The Labour Party is deeply rooted in the reformist tradition. By definition, this tradition seeks to change capitalist society piecemeal, through the cumulative effect of a series of limited reforms. But this strategy raises an obvious question. If capitalism is a system, whose different aspects form an interconnected whole, how can you change it partially and gradually?
The reformist reply has always depended on drawing a sharp distinction between economics and politics. The capitalist economy may indeed be as class divided and conflict ridden as Marx claimed, but the political structures of liberal democracy give the working class movement the ability to gain power and make society fairer and more equal.
Thus Eduard Bernstein, the intellectual father of modern social democracy, wrote in 1899:
'In principle, democracy is the abolition of class government, although it is not yet the actual abolition of classes... The right to vote in a democracy makes its members virtual partners in the community, and this virtual partnership must in the end lead to real partnership.'
Later reformist thinkers have similarly contrasted an unequal economy with a democratic polity. John Strachey, one of the main theorists of the revisionist Labour right, wrote in 1956, 'The general tendencies of last-stage capitalism and democracy conflict because it is the purpose of the former to concentrate, and of the latter to diffuse, power.'
Rallying the Labour left 25 years later for its onslaught against the party's commanding heights, Tony Benn declared that, 'democratic power, acquired by working people in Britain through their long campaigns for independent trade unions and the right to vote, is now so great as to be capable of dislocating, or paralysing, the market economy on which British capitalism still relies for its motive force.' The strategic conclusion of this analysis is that social democracy must, in Strachey's words, seek to preserve, extend and make effective those democratic forces which impinge on capitalism. Naturally this task puts a premium on winning control of the political system through electoral victory. But it also helps to legitimise the profound practical division within reformist workers' movements between party and trade unions. Politics is treated as the preserve of the parliamentary wing, while the battles between workers and bosses around wages and conditions are the exclusive domain of the trade unions.
One effect of this division of labour is to depoliticise the class struggle. In principle, social democratic theorists regard the capitalist economy as a realm of class inequality and social conflict. But, because they treat strikes as a purely economic matter that is the responsibility of the trade unions, the basic struggle between capital and labour within the productive process itself is effectively excluded from political debate.
This means reformist politicians, even of the most left wing variety, do not challenge the dominant position of the labour bureaucracy inside the union movement. Thus Tony Benn's diaries show that in the late 1970s and early 1980s he worked closely with a caucus of left trade union leaders. At the same time, he carefully avoided any public criticism of union officials' conduct of disputes, despite the terrible betrayals workers suffered in those years.
The separation of economics and politics is thus basic to social democratic theory and practice. But what happens when reformist parties succeed in winning office? They are confronted with the following dilemma. Reforming capitalism necessarily means interfering either directly or indirectly with the economy. Even limited improvements in social welfare imply increases in public expenditure and taxation. Such interference may well produce adverse reactions from big business for example, the flight of capital from the country which will weaken and may even destroy the government. But if the social democratic ministers therefore avoid reforms for fear of annoying the bosses, then parliamentary democracy turns out after all to be incapable of even moderating the inequities of capitalism.
One way out of this dilemma is to argue that reformist parties' best chance of success is to take office when capitalism is expanding. Thus Karl Kautsky, the chief theoretician of German social democracy, wrote in 1928, 'The more the capitalist mode of production flourishes and thrives, the better the prospects of the socialist regime that takes the place of the capitalist one.' High profits then sweeten the pill of reform for the capitalists, while full employment maximises the strength and confidence of the working class. The trouble with this rosy scenario is that reformist parties tend to get elected when the economy is doing badly: if capitalism is flourishing, what's the point of trying to reform it? But taking office in a time of crisis makes the reformist dilemma even harsher.
The Great Depression of the interwar period began in 1929 when the then two most important reformist organisations, the British Labour Party and the German Social Democratic Party (SPD), were both in office. Both were paralysed in the face of the greatest crisis capitalism has yet experienced. The reformist leaders could still rhetorically denounce capitalism. The Labour Prime Minister, Ramsay MacDonald, told his party conference in October 1930, 'So, my friends, we are not on trial; it is the system under which we live. It has broken down, not only in this little island, it has broken down in Europe, in Asia, in America; it has broken down everywhere, as it was bound to break down.'
