Is the Problem the 1% or the System?

The occupy movement has brought the issue of class power to the forefront in an unprecedented way. The entire framing of the movement's politics --the 99% against the 1%-- speaks against a political and economic system dominated by a wealthy ruling class. If the media was all-consumed by the ideologically-tendentious issue of deficit reduction only a few months ago, that focus has been shattered (or at least destabilized) by the rapid proliferation of occupy movements from Portland, OR to Orlando, FL.

But within the movement, questions remain. The vast majority of participants agree that the 1% enjoys a concentration of economic and political power that is highly unjust. A key goal of the movement everywhere is to challenge the entrenched power of an unelected dominant group --the 1%-- that lords over us. There is also a sense that the 1% is responsible for the crisis (and should therefore be made to pay for it). Among the most popular chants at Occupy Chicago are "banks got bailed out, we got sold out!" and "how to fix the deficit? tax, tax, tax the rich!".

But it is also commonplace for participants to argue that the problem is our broken economic and political system. This is an argument familiar to many on the Left who have argued that it is the internal contradictions of capitalism, not a failure of regulation or a climate of greed, that produced this economic crisis. But on the face of it, this emphasis on the system doesn't appear to cohere with the "dominant group" perspective that pins responsibility for the crisis --and the push for austerity-- on the ruling class (the 1%). Why? Because the "it's the system" perspective seems to suggest that the ruling class isn't responsible for the crisis in the sense that they made imprudent or unethical decisions. The "it's the system" perspective emphasizes the ways in which the system pushes individuals in the ruling class to act in ways that produce deep recessions and crises.

So, is it the system that's the root of the problem? Or is it the dominance of the ruling class? You probably saw this one coming, but I'm going to argue that this is a false dilemma. It is both the system and the dominant group within that system that is at the root of crisis.

Before I say what I think about this, I'd like to flag the fact that these questions have a long history in the Marxist tradition. The system vs. dominant group question was taken up in the famous Miliband-Poulantzas debate that raged in the pages of New Left Review in the 60s and 70s. This sparked several other debates internal to the Marxist tradition on the question of the state, the most interesting of which (in my view) being the arguments among German Marxists in the 1970s involving Hirsch, Offe, Altvater, and others. For an excellent introduction to these debates, see Simon Clarke's overview here, or read Martin Carnoy's The State and Political Theory (esp. chapter 5).

First, let me say a little bit about the 1% as a dominant group. We all know that the 1% has colonized the political system in the US for its own purposes. This is uncontroversial. The 1% spends vast sums each election cycle funding the candidates of both major parties. Presidential campaigns are simply a struggle between the Democrats and Republicans to garner more support and funding from corporate elites. The 1% also spends vast sums on PR and propaganda (this includes political advertisements as well as ostensibly non-political commercials, e.g. an Exxon-Mobil ad that ends with the jingle "Energy for a stronger America"). We can also add here that the 1% spends vast sums on pro-business interest groups (e.g. the US Chamber of Commerce, etc.). In addition to dominating the election system, the 1% also spends vast sums on lobbying efforts to fight for legislation friendly to their interests. Even when popular demands for reforms surface, the 1% uses its influence and power to mold reform proposals to fit its interests as much as possible. Consider, for instance, the Sherman Act, which was ostensibly passed to break up industrial monopolies, but ended up being used to break unions rather than business cartels. Or, take the following example. Commenting on the popular demand for a public Commission to regulate railroad corporations, an earlier U.S. Attorney General said that:

It satisfies popular clamor for a governmental supervision of railroads, at the same time that that supervision is almost entirely nominal. Further, the older such a Commission gets to be, the more inclined it will be found to take the business and railroad view of things. It thus becomes a barrier between the railroad corporations and the people and a sort of protection against hasty and crude legislation hostile to railroad interests... The part of wisdom is not to destroy the Commission but to utilize it. (quoted from Charles E. Lindblom's excellent Politics and Markets).

It is also well-known that government and industry interpenetrate one another through revolving-door arrangements. The person regulating a particular industry ends up as a highly-paid employee of that industry. High-ranking officials in a particular industry wind up with the public job of regulating that same industry (only to wind up, once again, with a cushy position in private industry afterward). This is a basic feature of how the political system in the US functions. Virtually all elected officials are either already wealthy businesspeople before they get elected, or they become wealthy business people in the course of their tenure.

