Social Reform and Capitalism

excerpted from the book

Globalization
and the Decline of Social Reform

by Gary Teeple

Garamond Press / Humanity Books, 2000, paper

p9

Social Reform and Capitalism

Since the 1970s enormous changes have taken place in social policy and economic regulation in the industrial nations. A transformation is well under way, and the neo-liberal policies of governments around the world provide numerous examples of conscious efforts to undermine, retrench, or eliminate long-standing social welfare programs and regulatory agencies.' Regardless of the social and economic insecurity they engender, these policies appear to be the main items on government agendas everywhere.

Contrary to the images cast by the mass media, however, the majority of citizens in most industrial countries remain in favour of the reforms that have come to be known as the welfare state. Despite more than a decade of concerted attempts to undermine these reforms, and despite repetitious declarations, even by left-wing writers, that "welfarism" has lost its public favour, that "big government" is a major if not the central problem, that state intervention in the economy inhibits growth, and that neo-liberalism has won the battle for "moral hegemony," the reforms comprising the welfare state have shown a remarkable resilience and continuing popular support.

That most citizens are in favour of the social and economic reforms that have been achieved since World War II should not be surprising. Capitalist society is characterized by contradictory interests, divided fundamentally between those who own the means of production and distribution and those who do not. By virtue of this ownership, the business sector possesses enormous power over a highly stratified working-class majority. Without reforms such a society would be marked by extreme fear and unalloyed exploitation stemming from unmitigated differences in wealth, ownership, and power. Given the constant demand by corporations above all to maximize profit, their power would be used to reduce standards to the lowest possible levels; and given a competitive labour market without reforms, wages and conditions of work in general would be driven down to "minimums." Because the reforms achieved have offered a degree of security from the labour market it has now become difficult to imagine such conditions, even though it was not so long ago when reforms were few or non-existent and the effects of "unreformed" capitalism plain to see.

Even in capitalist societies with reforms, pervasive fear, although often implicit, remains - particularly of unemployment and of the financial consequences of illness, injury, childbirth, or old age. This is because reforms are still just reforms; that is, they rarely provide more than minimal support and certainly give no guarantee that membership in society will bring employment, decent housing, accessible education, freedom from poverty, a living pension in old age or in sickness, an unpolluted environment, or higher employment standards. For the most part, social reforms provide only limited security or standards for a particular need; and while these "minimums" can be raised, they can also be lowered. Given present widespread budgetary cutbacks, restrictions to reforms, and rising unemployment, these fears have become explicit for growing numbers of people in the labour force. Unemployment rates in most of the industrial nations since the late 1980s continue to be high, yet the statistics do not normally take into account underemployment, part-time work, or those who have given up looking for work. The global rate of long-term or structural unemployment, moreover, continues to rise despite the continual narrowing of the definition.

Such fears in the industrial nations are at the very least implicit, but there can be little doubt about the consequences of retrenchment and even elimination of social reforms. Examples of capitalist societies with minimal or no reforms are close at hand. Here are found workplaces without standards, child labour, coerced workforces, high rates of illiteracy, environmental degradation and destruction, and enormous disparities in wealth. These are largely the direct or indirect result of corporate activity with few or no restraints. In general the simplest regulations must be imposed upon capital, and even these are often resisted by the corporations, at enormous expense. In areas poorly or not regulated by a political state - in the Third World, in the newly industrialized countries (NIC), in free-trade zones (FTZ), and in the high seas or the global atmosphere - the disregard of the well-being of nature and human beings is extreme.

If the future of social reform in the industrial nations appears to be one of continuous retrenchment, it has placed the question of the nature of the welfare state and the reasons for its decline at centre stage. We can, then, begin to understand the present dismantling of welfare systems around the world by examining the origins of the welfare state and the principles and rationale of reforms.

The Origins of the Welfare State

The introduction of social reforms has varied in time and circumstance across nations. If it is not possible to identify all the specific reasons and how in each case they contributed to the welfare state, we can at least isolate a common premise and other factors pivotal to the development of all national reform programs in the nineteenth and twentieth centuries.