But how should social democrats respond to this breakdown? Certainly not by getting rid of 'the system'. Following the logic of Kautsky's argument, the German trade union leader Fritz Tarnow offered a classic statement of the reformist dilemma in 1931: 'Are we sitting at the sickbed of capitalism, not only as doctors who want to cure their patient, but as prospective heirs who cannot wait for the end or would like to hasten the end by administering poison? We are condemned, I think, to be doctors who seriously wish a cure, and yet we have to retain the feeling that we are heirs who wish to receive the entire legacy of the capitalist system today rather than tomorrow. This double role, doctor and heir, is a damned difficult task.'
Faced with a breakdown of capitalism, the social democrats thus chose to be its doctors, seeking to restore the system to a healthy condition in which it could be safely reformed. But, given the scale of the crisis, they struggled ineffectively to find a cure. Rudolf Hilferding, SPD finance minister in the 1928-30 grand coalition government in Germany, later admitted to Kautsky, 'The basic problem is that we are unable to tell the people in a concrete manner how we will eliminate the crisis.'
His British counterpart, Philip Snowden, chancellor in the 1928-31 Labour government, advocated the strictest financial orthodoxy and opposed John Maynard Keynes's proposals for public works to cut unemployment because they might lead to inflation. He told MacDonald in April 1930, 'Personally I am in favour of a policy which will protect the consumer, maintain real wages and compel our industries to make themselves efficient by exposing them to the cold blast of reality.'
The logic of rescuing capitalism pointed towards increasingly savage reductions in wages and social spending at the expense of the organised working class. The Labour government broke up in August 1931 because of its inability to agree on a package of 'economies' demanded by the banks. MacDonald and Snowden went on to join a Tory dominated National Government that implemented these measures and held office for the rest of the decade.
Pressure from German big business for spending cuts and an offensive against the trade unions led to the collapse of the grand coalition in March 1930 and the exclusion of the SPD from office. Heinrich Brüning's unsuccessful attempt to impose deflation by decree was soon followed by the Nazis' seizure of power and the destruction of the German workers' movement.
The Great Depression represented the most unfavourable conditions under which reformists could hold office. But the one occasion when Labour took office during a period of economic boom, in October 1964, shows the same dilemma posing itself.
The social democratic theoreticians of the day believed that Keynesian techniques of demand management, through which the state was apparently able to set the overall level of economic activity, would allow them to avoid the failures of the interwar period. Tony Crosland argued in 1956 in the Labour right's bible, The Future of Socialism, that state intervention could guarantee continual economic growth, providing the resources for reforms without the need for any confrontation with capital.
Relatively slow growth in Britain was indeed one major element in Labour's appeal under Harold Wilson in the lead up to the 1964 election. He seized on the widespread sense in the latter days of Harold Macmillan's Tory government that, at a time of global economic expansion, Britain was not doing as well as its rivals.
Labour in 1964 offered a programme of modernisation, not of nationalisation and redistribution. But Wilson and his ministers, while intending to leave private enterprise largely intact, sought to intervene in and direct the economy. In particular, they were committed to 'indicative planning', through which the state would guide and nudge private firms to invest at a sufficiently high rate to support sustained and rapid economic growth. A national plan in September 1965 projected an annual rate of economic growth of 3.8 percent for the rest of the decade.
Implementing the national plan, however, ran up against the British economy's dependence on world markets. In a desperate attempt to win the 1964 election the Tories had boosted spending, producing a huge balance of payments deficit. When James Callaghan, Labour's incoming chancellor of the exchequer, took up residence at 11 Downing Street, he met his predecessor, Reginald Maudling, coming out with a bag of golf clubs over his shoulder. 'Sorry to leave things in such a mess, old cock', Maudling said.