There's still more to say here, however, about the various ways that the ruling class has colonized the state to serve its interests. Businesspeople have, as Charles Lindblom famously argued in Politics and Markets, a privileged position within government. They are not just another "special interest group". They stand above all other "interest groups" because of their position in society. They have direct access to governing politicians in ways that no other citizens have. Why? Because business leaders are, more or less, unelected public officials who make big decisions about the direction of our society, whether it be decisions about investment, employment, wages and benefits, location of factories and production, etc.

In any society, certain basic decisions must be carried out. Decisions must be made about what is to be produced, how it will be produced, according to what organizational structure, by whom, etc. Decisions must be made regarding the investment of capital in production, the allocation of resources, whether to use certain technologies, the amount of money devoted to innovation, etc. Decisions must be made regarding where plants and factories will be located, how many workers they will employ, whether workers will be laid off if profits fall, etc. Decisions must be made about how much compensation and bonuses executives should be paid. All of these decisions must be made by someone, no matter what kind of society we live in. And what's more --these are hugely important decisions that have massive consequences for the well-being and life chances of all of us. They have a huge impact on the standard of living, employment levels, wages, economic growth, prices and so forth.

But who makes these decisions in our society? Unelected business people. The majority of us do not have any say in these matters. The majority has no means of making the unelected public officials of the 1% accountable to our interests. This is not a new development. By definition, a capitalist society is one in which the basic structure of the economy --the means of production-- is privately owned and controlled by a small class. The productive instruments, the resources, the capital and so forth are all privately owned and controlled by a small class of owners --the 1%. According to our present legal/political system, to allow the democratic will of the people to determine these decisions would be to interfere with the private property of the 1%. Genuine democracy of, by, and for the people is incompatible with the private property of the 1%. In other words, the class power of the 1% is fundamentally at odds with the ideal of a democratically self-governing society.

So, business people (or, if you like, the ruling class, or the 1%) are basically unelected public officials. They make decisions of huge importance for all of us. Unsurprisingly, then, elected officials take the class power of the 1% seriously. They know that if business turns against their government, bad consequences will follow: rises in unemployment, stagnant growth due to a failure to invest, capital flight, etc. They know that they must try to induce (not command) business --with tax breaks, subsidies, lax regulations, etc.-- to fulfill its function in the system so that the economy does well according to its own standards. Whether elected officials in capitalist societies like it or not, they must take seriously the structural economic imperative to make the 1% happy. This is an example of how the power of the 1% places constraints upon what governments can and cannot do.

Governments have, since the very beginning of capitalism, taken on a basic supportive role vis-a-vis business. Costly investments in fixed capital and infrastructure, because they are not profitable in the short term, are often taken on by government in order to grease the axles of private businesses. Likewise with "early federal policy on banks, canals, and roads; governmental profligacy in indulgences to railroads; the judicial interpretation of anti-monopoly legislation to restrict unions rather than industry; the deployment of Marines to protect American enterprise in Latin America; the use of public utility regulation to protect business earnings; and the diversion of fair trade laws from their ostensible public purposes to the protection of monopolistic privilege" (Lindblom, p.174).

This leads us into a discussion of the system. Thus far, we've seen how the State in capitalist society is a class State. We've seen the multiple avenues through which a dominant group, i.e. the ruling class, can directly influence the actions of government. When government officials aren't themselves former (or current, or future) ruling class members, they are subject to the influence of corporate campaign finance, intense lobbying efforts, as well as influence generated by the concentrated economic power of business people. We've also seen that the class power of the 1% places constraints on what governments can and cannot do, no matter how strong its popular mandate from the people. But now I'd like to connect this discussion to an indictment of the system.

The first thing to say is that the sorry state of affairs discussed above didn't come about by accident. Nor did it come about in a vacuum. It is not the result of a co-ordinated conspiracy by people who know one another personally and communicate regularly about how to maintain their dominance. This state of affairs is the result of hundreds of years of capitalist development.

Capitalism is a system in which the basic structure of the economy is privately owned and used for the sole purpose of accumulating profit. Whether capitalists like it or not, they are compelled to maximize profit. They are forced, on pain of insolvency, to compete against other capitalist firms in order to survive. And winning out in competition means accumulating large profits, and reinvesting those profits in expanded production to accumulate still more profit. "Accumulate, accumulate, accumulate!" more or less summarizes the basic priorities of the system.

