the free market. The Left sees the process overpowered by special interests, large corporations, Wall Street, and generally those who fund political campaigns to procure government contracts, with quiet changes in laws governing their economic interests and friendly regulatory (non)enforcement.

Economists and others who do not like large amounts of spending on public programs—infrastructure, health care, retirement, education, and income maintenance—take the occasion of increased public debt to blame spending and public employees who are too well paid and to demand deep cuts. Keynesians say that in a period of high unemployment, government spending stimulates growth and can be paid down as the economy expands. They point to the way the national debt in relation to a growing national income declined under all post–World War II presidents until Reagan. This debate is complicated by the need to take into account the impacts of globalization. Given the increased foreign competition from states that use industrial policy successfully, those who would rely on an unregulated market and no state involvement need to convince their fellow citizens that this can be a winning strategy in the new context. Keynesians must address the reduced impact of domestic stimulus in a globalized economy in which leakages from spending in the United States stimulate increased imports, produce jobs abroad, and can create or increase balance-of-payments deficits and more foreign borrowing to support consuming beyond our means. Further, larger corporate profits from increased exports do not automatically correspond to growth in government tax revenues given the ability of transnationals to designate earnings as taking place outside the jurisdiction, and given capital-intensive production techniques that do not lead to proportional job creation in the United States.

The Commerce Department reports that U.S. multinational corporations eliminated 2.9 million American employees over 2000–2010 while adding 2.4 million employees in other countries. These developments contribute to the declining share of personal income in the United States that comes from wages and salaries (which went from 68 percent in 1959 to 57.6 percent in 2007) while the share of income from dividends, capital gains, and interest rose (Economic Policy Institute 2011). The share of federal tax revenues from corporate income taxes fell from 4 percent of GDP in the 1960s to 2 percent in the 1990s and 1.3 percent in 2010 (Office of Management and Budget 2011: table 2.1). Corporate tax contributions to national budgets in most countries have fallen with the globalization of capital and the opportunities for tax avoidance, underlining the need to develop global-level taxation. Better policies at the national level are certainly possible, and necessarily come first, but they are constrained until they are supported at the level of the world system.

In the past a deep economic crisis typically coincided with the demise of a social structure of accumulation. Time is required during which the bases of a new SSA are built over the opposition of those who were the core of the older hegemonic block. Following an extended period of contention among differing public philosophies, a new SSA comes into existence. It is achieved by a coalition strong enough to win approval for its priorities. Such change takes time and will be preceded by a period of gridlock in Washington.

Protective measures against excessive risk in the financial system, limits to financialization, and taxation of finance could be part of a shift in systemwide norms. Such changes are unlikely to be adopted without the support and reinforcement of regulationist institutions in other areas, ranging from environmental and energy policies to health care, education, and labor relations. They will require a coherent alternative public philosophy embodied in a unified, widely embraced vision and a new hegemonic bloc.

It is possible that, as in the 1970s as the national Keynesian SSA was crumbling, there will first be a period of stagflation as neither labor nor capital will accept a decline in real income. The overhang of debt and the more rapid growth of emergent market economies add to these pressures. It will be quite remarkable if the needed adjustments and rebalancing occur smoothly and politicians prove to be visionary leaders. Across a range of policy issues, contending reform proposals will be supported by overlapping coalitions that confront many of the same opponents and ways of thinking.

If past is prologue, the political coalitions and economics that will rule the new social structure of accumulation will establish the norms of acceptable behavior in corporate governance, government activity, and the regulation of financial markets. The shape of the next social structure of accumulation is likely to be regulationist. The question is whether it will be a repressive regulation of a fearful society with a reduced public sphere limiting the life chances of Americans or one that restructures the citizen-state, labor-capital, government-corporate, and U.S.-global accommodations in ways that hold financialization in check and empower an inclusive, sustainable growth path. We make our own collective history. There are no answers at the back of the book.

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