Many analysts claim that in the last few years, the global capitalist system has been experiencing its worst crisis since the Great Depression of 1929. In fact, the causes of this crisis can be traced back to early 1970s, a time when social welfare state established after the Second World War was shaken and gradually replaced by the neo-liberal state. In order to understand the relationship between welfare and competitiveness, one must look at and analyze the transformation that European capitalist economies has been realizing over the last three decades.
It was not surprising that after the Great Depression and especially after the Second World War, the dangers of capitalism were apparent for everyone and the prestige of socialism at least in its European form (Eduard Bernstein and Karl Kautsky’s democratic socialism line) was very high in the eyes of European people. The rapid and aggressive industrialization of Germany which ended up in the emergence of militarism and fascism, increasing demands and dissatisfaction of workers classes (proletariat) all over the world and the success of the socialist model of USSR convinced almost everyone even in the Western world that capitalism should be controlled and its mistakes should be corrected or at least its negative effects should be reduced by state intervention via the establishment of Keynesian[1] social welfare state. Keynesian social welfare state promised and for a certain period realized increased employment rates, steady economic growth, stability and peace among European states unlike the madness of liberal doctrine of the 1920s. European states were able to satisfy their working classes although they were not gaining colony revenues like the “good old days” thanks to social security system and increased syndical rights. Welfare states assumed their primary tasks as fighting with unemployment and providing cheap and wide ranging public services including free health, education and shelter to its citizens. Private sector on the other hand was developing consciously mostly within the nation-state but also by establishing regional ties (European Coal and Steel Community, NAFTA). That is why; Keynesian economic model became very successful and it was implemented in all Western European countries. The industrialization model was largely Fordist[2] (mass production for mass consumption) which looked at wages not only as cost item, but also as income item and this allowed peace between workers and capital owners. The capitalist world has lived through the 1945-1974 period with high growth rates highly unprecedented (average 2.9 % per year). Per capita income increased all over the world.[3]
In Keynesian economic model, the international economic system was based on two institutions which later would become the instruments of neo-liberal transformation; World Bank and International Monetary Fund (IMF) created by the Bretton-Woods agreement of 1944. WB and IMF were successful in helping European countries to develop and establish their own industries by giving credits for long due dates at low interest rates. European states were trying to establish their new modern economies through both private sector’s and state’s initiatives from the ruins of Europe. They were using import substitution industrialization (ISI) policies in order to protect their own producers and help them to accumulate capital. Due the decolonization period new national economies emerged and they also tried to implement Keynesian social welfare state. Welfare was more important and powerful than competition but the “Golden Age” ended starting from the 1970s as the competition intensified and overshadowed welfare. But what happened, how and why?
In fact, iron laws of capitalism were at work. The emergence of new competitors from Asia known as Asian Tigers (Japan, South Korea, Taiwan, Thailand), from Europe (Spain, Turkey) and from Latin America (Brazil, Argentina) made the competition much more fierce. Moreover, intense capital accumulation increased unavoidable falls in the rates of profit. Finance which was previously seen as a national matter now was seen as an international, global matter and firms were forcing for new areas of high profits outside of national or even regional borders. In other words, capitalist world was in search of new means, a new model of expansion in order to overcome the capitalist problems of overproduction and under consumption and this became apparent after the OPEC oil crisis of 1973. Following the Yom Kippur War (1973) between Israel and Egypt, Arab countries increased the prices of oil supplies and shook the European economies. Capitalist world was in danger and it was vicious enough to give up from social welfare state to provide its continuity. However, first the intellectual world should be dominated.
Neo-liberal attacks in the intellectual world started in the 1970s with the works of two University of Chicago philosophers; Friedrich von Hayek and Milton Friedman’s theories. Together with these two important scholars funded by rich elites of the world, neo-liberals created a huge international network of foundations, institutes, research centers, publications, scholars, writers and public relations hacks to develop, package and push their ideas and doctrine relentlessly. Neo-liberals established their own hegemonic discourse and manipulated the whole world in favor of rich elites. As neo-liberal ideology had become the new religion of the world, neo-liberal conservative political figures began to take power in US and European countries in the 1980’s. (Margaret Thatcher in UK, Ronald Reagan in USA, Turgut Özal in Turkey etc.). Neo-liberal programmes were presented as they do not have alternatives. Neo-liberal hegemony focused on three main aims; free trade in goods and services, free circulation of capital and freedom of investment. It is no coincidence that, following the neo-liberal indoctrination, depending on the year, two-thirds to three-quarters of all the money labeled “Foreign Direct Investment” is not devoted to new, job-creating investment but to mergers and acquisitions which almost invariably result in job losses. Privatizations increased unemployment rates, unemployment increased social problems. Social state and labor movements were damaged in the whole world. Even social democratic movements were forced to accept this transformation and a new “third way” or “new left” ideology was presented to European labour class and leftists. Favorite words and slogans of the period were deregulation, liberalization, credibility, governance, transparency and flexibility.
With the collapse of Keynesianism, competition gained much more importance and in a sense welfare state was beaten up by profit-based ideology of capitalism. States were minimized and in this new global world of global capitalism, finance gained much more importance and strength instead of real production and productive forces. Speculative games and some unsuccesful IMF policies were presented as the necessity of the new world order. At last, the world has come to face with the economic crisis starting from the heart of capitalism; United States. The weakening of the welfare state and social rights also lead to the rise of xenophobic, anti-Semitist and Islamophobic movements all over the Europe due to migrant workers discussions and far right populist movements. It is not easy to find a solution to global crisis, but one thing is for sure; this is a crisis of the new world and the old recipes could not be a cure for this…
Assist. Prof. Dr. Ozan ÖRMECİ
[1] An economic model developed by famous British economist John Maynard Keynes. Keynesian economics argues that the private sector’s decisions sometimes lead to inefficient macroeconomic outcomes and therefore advocates active policy responses by the public sector, including monetary policy actions by the Central Bank and fiscal policy actions by the government to stabilize output over the business cycle. Keynesianism came to agenda after Keynes’ book The General Theory of Employment, Interest and Money (1936) and became the dominant economic philosophy of the Western world after the Second World War until the 1970s.
[2] Fordism is the system of mass production and consumption characteristic of highly developed economies during the 1940s-1960s. The idea of Fordism was to combine mass consumption with mass production to produce sustained economic growth and widespread material advancement.
[3] That is why this period is called as the “Golden Age” of capitalism.