When the accumulation process is interrupted, the system seizes up and goes into crisis. There are many different reasons why interruptions occur, but one important reason is overproduction. Overproduction occurs when capitalists accumulate more capital, resources, or means of production than they can profitably make use of. So, when sufficient profitable investment opportunities are not forthcoming, what do capitalists do? They hoard their capital and try to wait out the storm. It doesn't matter whether mass unemployment or food shortages ensue: in periods of economic crisis the ruling class will hoard its wealth until profitable investment opportunities re-emerge.

So, in order for a capitalist system to function (in order for people to have jobs, in order for people to be able to purchase the necessities of life, in order for tax revenues to be generated to fund government salaries, the legal system, roads, the military, etc.) the accumulation process must be in full swing. When accumulation is disrupted, crisis ensues and the vast majority suffers as a result.

Now, at this point, we have to ask: if the above is true, what does it say about the basic function of the State in capitalist societies? The answer should be clear. The capitalist State's function is to cultivate and maintain favorable conditions for accumulation. In short, the fundamental role of the State in capitalism is to secure the conditions for profitability.

Let's expand upon this a bit. We've already established that the State is structurally dependent on the accumulation process. That is, the State is funded through resources derived from the private accumulation process (collected via taxation). Moreover the viability of a particular governing group within the State is dependent upon economic "success" (as opposed to stagnation and crisis). In this context, State officials are compelled --by their own institutional self-interest-- to try to ensure that the accumulation process runs smoothly. If they don't, they are liable to face sharp drops in tax revenues as well as other bad economic consequences (e.g. unemployment, stagnation, capital flight, etc.). This is what politicians --from both corporate parties-- mean when they talk about "creating a good business climate", or adopting policies that are "pro growth". This need to ensure that the accumulation process continues is what drove the construction of the Interstate Highway System as well as other big public works projects in U.S. history. The goal was to socialize the costs overhead and infrastructure to encourage private investment for profit. Likewise, this basic role is what explains the massive bailouts of financial institutions, the giveaways dolled out through "quantitative easing", and the big tax breaks handed out by Obama and the Democrats. Governing officials are trying to find ways to jump start the accumulation process --no matter what the human cost.

So, as we've seen, the function of the State is to secure the conditions for the accumulation of profit. But in order to do that well, the State has to act in the interests of the capitalist class as a whole. And what is in the interest of the capitalist class as a whole may not be the same as what is in the interest of some particular capitalist firm. Recall that capitalists confront one another in the marketplace as rivals in competition. Let us add here the Marxist complaint that capitalist production is anarchic, haphazard and unplanned. Although the capitalist class a whole may act together to secure legislation on shared goals (e.g. union-busting), there will a lot that they disagree on, given that their priority is maximizing their own profit and bumping off competitors. What this makes clear is that the self-interest of a particular capitalist firm may not coincide with the class interest of all capitalists.

But the basic role of the State is to ensure that the accumulation process runs smoothly, i.e. to serve the interests of the capitalist class as a whole. Thus we should expect the capitalist State to periodically do things that buck the will of a particular capitalist firm. In fact, this happens all the time. Alternatively, because of special direct access and influence to State officials, sometimes capitalists are able to persuade governing officials to serve the interests of their particular firm more than the interests of the capitalist class as a whole. The point is that there may be a contradiction here: between the basic function of the state and the ways that particular members of the ruling class influence the state directly.

This isn't the only contradiction. The State in capitalist societies involves electoral competition. That means that different factions of establishment groups, organized into dominant political parties, compete against one another to determine which will head up the State. Regardless of which of them governs, of course, the basic function of the State remains the same. But the cycle of elections every four years in the U.S. means that particular governing officials can be removed from office and replaced by others. Thus, governing officials are compelled to seek popular support in order to reproduce their own power. In a word --their continued existence as public officials requires that they seek legitimation from the public. That doesn't mean that the rule of State officials must actually be legitimate --it merely means that their rule must appear to be so. If a governing party does not secure legitimation, it threatens to lose power to representatives from another establishment party. So, for reasons of self-interest, elected officials in capitalist societies must try to make it appear as if they are uniquely qualified to fulfill their role in the system. The need to secure legitimation also means that the State must speak in the language of universality and general interests. When it advertises itself publicly, it will always say that it stands for generalizable interests and popular goals --as opposed to the goals and particular interests of the capitalist class. If the capitalist state advertises itself as what it really is, it would not be able to secure legitimation. Thus, as Claus Offe puts it, "the State can only function as a capitalist state by appealing to symbols and sources of support that conceal its nature as a capitalist state; the existence of a capitalist state presupposes the systematic denial of its nature as a capitalist state."

