Biden’s “Paradigm Change”

The End of Neoliberalism and the Difficulty of Developing a New, Stable Regime of Capital Accumulation

“It changes the paradigm,” Joe Biden said on March 12, celebrating the passing of the $1.9 trillion stimulus package in Congress. “For the first time in a long time, this bill puts working people in this nation first.”

The largest part of this package will actually end up in the hands of working-class people. As New York Times columnist David Brooks put it, “the poorest fifth of households will see their income rise by 20 percent; a family of four with one working and one unemployed parent will receive $12,460 in benefits. Child poverty will be cut in half.”

Bernie Sanders praised the package despite being “bitterly disappointed” that raising the minimum wage to $15 was taken out of the legislation: “[F]or working-class people, this is the most significant piece of legislation passed since the 1960s.”

In addition, Biden is proposing a $2 trillion infrastructure investment program (“American Jobs Plan”), partially to tackle the climate crisis. He also wants to make some of the policies such as child benefits in the first $1.9 trillion package permanent, which could amount to another $1 trillion.

Combined, these programs total up to $4.9 trillion.They come on top of the $2.2 trillion CARES Act passed under Trump in the summer of 2020 and the $900 billion package last December.

Democrats also passed the PRO Act in the House, which would redefine class relations in favor of working people in multiple ways: it would abolish “right to work” laws at the state level, allow solidarity strikes, ban union-busting (like Amazon’s practices in Alabama), make it easier for workers to form a union and negotiate contracts, etc.

House Democrats have also sent HR1, a voting rights bill, to the Senate to repeal some voter suppression laws that disenfranchise poor people and people of color. 

Is this social democracy?

Has Joe Biden, the establishment neo-liberal politician, turned into a working-class fighter? Is this the beginning of a new era of social democratic policies by the Democratic Party? 

Not quite. The limited nature of the Democrats’ measures do not justify such an enthusiastic description:

1) These are still “welfare” policies that focus mostly on one-time cash payments, not lasting efforts to build high quality services for all working-class families like publicly organized, high quality, free, unionized childcare or free healthcare. This is significantly less than what working-class people were able to achieve in Western Europe and especially Scandinavian countries in the 1970s (which still did not challenge capitalism and where a lot of the gains have been rolled back). 

2) To pay for many of these measures, the Biden administration is borrowing the money, not taking it from the ruling class. The infrastructure policies are designed to make US corporations fit to compete with China and more climate-friendly without seriously encroaching on corporate profits.

This is not yet about a new paradigm. It’s about a lost paradigm and the instability that follows.

3) The Democrats’ measures are still limited. It seems unlikely that the PRO Act or HR1 will pass without a major grassroots rebellion to push moderate pro-Wall Street Democrats to support the bills and abolish the filibuster in order to pass legislation with a simple majority. 

In short, Biden is not challenging the power of corporate America. The wealth of the top one percent in the US, the richest people in human history, remains untouched. 

However, it would still be a huge mistake for the left to dismiss the impact of these changes on the short-term living conditions of working people or ignore the openings they provide to fight for lasting, fundamental change and socialist policies.

Since the 1980s, neoliberalism has been the dominant ideology of all major parties, from the conservative right to the liberal left, in all advanced capitalist countries. Until 2008, neoliberalism was also the dominant means of enforcing a certain regime for accumulating profits. Despite inevitable booms and busts, this regime of capital accumulation worked out for the capitalist class, especially the powerful financial industry.

But this neoliberal model was thrown into crisis by the Great Recession of 2007-09, which went far beyond a typical business cycle. Traditional ruling parties in many countries in Europe have lost their tight control over politics and—as a general trend—social democratic parties are in decline. Trust in established institutions has collapsed. People are searching for new political ideologies and theories. This is being expressed in fundamentally different ways where we’ve seen successes for populist reactionaries like Trump and Bolsonaro on the one hand and democratic socialists like Bernie Sanders and Jeremy Corbyn on the other. These are all expressions of the instability the capitalist system is experiencing now.