The shared premise was the development and rise to pre-eminence of industrial capitalism and the subordination of landed property to capital within the political framework of the nation-state. These changes brought in their wake new forces, class contradictions, and social consequences peculiar to capitalism. In all the nations where industrial capitalism came to prevail, social reforms followed sooner or later as corollaries of the breakdown of the old and the coming of the new mode of production.

The most significant consequences of the destruction of precapitalist modes of production were, first, the creation of a capitalist labour market and working class, or the "freeing" of labour from its means of production and existing forms of bondage, and, second, the breakdown of social institutions, labour processes, and communities that embodied to a considerable degree an integrated social, political, and economic life. As a corollary to these developments, capitalism gave rise to objective "needs" that had previously been coherent aspects of a way of life, such as child care, old age facilities, and schools. It also created new needs and new problems, which arose from and were associated with the capitalist labour market, the "freedom" of the worker, and new labour processes, such as unemployment insurance, workers' compensation, employment standards, and pollution regulation. In itself, capitalism had no answer to these needs and problems aside from the wage relation and the purchase of commodities; the answers were to come as imposed reforms.

The "freed" working class, now possessing no means of production and dependent on employment for its livelihood, found it necessary to defend itself against the depredations of the capitalist class and the vagaries of the labour market. The consequent struggle between labour and capital brought into being trade unions, which became the principal force behind the introduction, defence, and extension of many social reforms. Class conflict of one sort or another, or at least the potential for class conflict, has been the common context for all social reform.

Far from homogeneous, the fragmented working class produced corresponding fractures in its organized representation. As a counterforce to capital, trade unions were perpetually weakened in most countries by the irresolvable sectionalism and narrow interests and cautiousness of unions representing certain strata. In part because of the uneven development of the trade union movement - that is, the absence of a unified, militant, and class-conscious movement - the class conflict intrinsic to the system was increasingly framed in gradualist terms, and the outcome was to be limited to forms of compromise and accommodation.'

This same organized resistance also spurred the struggle for universal enfranchisement and gave rise to political parties representative of certain strata of the working population. Such changes broadened the institutional political choices, allowing for a modicum of access to state power and the public purse and for more political leverage for reform legislation. The number and inclusiveness of reforms owe much to these extraparliamentary struggles and to the nature of the political expression for the working class within the nation-state.

Out of the resistance to industrial capitalism came theories of socialist alternatives. The spectre of socialism or communism, a direct consequence of the coming of capitalism and the organized working class, has always been part of the motivation for the introduction of systematic reform programs. All the industrial countries in the late nineteenth and early twentieth centuries had working-class parties and trade unions well versed in socialist theory and aware of the potential for revolution. This is not to mention the actual attempts at revolution - throughout Europe in 1848, in Paris in 1870, Russia in 1905 and 1917, Germany in 1918, and so on - or the numerous examples of general strikes the world over. The success of the Bolshevik revolution was no small inspiration to reforms in the West. Even after much of the political theory of the working class turned from revolution to reform and social democracy, there were still the examples of ongoing wars of liberation and of the Soviet Union and later China and Cuba as, at least in rhetoric, "workers' states" - in short, certain reminders to the representatives of capital who might resist reforms.

By the late nineteenth century, new technology, increased productivity, and expanded markets had begun to increase the segmentation, stratification, and social mobility of the labour force. The resulting complex hierarchies and numerous strata created a multitude of varying immediate interests within the working class, which actually rested on the continuing expansion of capitalism. Such divisions along many lines, which fractured the working population, and the grounding of the interests of some strata in capitalism itself made substantial sections of the class more amenable to reform than revolution.

With industrial capitalism also came the business cycle - the periodic rise and fall of economic activity and employment. In times of economic slumps, the working population, with no alternative to employment for its livelihood, suffered profoundly. These periodic deprivations created no uncertain amount of social unrest, and at times even piqued the conscience of certain middle-class strata and corporate leaders. Organized and unorganized social disruption (and, to a small degree, charitable sentiments) during recessions or depressions has been the motivation for some reforms.