However, in periods of social struggle, sometimes governing officials are compelled to grant concessions to popular movements in order to secure legitimation. But many --indeed the vast majority-- of reforms demanded by the population brush against the grain of the accumulation process. This reveals a profound contradiction in capitalist societies, i.e. the contradiction between accumulation and legitimation.

On the one hand, the capitalist State has to secure legitimation from the population. That doesn't mean that it has to actually be legitimate --it means that it is compelled to secure the appearance of being legitimate. In periods of intense struggle, this means granting concessions to popular movements (because otherwise it would reveal that the State doesn't serve the interests of the majority). But granting concessions or passing reforms contradicts the need to ensure that the accumulation process runs smoothly. Hence the contradiction and all of the instability that comes with it.

Austerity is an excellent example of how this contradiction manifests itself. Take Greece, where a nominally "socialist" party is in power. Presumably, it is not part of the party's program that their basic goal is to gut the welfare state and lower working-class living standards. Presumably the party is committed in writing to favoring basic center-Left demands, including maintenance of the welfare state. But, nonetheless, the ruling PASOK government in Greece is caught between the need to secure legitimation and the need to secure the conditions for the accumulation of profits. Through its actions, however, we see very clearly which conjunct of the contradiction has a stronger pull on the government. PASOK has pushed through a punishing program of deep cuts, austerity, layoffs, union busting, and tax increases on workers. But it is doing all of this in order to try to protect the profits of the European ruling classes and to re-establish the conditions for steady accumulation. But in doing this, the Greek state is showing itself for what it is: a class state. Hence, it is losing legitimacy by the day. As a PASOK MP describes the situation,

"The anger over the austerity measures is so deep that many PASOK MPs no longer dare to appear in public. “We can’t even leave our homes to go to a taverna any more,” the Guardian quotes an anonymous MP of the governing party as saying. “You’re called a pig or a traitor for passing measures none of us wanted to pass. It’s not a life.”

I don't doubt that many of the PASOK MP's didn't want to pass the punishing austerity packages. But they passed them nonetheless, because of the web of power relations in which the State is situated. The EU, dominated by French and German capital, has been pushing hard to protect the assets of the European ruling classes. They have made economic threats: capital flight, economic misery, inflation, isolation, etc. They have made political threats some of which hint at the possibility of military coercion and "regime change" if their harsh conditions are not met. At the same time, PASOK is under the tutelage of domestic Greek capital as well. Whatever the aims of the PASOK government officials themselves, the systemic pressure --and the pressure of tremendously concentrated class power coming from France and Germany-- are forcing them to put profits over the vast majority of the population.

So let us take stock of what's been said above. How is the dominance of the 1% related to the system? The 1% are dominant in virtue of their role within the system. If the particular individuals in the 1% simply disappeared, others would take their place and the problems would remain. Their position of dominance is facilitated by the structure of the system in such a way that we can only oppose their rule if we oppose the system that makes it possible. Furthermore, we see that the particular interests of individual members of the 1% sometimes contradict the overall interests of the whole 1%. This fact is, again, true because of the competitive, anarchic nature of capitalist production. This compels ruling class members to push very hard for subsidies, tax breaks, no bid contracts, etc. and milk the government for money and favors. This would be true even in a perfectly competitive "free" market, because the very nature of the capitalist system compels them to do this.

Finally, the connection between the dominance of the ruling class and the capitalist system explains why it is pointless to expect moral suasion to move the 1% to change its ways. The system isn't in crisis merely because of callousness and greed --though these vices are no doubt highly prevalent among the 1%. The system is in crisis because of its irrational drive to accumulate for its own sake in the face of growing contradictions and environmental limits. And the ruling class is forced --by competition-- to participate in this mad race toward destruction. Appealing to their conscience is pointless --we need to change the system. You don't ask Kings to be more benevolent and less cruel --you demand that they be dethroned. Likewise, we shouldn't ask that our rulers be more "socially conscious" or "less greedy". We should instead demand that the system that facilitates their dominance be overturned.