Faced with this crisis, Biden and the ruling class are stumbling in the dark, trying to find a way forward. Without a credible political economic paradigm, ruling-class representatives are under pressure, on one side, from the right to embrace economic nationalism. On the other side, Biden is under pressure from the majority of the US population who have been shifting left. He faces demands to deliver policies that benefit the working class from left Democrats like Alexandria Ocasio-Cortez and the semi-independent Bernie Sanders who—in their own distorted way—reflect the aspirations of working-class and oppressed people.

The State of the Economy: Fictitious

The New York Times wrote on January 1, 2021:

The central, befuddling economic reality of the United States at the close of 2020 is that everything is terrible in the world, while everything is wonderful in the financial markets. It’s a macabre spectacle. Asset prices keep reaching new, extraordinary highs, when around 3,000 people a day are dying of coronavirus and 800,000 people a week are filing new unemployment claims. Even an enthusiast of modern capitalism might wonder if something is deeply broken in how the economy works.

The Economist reported on December 10, 2020:

[T]he cash held by the world’s 3,000 most valuable listed non-financial firms has exploded to $7.6 trillion, from $5.7 trillion last year (see chart 4). Even if you exclude America’s abnormally cash-rich technology giants—Apple, Microsoft, Amazon, Alphabet, and Facebook—corporate balance-sheets are brimming with liquidity.

Graphic: Economist, Dec. 9, 2020

How much of this is real?

In the hunt for more money, capitalist investment is based on expected revenue. If stocks of one company promise to return their initial value plus $1 million in one year, and the capitalist expects a 10 percent return on the investment, then the stocks could be sold for $10 million, no matter what actual value the stocks represent. If a certain amount of credit, that another capitalist wants to borrow, leads to a return of additional $2 million and our capitalists still expect a 10 percent return on their investment, any price below $20 million would be a good investment, whereas anything above $20 million would not be worthwhile. (Of course, the risks involved would need to be priced in.)

The value of these stocks or these credit bonds are fictitious, as they are based on future projections, like the future profits of a corporation. This does not mean that they are not real. It just means that they are not yet real, and it includes the possibility that they turn out not to be realizable. 

So what’s behind the huge increase in prices of shares and assets? The huge amount of money that was pumped into the markets during the 2007-09 crisis and again during this COVID-19 crisis led to a huge amount of money in the hands of the rich. This policy called “quantitative easing” has resulted in bubbles in stocks, real estate, raw materials, and so on, which some commentators described as an “everything bubble.” 

As long as these bubbles grow, the expectation of a certain rate of return on investment of a company’s stocks can result in more investors buying those stocks for higher prices with the expectation of future dividends, and the stock price just keeps rising. However, at some point, the question will be posed: Are these corporations actually producing the profits to back up that bet? And if the answer is no, the bubbles burst.

The rise and fall of GameStop shares illustrates the highly speculative character of these bubbles. GameStop’s business model of selling video games at retail stores no longer worked as people transitioned to downloading games online. However, investors who bought the stock were not banking on a long-term return by a profitable company, instead millions of amateur investors decided to buy those stocks in the vague hope that the stock prices would magically continue to rise and guarantee growing revenue. Part of the motivation of those investors coordinating their actions over the social media platform, Reddit, was to punish some hedge funds who had huge bets on falling prices of the GameStop shares. Cheered on by millions around the globe, initially it seemed to work. As long as they found another investor who would pay more for the shares, who cares about the company and its actual business model, right? The share price rose from around $35 to almost $350. 

However, at a certain point the reality began to set in, and the question was posed: Will others keep buying these shares at ever higher prices? What will these shares actually represent to the owners in the months ahead? Or has this just been a Ponzi scheme? It became apparent that the speculative frenzy was out of control, and the share price fell significantly. Now the actual economic situation of the corporation did matter, and people lost a lot of money. 

Hedge funds and other “professional” investors looked down on these “amateur” investors who—based on Reddit recommendations—bought shares of GameStop. But far too much of the stock markets today are basically driven by the same motivation: buying in the hope of later selling for more. This makes the capitalist casino economy incredibly unstable.

Even if a crisis were to eliminate only the excesses of financial speculation, it would still disrupt normal business relations. But since fictitious capital plays a big role in driving real investment in productive development under capitalism, a shock caused by the elimination of fictitious capital leads to a generalized credit crunch, a contraction of the economy, and a complete “overcorrection” of the previous excesses. This can completely destroy productive development, causing mass unemployment and poverty. 