There is another general aspect to the origin of the welfare state, and that is the concessions made by organized capital, as well as its promotional efforts. The concessions are explained in part by the delimited national labour market and relative immobility of national capital in the relatively closed national economy, prior to the 1970s. The promotional efforts arise from the desire of the corporate sector to "socialize" and thereby limit some of the costs to industry that are incidental to its operations. This desire has led, in different countries, to the introduction of old age pensions, hospital insurance, and even public education. The origin of industrial accident insurance schemes, while not without the component of working-class demand, lies largely in the efforts by corporations to create a system both limiting their liability for industrial accidents and "socializing" the costs through industry-wide insurance premiums and chronic inadequate compensation to workers and their families.

Another outcome of industrial capitalism was increased productivity and the consequent growing necessity to expand overseas, producing colonial or imperial systems to "complement" the productivity of the industrial metropoles. This expansion of capitalism brought with it the possibility of ameliorating its inherent conflicts. Among the effects of this export-led growth was the rapid increase in capital accumulation in the metropolitan countries. In turn these developments allowed for a rise in the general standard of living, enhanced and confirmed the legitimacy of the system, and ultimately made it possible to generate sufficient revenues from "high" wages for the creation of a social wage, the fiscal foundation of modern social reforms.

If these have been the principal reasons for and conditions underlying the coming of the welfare state - with national particularities but common to all industrial countries - they must be seen as comprising a multidimensional rationale, in the context of the contradictions of nationally structured capitalism. The empirical analysis of social reforms in a given country will almost certainly reveal the greater relative importance of one or another factor, with a single factor rarely standing alone. Despite the commonality of these conditions, moreover, they do not necessarily translate into the same legislated forms across nations. While reforms throughout the industrial world attempt to address broadly the same needs and problems intrinsic to capitalist society, the specific forms they take as "policy regimes" depend on a host of particular historical and national factors.

A Definition

There is no single historical moment in any country when these social reforms were introduced as a comprehensive system. In fact, they and the various modes of implementation have generally appeared in a piecemeal fashion following the long development of capitalism and the modern state. For the most part, before World War II they were specific and limited responses to trade union pressures, corporate desires to socialize costs, and the destabilizing effects of unemployment and worker unrest. These disparate beginnings and this checkered development have given rise to the question of when a society can be defined as a welfare state or, more briefly, what a welfare state is.

Although there have been several attempts to define the welfare state, there is no generally accepted and coherent concept. Approaches to its analysis and the choice of the defining variables all vary considerably, and a critical review of these variations does not bring us much closer to a viable definition. The brief outline of causal factors, however, leads to a plausible, comprehensive, and workable concept.

Although sometimes used as a generic term for government intervention "on many fronts," the welfare state can also be seen as a capitalist society in which the state has intervened in the form of social policies, programs, standards, and regulations in order to mitigate class conflict and to provide for, answer, or accommodate certain social needs for which the capitalist mode of production in itself has no solution or makes no provision.

These state interventions are typically made in four key, overlapping arenas of societal reproduction. Perhaps the arena most commonly associated with the welfare state is that of the physical propagation of the working class and its preparation for the labour market. This includes the healthcare and educational systems, and many of the non-contributory social benefits (the largest recipients of which are women and children), which include subsidized child care, child/family allowance, food stamps, and transfer payments to single mothers.

Another arena is the labour market, and here the state has intervened not only to mitigate the extent of leverage that capital has over labour in this market, but also to prepare fresh workers for the market and to ensure an "adequate" labour supply. Typically, this arena includes regulations on the minimum wage, hours of work, child labour, retirement age, education/training, injury insurance, immigration, and so on.

The third arena is the point of production: the point of contact between workers and the representatives of capital and the point at which labour has submitted to the dictates of capital. Here the state intervenes to provide the institutional framework for class conflict (collective bargaining) and to protect the workers from the worst effects of the exploitation by capital. Collective bargaining rights are central here, but employment and health and safety standards are also important.

The fourth arena is the provision of income assurance for the "unproductive'' and after-productive life. This includes old age pensions and other pensions and social assistance of all kinds paid out to those who for whatever reason are unable to work in the system.