The 'mess' meant that the pound came under increasing pressure in the currency markets. As Paul Foot puts it, 'Planned expansion and growth took priority over all other aspects of Harold Wilson's socialism except one: the parity of the pound sterling.' Fearing that devaluation would undermine international business confidence in the Labour government, Wilson fought to defend the pound. The result, Wilson's biographer Ben Pimlott explains, was 'the pursuit of two diametrically opposed policies at once. The plan, to flourish, needed favourable conditions for investment and expansion. But sterling, to be saved from devaluation, required restrictive economic policies, especially when the currency came under pressure and the markets needed reassurance. In theory, successful planning would solve the balance of payments problem and produce a smooth growth path. But the plan had to be nurtured first, and this was something which the commitment to sterling made much harder.'
Wilson's opposition to devaluation was not, as Pimlott sometimes implies, a matter of some personal fetish. Official papers now released show that Lord Cromer, the Governor of the Bank of England, was constantly pressing Wilson on the financial markets' behalf to defend the pound.
The result was a succession of emergency packages of 'unpleasant... measures' cutting public spending first to stave off devaluation and then, once the inevitable finally happened in November 1967, to prevent inflation taking off. The austerity programme announced in July 1966 effectively killed off the national plan. Workers found themselves subject to statutory wage controls. Labour went down to ignominious defeat in the June 1970 general election.
Thus, even under the most favourable conditions Labour found itself confronting the same dilemma: intervening in the economy even to modernise it on a capitalist basis cut across the need to reassure the markets by demonstrating the government's commitment to financial orthodoxy. The 1974-79 Labour government, faced with the first world slump since the 1930s, repeated the same pattern. Under relentless pressure from the financial markets, Wilson, his successor Callaghan, and their chancellor Denis Healey imposed the toughest wage controls the country had ever seen, and slashed public spending. By the time they were defeated in April 1979, Labour had laid the basis of Thatcherism.
The Labour government that is likely to take office under Tony Blair in the very near future will do so in even more difficult circumstances than those which confronted Wilson and Callaghan 20 years ago. Projections suggest that economic growth in the advanced industrial countries during the 1990s will be even lower than average rates during the slump ridden 1970s and 1980s. Memories of the high inflation during those latter decades have led financial markets to demand that governments slash spending in order to reduce their borrowing. The effect is to tip the overall economic balance in a deflationary direction.
The Financial Times recently summed up the resulting state of affairs:
'In effect we have returned to the pattern of the 19th century, when the public sector was too small to permit active fiscal management and monetary policy was dictated by the requirements of the gold standard. As in the 19th century, cyclical turning points now seem to be dictated by banking crises and market collapses. Recessions are exacerbated by credit contraction and debt deflation.'
Against this grim background, New Labour is desperate to do nothing to antagonise the financial markets. Gordon Brown, Blair's would be 'Iron Chancellor', has become a ridiculous caricature of Philip Snowden. It is hard to find an economist who takes seriously his commitment in January not to increase income tax and to stay within the spending targets for 1997-99 set out by Kenneth Clarke last November. These targets involve unrealistically low projections for public spending growth. For example, health spending is expected to grow by 0.9 percent over the two year period; but, since the Tories took office, health spending has risen on average by 3.4 percent a year.
Sticking to these Tory targets will mean an appalling spending crunch in the early years of a Blair government. Moreover, Financial Times columnist Martin Wolf predicts that 'even if Labour could keep to Mr Clarke's imaginative spending plans, it would almost certainly have to raise taxes by up to two percentage points of GDP'. These increases would be necessary to reduce the budget deficit to the level required by the European Union's stability pact to underpin the single currency.
Brown is a strong supporter of Britain entering the single currency. Since he is pledged not to raise income tax, he would have to find other ways to find the extra revenue, probably involving increases in socially regressive taxes which hit the poor harder like VAT and National Insurance contributions.
Blair's and Brown's adoption of Tory economic policy reflects in large part the nature of the New Labour project. It is now evident that at the core of the Labour leadership there is a group committed to transforming the party into something like Bill Clinton's 'New Democrats' a party that is no longer organisationally wedded to the trade unions and which competes on equal terms with the Tories for the support of big business and the 'middle ground' on the basis of unambiguously pro-capitalist policies.