While the capitalist economy will see a certain recovery after the COVID-19 crisis, these huge bubbles on almost all the various global capital markets will persist into the next business cycle. This will prevent the economy from developing on a sound basis in the medium term and might cause sudden implosions and chain reactions. 

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What’s Next after Neoliberalism?

It is always dangerous to prophesy, particularly about the future.
– Danish proverb

Cuts, privatizations, attacks on wages and unions—these are hallmarks of the neoliberal era. These policies have been used before the neoliberal era, and they will not disappear overnight. However, neoliberalism—as the dominant consensus and a model to accumulate capital—has reached its end. 

Paul Mason wrote in May 2017 about neoliberalism: 

[Y]ou can put an economy on life support, but not an ideology […] The human brain demands coherence—and a certain amount of optimism. The neoliberal story became incoherent the moment the state had to take dramatic steps to support a failing financial market. The form of recovery stimulated by quantitative easing boosted the asset wealth of the rich but not the income of the average worker—and rising costs for health care, education, and pension provision across the developed world meant that many people experienced the ‘recovery’ as a household recession. (The Nation, May 4, 2017)

On the deeper level of a “long wave of capitalist production,” neoliberalism created a situation that it cannot overcome. Keeping Mandel’s mistake in mind (see sidebar), it is possible to outline some of these contradictions and where some developments are heading:

1) Transition Periods between Regimes of Accumulation are Tumultuous

The transformation from an old, established regime of accumulation to a new one is a period of uncertainty and conflict. The lack of a viable model of how to move forward economically and politically, the lack of a convincing story of how capitalism can lead to a brighter future, creates an opening and a search for ideas and alternatives that can benefit all kinds of right-wing populist and reactionary ideas, but also a socialist left globally. 

2) The End of Fossil Fuel Industries

The fossil fuel-driven complex of capital (oil companies, the automobile industry, military production, etc.) will lose out, one way or another. It’s possible that a shift toward renewable energy will be further delayed, with dramatic consequences for the living conditions on this planet. However, even under this scenario, there’s no lasting future for fossil fuels. 

A reorganization of energy and power production as well as transportation will destroy a significant amount of capital bound up with these dying industries. This could open up a certain outlet for new factions of the capitalist class to come forward and develop new pockets of profit production. 

In fact, it has already triggered some shifts within the ruling class as David Harvey described in Jacobin (June 2016): “Furthermore, what has been called the ‘new capitalist class’ of Bill Gates, Amazon, and Silicon Valley has a different politics than traditional oil and energy.”

However, new technologies, for example, electric cars or self-driving cars, reduce the number of workers needed significantly. Electric cars are simpler to produce; self-driving cars will lead to a rise of car-sharing and taxi businesses that will reduce the number of cars needed. This could lead, at least in the short term, to mass unemployment, social upheaval, and economic repercussions.

3) Digital Revolution

The digital revolution will continue to have a deep impact on automation, including the replacement of workers. Capitalism seems able to absorb the possibilities of these technologies mainly by reducing human labor, but much less capable of creating new products and markets. So far, many of the new key players have very weak models of profit production: Google sells its users to advertisers—a parasitic way to benefit from the surplus value produced by the working class in other spheres of the economy. Amazon, as a huge sales platform, is not generating much new wealth; it’s mainly monopolizing its power as a platform (although the largest part of the company’s profits comes from AWS, its web services, which might have more potential to actually create new wealth). Companies like Microsoft and Apple have mostly benefited from branding and monopolizing power.

4) After Globalization comes Economic Nationalism

Under neoliberalism, profits accumulated in the growing and increasingly parasitic finance sector, far away from the actual production, and centralized in the hands of corporations of imperialist countries. To enable this concentration of profits, capital demanded the ability to move across borders freely—globalization and deregulation became key parts of the neoliberal consensus.

However, all talk of “transnational corporations” ended immediately when the Great Recession hit, and imperialist countries took action to save their own corporations, not any transnational ones. The US government bailed out GM and Ford, and the German state took care of Volkswagen, BMW, and Mercedes-Benz. 