The most commonly recognized form of implementation of these social reforms is most likely the provision of services, such as education, health care, and child care. But reforms are also realized through income transfers, such as pensions, unemployment or injury insurance, and social security payments. In some countries the supply of goods, for example in the form of public housing, is also an important kind of social reform. Lastly, the state has promulgated a large number of laws, regulations, and standards to institutionalize inherent conflicts and protect the disadvantaged in a system resting on inequalities.

This definition is clearly both broader and narrower than a specification of the general role of the state in a capitalist society. On the one hand, the state in welfare state refers to the body politic, the organized community; in this sense, it is all-inclusive and not a reference merely to government. On the other hand, the welfare in welfare state pertains to certain functions of government, which concern the four arenas of societal reproduction but do not usually include, for instance, the provision of infrastructure, the maintenance of law and order, or subsidies to capital. All of these functions, as well as many of those associated with the welfare state, have been historically part of the definition of the state as government, but to make them inclusive of the definition of the welfare state is to conflate the two and make one or the other redundant.

When does state intervention become "the welfare state"? To maintain the distinction we might ask, when can a society be defined as a welfare state? That is, when do the kind and amount of state intervention in the four arenas give rise to the definable phenomenon of the welfare state?

The general answer is that the welfare state has arrived when class conflict, reduced to the contest between workers and the representatives of capital, presents a chronic threat to the stability of the system and has to be "institutionalized" (placed within a legal framework of industrial relations); and when the majority of social needs pertaining to the reproduction of the working classes are addressed formally (by the state via "public" policies) rather than informally (via the community, family, friends). This definition, of course, leaves aside the question of when exactly in history these conditions occur, but that is a problem that remains specific to each country.

In general, however, the arrival of the welfare state is a post-World War II phenomenon. In light of the conditions in the postwar period, the welfare state became a political and economic "necessity." At that time, with the exception of the United States, the industrial economies lay exhausted or in ruins, and for the working classes the experience of the 1930s and the collective war effort made socialism an attractive alternative to the fears and indignities of the capitalist labour market. To reconstruct national capitalism in Europe and to resist widespread popular support for socialism in the industrial world, the capitalist classes had to employ the state to a degree not seen in earlier decades to socialize the costs of reconstruction and to circumvent a repeat of the Depression and its consequent class struggles. So began almost three decades of unprecedented state intervention.

The modern welfare state is often referred to as the Keynesian welfare state (KWS), the name deriving in part from the economist John Maynard Keynes. The principal assumption in his work was the existence of a national economy in which, he argued, the state could intervene to influence levels of investment and domestic income and thereby partially regulate unemployment through national "demand management" policies. Such intervention represented a certain socialization of the costs of production (with state credits, guarantees, grants, and concessions) and of working-class reproduction (through public works and forms of income support), as part of a political compromise with the working classes in an attempt to moderate the business cycle (to prevent a repeat of the unrest of the 1930s), to help rebuild the war-destroyed economies of Europe (to ensure the reconstruction of capitalism), and to contain or diminish a growing interest in socialism due to the experience of the 1930s and the devastation of the war. In an open letter to Roosevelt about the New Deal, Keynes wrote: "If you fail, rational change will be gravely prejudiced throughout the world, leaving orthodoxy and revolution to fight it out." Donald Winch argues that Keynesian policies were "an effective weapon for use against the Marxists on the one hand and the defenders of old style capitalism on the other; a real third alternative, the absence of which before the General Theory had driven many into the Communist camp.''

This rationale for state intervention in the economies of the industrial nations was complemented by several other postwar developments that combined to create the general conditions demanding and allowing for the construction of the welfare state in this period. These conditions were multifold and interrelated, but the most significant was the persistence of the national state, the political counterpart to the existence of national corporate enterprise. Here lay the political and operational framework of the welfare state. That is, social reforms have been defined and administered as national programs; they have represented the political compromise between a national capitalist class and resistance to its particular forms of exploitation by sections of a national working class or social movements; and they have depended partly on the kind and degree of political alternatives that have evolved in particular nations.

