Ismael Hossein-zadeh: Champions of Neoliberal Economics are Reversing New Deal Economics
The “golden” years of the U.S. economy in the immediate post-WW II period, along with the recovery and expansion of the economies of other industrialized countries, afforded the working class of these countries a decent, even middle-class, standard of living. Combined with extensive social safety-net programs such as the New Deal reforms in the U.S. and Social-Democratic reforms in Europe, the economic recovery and high employment rates of that period paved the way for a relatively cooperative relationship between the working and capitalist classes in these countries....
The laissez-faire doctrine, which firmly believed in the self-correcting ability of unbridled market mechanism, was the dominant economic principle before to the Great Depression. The financial crash of 1929 and the consequent long Depression shattered this long-held, religious-like belief. The Depression, precipitated largely by predatory loan-pushing and the resulting unsustainable bubble of asset (stock) prices, made living conditions for the overwhelming majority of people extremely difficult. The ensuing economic distress, in turn, precipitated popular unrest.
Large numbers of the discontented frequently took to the streets in the early 1930s. Their desire for change swelled the ranks of socialist, communist, and other opposition parties and groups. Left activists gained certain influence among labor ranks and workers’ movement for unionization, illegal in many industries until 1935, spread rapidly. Labor and other grassroots support for third party candidates in the 1932 presidential election resulted in unprecedented number of votes for those candidates. Third-party votes were even more impressive in congressional and local elections. “The union literature was like the labor literature of a century ago -- looking toward a successor to capitalism,” wrote the late Studs Terkel in his Hard Times: An Oral History of the Great Depression (Pantheon Books, p. 309)....
Two principles lay at the core of the ensuing big business-government consensus reforms, which came to be known as the New Deal reforms. The first was that Adam Smith’s “invisible hand” was not capable of resuscitating the badly depressed economy; it needed government’s visible hand. The second principle was that government intervention must be limited to stimulative and distributive measures, and that the management of industries and businesses should be left to the private sector. Facilitating and maintaining a certain level of purchasing power in the market was considered crucial to the New Deal package. While this would provide relief to the economically hard pressed, and thus reduce social tension, it would also stimulate the economy and promise stable growth and rising profitability.
Regardless of the degree of the effectiveness of the New Deal reform package, the fact remains that it rescued U.S. capitalism -- just as Social-Democratic reforms rescued the economies of West European countries. Combined with what the late Ernest Mandel called “extra-economic” factors (such as pliant labor leadership and peaceful trade unionism, establishment of the Bretton Woods international monetary system, Cold War ideology and the suppression or pacification of any possible dissent, and relative decline in the price of oil and other raw materials in the immediate post-WW II period), the New Deal and other government-sponsored reforms ushered in a period of rapid economic expansion that came to be known as the “golden years of US capitalism,” which lasted until around 1970.
While the pressure from below played a key role in compelling the ruling establishment to carry out the New Deal and other welfare state programs, a number of other factors also contributed to the realization of those programs. One such factor was the emergence of an alternative economic model to capitalism from the ruins of the two world wars and Great Depression: the centrally-planned economies of the Soviet Union and its allies. The emergence of the rival economic system, despite its bureaucratic and dictatorial character, further exposed the unjust character of market mechanism because while in the 1930s the capitalist West was suffering from economic depression, unemployment, and poverty, the Soviet and other centrally-planned economies were enjoying impressive rates of growth -- with no unemployment, homelessness, or hunger.
The popularity of the Soviet-type economic system at the time also meant that many of the colonial and other less-developed areas of the world combined their anti-colonial and anti-imperial national liberation struggles with demands for government-sponsored models of socialist-oriented or “non-capitalist” development. In the core capitalist countries of the West, too, demands for reform and voices of revolution were frequently heard during the widespread protest demonstrations of the 1930s. Anti-capitalist sentiments and demands to harness or to do away with the skittish, unreliable and, at times, brutal forces of market mechanism in favor of regulating and/or managing national economies were heard not only among the Left and working classes but also in the ranks of the middle and lower-middle classes.
Although the fear of total economic collapse in the face of the Depression, and the “threat of revolution,” compelled government and business leaders to embark on reform in order to fend off revolution, proponents of unbridled market mechanism never really accepted or reconciled with those reforms as permanent features of capitalism. Not surprisingly, soon after the Depression turned to expansion in the immediate postwar period, and Western capitalism regained its lost confidence, the financial oligarchy and government leaders began to introduce “restructuring” measures that would undermine the New Deal reforms and revive the pre-Depression model of market fundamentalism.
Just as the rival economic system of the Soviet Union and its allies, which guaranteed basic needs and job security for their citizens, indirectly contributed to the implementation of the New Deal and Social-Democratic reforms in the industrialized West, the collapse of that rival system is now contributing to the retrogressive process of reviving pre-Depression market orthodoxy. Not only has the collapse of the Soviet-type economies opened up vast markets and huge reservoirs of cheap labor in places such as the former Soviet Union, China, and India, it has also served as grounds for capitalist triumphalism -- and its self-assured or self-righteous promotion of trickledown economics....
The New Deal and other basic needs programs were put in place not so much because of F.D.R.’s or Keynes’s genius, or the goodness of their heart, as they were because of the compelling pressure from the people. Freed (or feeling free) from that pressure, the government, as the executive body of the financial/economic oligarchy, is now trying to undermine those social safety net programs, and revive the pre-New Deal/pre-Keynesian economic orthodoxy, that is, the economic model of the survival of the fittest. This sinister, profit-driven effort at undermining the poor and working people’s hard-won basic needs programs can be stopped only through a renewed and compelling pressure from the grassroots -- pressure that must be exerted not through the Democratic Party machine but independent of the so-called two-party system.