The economic crisis of 2007-09 dealt a huge blow to neoliberalism and globalization. Opposition in the form of right-wing populism developed with neo-nationalists like Donald Trump and Boris Johnson and far-right neofascist parties in Europe. 

Today, the world is moving away from globalization and toward currency wars and economic nationalism. Some stronger players attempt to strengthen their economic blocs—such as Germany attempting to keep the EU together and punishing separatists. Meanwhile others try to balance between different global powers—some countries of the global south try to balance between China and Western imperialists. Overall, the general trend is heading toward a return to protectionism and national conflicts.

One factor of global importance is the failure of the US to play the role of a unifying, dominant force. Past attempts to move forward with more global integration were backed by the authority of the US, like the expansion of the World Trade Organization. The failure of the Doha round of WTO trade negotiations marked a shift. David Harvey wrote: “Geopolitically, the United States is not in a position to call the shots globally as it was in the 1970s. I think we’re seeing a regionalization of global power structures within the state system—regional hegemons like Germany in Europe, Brazil in Latin America, China in East Asia.” (Jacobin, June 2016)

5) The End of Stable Money

Under neoliberalism, federal banks made their top priority maintaining a low and stable rate of inflation. David Harvey described this in the US: 

In October 1979 Paul Volcker, chairman of the US Federal Reserve Bank under President Carter, engineered a draconian shift in US monetary policy. The long-standing commitment in the US liberal democratic state to the principles of the New Deal, which meant broadly Keynesian fiscal and monetary policies with full employment as the key objective, was abandoned in favour of a policy designed to quell inflation no matter what the consequences might be for employment.

The “independence” of federal banks—for example, enshrined in the creation of the European Central Bank to govern the Euro—was a necessary guarantee for the accumulation of capital under the neoliberal regime.

But now “quantitative easing,”the process of printing money and expanding the available supply of money, has replaced this aspect of the neoliberal consensus. This has undermined the stability needed to accumulate capital which enabled the neoliberal regime to function. This will cause massive instability in the future.

6) A Working-Class Backlash?

To increase profits under neoliberalism, wages were attacked, and unions were busted. Unionized workers lost jobs as bosses relocated factories either abroad or in the anti-union South of the US. Republicans passed “right to work” laws in more states, and the low paid workforce expanded significantly.

The intensified exploitation of the working class undercut consumer demand as workers were being paid less and less. Domestic markets were replaced by a global expansion of capitalism. However, this process can only last for so long.

Many countries have seen a dramatic shift in consciousness to the left and periodic popular revolts. Parties expected to organize the resistance like SYRIZA rose to power, formations like DSA were transformed, and new formations like Podemos developed. 

While union resistance has been relatively weak so far in the US (except for a few impressive struggles like the teachers’ red state revolt), there are growing calls for change and policies like a $15/hr minimum wage. 

Under neoliberalism, exploitation was intensified both in the US and abroad. The collapse of the Soviet Union and the slower re-introduction of capitalism in China have brought billions of workers under the control of capitalist production and expanded markets significantly. The restoration of capitalism created new markets, more women have joined the workforce, and privatizations have brought more industries into the sphere of capitalist production. 

This worked for the capitalists for decades. But now a new mood of militancy is developing especially in workplaces with a predominantly female workforce, like hospitals and schools. Plans for privatization often meet huge resistance from working-class people who experienced the devastating consequences of these policies over decades. 

The working class internationally is slowly recovering from the defeats of the 1980s and ’90s. Workers’ consciousness and level of organization are on a much lower level now than most of the 20th century. However, the shift to the left in the US and its impact internationally, the ongoing battles in Latin America, and the resistance under the surface in China offer some hope for future battles. This will challenge the neoliberal model on that front as well.

The End

While many politicians might want to cling to neoliberal ideologies, the fundamental way that neoliberalism functioned for capitalist reproduction hit a dead end in the Great Recession—a dead end that neoliberalism itself created. 

Now Biden and other capitalist leaders are merely stumbling along trying to find a way forward. The question is whether the working class internationally and the socialist movement can take advantage of this situation.