The ability of the state to finance the programs of the KWS rested on several economic prerequisites. One was massive state indebtedness and expenditures during and after World War II (Lend-lease for the war effort, the Marshall Plan for reconstruction, then the Korean and Vietnam wars, for instance). Another was decolonization, which created new markets and an expanded labour supply. A third prerequisite was the "deepening of the domestic market," consumerism by another name, which depended on the vast expansion of ever-cheapening domestic commodities. Under these conditions enormous surplus value was generated, gross national products expanded relatively constantly, and high wages became a possibility, with the tax bases in the industrial nations growing in concert.

Advanced Fordism transformed the capitalist labour market, expanding and consolidating it with dramatic reductions in farm labour and the rapid growth of unproductive sectors. A relatively consistent high demand for labour and corresponding rises in wages and salaries in these postwar decades formed the basis for the growth in number and size of trade unions. New or more comprehensive institutions of collective bargaining accompanied this increasing union strength. The importance of collective bargaining for maintaining capitalism, in its national form - with the organized working class otherwise presenting a threat to state power and capitalist hegemony - is much underrated.

The concomitant development of huge numbers and many layers of technical, paraprofessional, and administrative workers in both the private and public spheres substantially increased the strata of the working class, with its immediate interests resting on employment hierarchies, a growing state sector, and national economic expansion. Here lay the rationale for the political platform promoted by social democracy and its vision of reformed capitalism.

It is in this postwar period, then, that we find the culmination of social reform in the shape of the KWS. Most of the labour force had become working class, with substantial numbers organized into trade unions. Class conflict now implied a chronic threat to the reproduction of the system and so had to be contained by institutionalized legal means. Moreover, with the transformation of the labour force and demise of precapitalist modes of production, most social needs necessary to the reproduction of the working class (health, education, and social security) could only be met in formal, institutional ways by the state through public policies, programs, and standards, that is, through macroeconomic policies based on state indebtedness and the social wage.

The Meaning of Social Reform

The social reforms that constitute the welfare state represent, then, the attempt by government to contain intractable conflict arising from the contradictory interests of the subordinate and ruling classes, and to implement redistributive or "averaging" mechanisms as a response to resistance by working classes to intolerable conditions surrounding the reproduction of their labour. Social reforms are a compromise response to the outcomes of the contradiction between labour and capital in a system with no inherent mechanisms for addressing such conflicts.

In other words, reforms are an "answer" to class conflict in the form of concessionary state policies, made possible by the potential for party alternations in power, the existence of partially organized dependent classes, an accommodative ruling class, and by the ability to secure the necessary revenues from "surplus wages" or state indebtedness. They are the "solutions" to class conflict in a certain period of history when the political and economic preconditions make it possible to construct class compromises.

Given this definition, it can be seen that, [social] reforms are not ends in themselves but rather state-mandated "accords." Through these accords the capitalist class can continue to exploit the working classes and natural resources, and the subordinate classes are able to protect themselves and provide reasonable assurances of their reproduction in a manner that maintains or improves health, education, and living standards. The reforms are, in short, compromises that allow corporations to ameliorate social unrest and to socialize various "costs" of production, and that prevent the otherwise unprincipled degradation of the working classes and nature by capital.

It follows from this that implicit in reforms as a product of state legislation is a division of societal power in which some classes and institutions are able to grant concessions, while some are able only to demand and receive. A society with reforms, by definition, is a society in which working people do not possess power over their own lives, but can make changes to their well-being only indirectly, and ultimately can only be recipients of concessions. This point holds true even when social reforms are defined as "social rights," that is, when social assistance appears as "entitlements" and is sufficient to free individuals from complete dependence on the labour market. Such claims, however, do not by any means completely free the working class from the labour market; they do not change fundamental relations of ownership in society; and they are only possible under certain social and economic conditions.

The hitherto apparent permanence of reforms, moreover, stems from their more or less rapid growth after World War II into the welfare state, which gave the mitigated contradictions the appearance of reformed capitalism and strengthened the idea that capitalism was reformable, grounding the notion of reformism. The more the reforms, the stronger and more pervasive the belief. To see beyond reformism has always been very difficult as long as reforms could be conceded or demanded (because the prerequisites made them possible), or as long as reforms were a plausible answer to social, economic, or environmental problems. By the late 1970s, however, the erosion of reforms had begun. This erosion continued throughout the 1980s, revealing the nature of reforms as a product of class tension in a period of national capitalist expansion. Although the ideology of reformism has come increasingly under attack by industry and government, it is still harboured by the organized sector of the working class as the only visible alternative to the utter subordination that the class sees for itself within the capitalist system.

