By Juan Torres Lopez
70 years ago a very important Polish economist, Michal Kalecki, published an article (Political aspects of full employment) that I think has a great relevance today, particularly this May Day.
Kalecki started out by recognizing that when he wrote that a substantial majority of economists believed that, even in a capitalist system, full employment could be achieved through a programme of government spending, provided that there was a robust plan to use all the existing workforce and that there were adequate raw materials necessary to exchange for exports.
It was accepted, the Polish economist said, that if the government carries out public investment (for example, building schools, hospitals and roads) or subsidizing mass consumption, and also if this spending is financed by borrowing and taxes, then the demand for goods and services could be increased to a point where full employment is achieved.
To the objection (which still exists) that this would create inflation, Kalecki answered with total confidence: the demand created by the government acts like any other increase in demand, so if there is abundant supply of labour, plant and raw materials, increased demand is met with higher production. This means that if government intervention is achieving full employment but doesn’t increase demand beyond the level of full employment, there is no reason to fear inflation.
The banking, industrialist lobby
Then Kalecki noted that, although this thesis was quite clear, it had opponents, among which he mentioned ‘’economic experts’ closely connected with banking and industry’, which led him to think that, even though they used economic arguments, ‘there is a political background in the opposition to the full employment doctrine, even though the arguments advanced are economic.’
He went on: ‘In the great depression in the 1930s, big business consistently opposed experiments for increasing employment by government spending in all countries, except Nazi Germany.’ Which is exactly what is happening in Europe right now.
Kalecki wondered, as we should do now, why there was opposition to policies that could increase employment, especially considering that ‘higher output and employment benefit not only workers but entrepreneurs as well, because the latter’s profits rise.’
Why do corporations defend austerity?
If entrepreneurs, said Kalecki, yearned for profits that are obtained in a boom, ‘why do they not gladly accept the synthetic boom which the government is able to offer them?’. Or, as we say now: why do companies defend austerity policies that cut jobs and profits which leads to lower sales? Kalecki gave three possible answers to that key question.
The first has to do with the fact that in a system of government intervention the level of employment does not depend on the confidence of the capitalists: If this deteriorates, private investment falls, resulting in low production and employment. Therefore, Kalecki said, without intervention, the capitalists have a powerful indirect control over government policies: government should avoid making decisions that business does not like lest it should affect their ‘confidence’ and thus cause a crisis. In other words, governments must constantly succumb to the preferences and dictates of corporations.
However, Kalecki says, ‘once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness.’
The Polish economist concludes with an idea that is true about what is happening today: those who defend the interests of business and oppose government intervention should consider budget deficits as ‘dangerous’, as these are the main instrument to carry out government spending. The social function of the doctrine of ‘sound finance’ (or budgetary stability, or austerity, as we would say now) is nothing, he said, other than ensuring that business confidence prevails as a determinant in the level of employment and economic prosperity.
Full employment threatens capitalists
A second reason why capitalists oppose government policy that creates jobs comes from the fact that it makes them feel doubly threatened. If it leads to the government investing in the production of goods that could be produced privately they believe that the government acts as a competitor, stealing their business and profits, and will oppose it. And if instead government pursues policies that subsidize purchases it results in a paradox. In principle this helps capitalists, because they will sell what would otherwise be left unsold. But they reject these policies because such subsidies, according to Kalecki, call into question something much more important: ‘The fundamentals of capitalist ethics require that ‘you shall earn your bread in sweat’ — unless you happen to have private means.’
But things do not stop here. Even if capitalists overcome these two objections, they will reject policies that achieve full employment for another key reason.
If full employment is reached, says again Kalecki, unemployment would cease to be a means of disciplining workers and limit their capacity to make demands. ‘The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow Strikes for wage increases and improvements in conditions of work would create political tension.’
Unemployment is integral to capitalism
From there the Polish economist develops a fundamental idea, one that I think that has full force today: ‘It is true that profits would be higher under a regime of full employment…But ‘discipline in the factories’ and ‘political stability’ are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the ‘normal’ capitalist system.’
After a series of reflections on the cyclical effects of these reactions to state-led job creation Kalecki raises another key issue that I also find topical today: one of the important functions of fascism, typified by the Nazi system, was the elimination of capitalist objections to full employment, ‘by the fact that the state machinery is under the direct control of a partnership of big business with fascism.’ So the objection to government spending on public investment or boosting consumer spending is overcome by concentrating production on weapons and ‘discipline in the factories’ and ‘political stability’ under full employment are maintained by the ‘new order’, from the suppression of unions to the concentration camps.
So although Kalecki believed that it is ‘extremely unlikely’ that capitalism will adjust to full employment as the norm, we can conclude from his analysis that the struggle for full employment is crucial, because only this can sufficiently empower workers and also because it is, at the same time, way of preventing the recurrence of fascism’, in the words of the Polish economist.
So let’s not forget, then, how important it is to advance the fight for jobs and introduce policies for full employment, instead of the bosses desire for ‘discipline in the factories’. Of course, employment growth cannot come at the expense of an unsustainable growth, socially and environmentally speaking, and one must not ignore unpaid work that operates outside the orbit of the markets. But a breakthrough can only be made if workers become protagonists and take exclusive control of their own destiny, as salaried employees or as citizens.
Translation/edit by Revolting Europe