Nevertheless, the authors of this deeply conservative programme must confront the following contradiction. They preside over a Labour Party that has yet to change fundamentally from the 'capitalist workers' party' described by Lenin a party that is based on but seeks to contain the struggle of the organised working class to change society. Above all, what has brought Blair and his co-thinkers to the verge of office is an immense aspiration for social and political change that extends well beyond the ranks of the traditional labour movement as 18 years of Tory rule have created a powerful popular reaction that is pushing to the left. The paradox is that Blair is seeking to abandon even the most right wing version of reformism at the very moment that a huge audience for reformist politics has emerged.
The New Labour ideologues are forced, no doubt sometimes against their better judgement, to feed this appetite for change with odd scraps. The proposed windfall tax on privatised utilities is an example. This is a popular measure, since everyone hates the privatised ut as a 'responsible' way of financing Labour's plans to reduce unemployment.
But even this very limited measure faces obstacles. There are legal pressures to extend the tax from the privatised utilities proper (gas, water, electricity, etc.) to all the formerly nationalised industries sold off by the Tories since 1979. Gordon Brown is apparently sympathetic to such an extension. This would raise a lot more money, but it could also antagonise a wide section of big business including those who Blair is trying to court. Thus even a New Labour government would find itself confronting the reformist dilemma. The most timid reforms that, in Strachey's words, 'impinge on capitalism', may evoke a hostile response from big business.
The experience of social democracy over the past century suggests that the idea presupposed by the reformist strategy that economics and politics are distinct and independent phenomena is fundamentally misleading. On the one hand, capitalist economic relations are based on the exploitation of the working class at the point of production. Exploitation is as political a relationship as you can get. It is based on the unequal power of workers and bosses over the forces of production, raises the question of how the products of labour should be distributed in society and leads to the struggle between the classes.
On the other hand, the state is not a neutral institution which somehow rises above and regulates society. Ultimately it represents the concentrated and organised force of the capitalist class. This class uses many devices to ensure that the state acts in its interests. The flight of capital and the pressure of financial markets, as we have seen, force governments to pursue 'responsible policies'. Big business constantly lobbies bureaucrats and politicians, using patronage, bribes, and favours to win political influence. And at the core of the state apparatus are the repressive agencies army, police, and intelligence services which again and again have shown their loyalty to the status quo.
Capitalist society must thus be seen as a totality. Marx long ago explained why politics and economics seem separate from one another under capitalism. He pointed out that in earlier class societies the ruling class used its powers of coercion directly to extract surplus labour from the producers. Feudal serfs were subject to the military and judicial power of their lords. Capitalist exploitation, however, starts from the fact that the workers lack any control over the means of production. They have to work for the capitalist or starve. What Marx calls 'the silent compulsion of economic relations', rather than visible physical coercion, delivers them to their exploiters. Of course, organised violence is always present in the background, both in the historical process through which the peasants were driven off their land and turned into wage labourers and in the readiness of the army, police and judges to defend capitalist relations.
The apparent separation of economics and politics is part of a broader phenomenon, which Marx called 'commodity fetishism'. The economy, in the shape of the market, seems like an objective process outside human control. It works according to 'laws' which economists often compare to physical laws like gravitation. These laws lay down apparently 'rational' decisions which are dictated by 'technical' necessities that have nothing to do with politics.
Economic developments are forces of nature which we have simply to accept. Michael Foot defended the policies of the Labour government in the 1970s by saying that Britain had been hit by an 'economic hurricane'. Social relations made and reproduced by human beings are, as Marx put it, transformed into relations between things outside our control.
The other side to treating economic relations as if they were natural phenomena is to present politics as the place where social conflicts can be overcome and resolved. Reformists persistently view parliamentary democracy as, in Bernstein's words, 'the abolition of class government'. This illusion leads them to seek office on terms that bind them to managing capitalism at the expense of their own supporters.
The only way out of the reformist dilemma is to recognise that capitalism is indeed one system. The economic order of the market and the political order of the state are simply partial and mutually dependent aspects of capitalist society. Their combined effect is to perpetuate a state of affairs which condemns humankind to poverty, unemployment, stagnation, insecurity and war. To achieve real change working people will have to replace the existing state with their own, radically democratic institutions, and use them to build a new society based on the socialist commitment to give first place to human need.