Because social reforms are compromises, they embody the contradictions from which they constitute a temporary reprieve. They are mutable concessions designed to ameliorate the worst effects of capitalism and to placate resistance to these effects. But they are not resolutions to the contradictions between these classes, between different fractions of the ruling class, or between capitalism and nature. They are a sort of respite for unresolved contradictions, which at some point must be resolved; and the degree of reform in a nation-state closely reflects the degree of continuing conflict and the organized strength of the parties involved.

Reforms, furthermore, have only a temporary existence. They have always been provisional or conditional measures, with their limits determined by the particular conjunction of the elements defined as the preconditions of the welfare state. Reforms are a living reminder that the resolution to these conflicts is merely postponed. As long as the possibility of a revolution is not there, the choice becomes reforms or an unchallenged deterioration of the working class and nature into dissolution.

Reforms are, therefore, paradoxical in nature. They are, on one hand, a form of resistance to the capitalist mode of production, necessary for the protection of the working classes and nature. On the other hand, they comprise important elements in maintaining capitalism, the object of their corrective purpose, not to mention in bolstering the legitimacy of the state. Such a paradox inhabits all reforms.

By grasping only one side of the paradoxical nature of reform, a great many writers on the left (cognizant and critical of the nature of capitalism and desirous of its transformation) have been led to dismiss reforms or the welfare state as mere class compromise, as the co-optation and integration of the working class into capitalism, as a counter to "class war," or an "alternative to socialism." These arguments, however, usually assume a great deal.

They overlook, first of all, the possibility that capitalism without reforms might not spur a working class into revolution but instead simply reduce it to poverty, destitution, and fear of itself - and thereby break its will to resist. Second, they take for granted that in times other than extreme crisis and social breakdown the working classes could be an effective opposition to a trained and disciplined modern army or police force. The evidence would strongly suggest otherwise. Third, these arguments imply that reforms are adopted at the cost of class consciousness and revolutionary aims, but fail to see the other side, namely, that reforms can raise working-class consciousness and expectations, can lead to demands for more reforms, and even in some cases be legislated at the expense of capital. In short, any dismissal of welfare state policies that does not address these assumptions would appear to come from rather privileged or romantically revolutionary positions.

Also missed by those who dismiss the welfare state as mere compromise is the implicit criticism of capitalism represented by reforms. The very existence of reforms attests to the fact that subordinate classes have had to defend themselves against the depredations of the corporate sector; they reveal that the much vaunted marketplace cannot provide employment or distribute goods and services in a way that ensures a tolerable existence for all; and they are testimony to the fact that the most elementary regulations have had to be imposed upon the corporate sector to prevent the wholesale degradation of water, air, soil, and food - the elements of life itself - not to mention the debasement of human beings and the basic conditions of work. To be sure, a certain fraction of the business class understands this point, hence the phenomenon of corporate "liberalism" in the United States and reform-minded industrialists in Britain and Europe.

To dismiss reforms is also to misunderstand their necessity. No social order, to paraphrase Marx, is ready for transformation until all the possibilities for development within it have been exhausted. If we accept this, then, a transition to a co-operative and human society from industrial capitalism before the latter has completed its possibilities for expansion, while not impossible, is difficult and unlikely. In the meantime, without reforms, both the working class and nature might be exhausted long before a transition would be possible. Here again is the paradox.

To grasp the nature of reforms is to understand the dilemma they embody: they are necessary for the well-being of working classes and for society and nature in general, yet they are compromises that perpetuate the system, bolster its legitimacy, and conceal contradictions that remain unresolved. It is also to understand that because reforms are the product of the historical evolution of certain conditions, they correspond to a certain period in the development of the capitalist mode of production; they are not permanent or immutable. Reforms do not make capitalism other than what it is; they represent the imposed amelioration of the worst effects, but they do not transform or fundamentally change the principles or contradictions in operation. They merely temper them over a period of time.

Globalization and the Decline of Social Reform

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