Capitalism, Democracy, and the Budget

Long before Jimmy Carter confronted his budget difficulties, two broad streams of social science analysis argued that a capitalist democracy, such as the United States, faces potentially crippling obstacles in controlling its budget. Both streams, Marxist and conservative, considered the problem in terms of the independence and the strength of "the state."

The term sounds alien to Americans, who are used to referring to the government or city hall and who are likely to find "the state" too pretentious or archaic, a remnant of absolutism or perhaps an insidious effort to impose strange and harmful European doctrines. We Americans do speak of it but in other words. For in the halls of Congress and on main street the same question is being raised ever more insistently: Is there a government that can govern?

During the 1970s, political scientists throughout the industrialized world rediscovered the state. Their interest grew with the politico-economic crisis that began our story. Governments of all the industrialized democracies faced economies that would not function acceptably. Scholars wrote about "strong" (more capable) and "weak" (less capable) states; America's state was viewed as weak because it directed the economy less. Governments felt responsibility for an inability to manage those economies as well as they would have liked. To others, however, these nations' political economies functioned all too well.

Pride of place in resurrecting the state goes to Marxists, for whom the relationship of politics and economics was always primary. They, however, begin not in the 1970s but before, when things were going well. Therefore, their basic question is different. Why, they ask, despite its moral illegitimacy, its political ineptitude, and its economic incapacities, in sum, its systemic irrationality, does capitalism survive, even prosper? Capitalism, Fred Block writes, faces "the twin dangers of economic

crisis and radical working-class movements."^[5] Market failure, like the Great Depression and/or popular revolt, could overturn the system. Why has it not done so? Like many other Marxists, he argued that the state apparatus acted to save capitalism from itself.

Before it can be appraised, neo-Marxist theory has to be differentiated from the older, classical version, whose conclusions it seeks to validate while altering the causal path through which they are derived. Starting with the words of Marx and Engels's Communist manifesto—the state is a "committee for managing the common affairs of the whole bourgeois"—Lenin and other Marxists developed an instrumental view of the state. In its most mechanical version, government officials carry out orders from capitalists who, through their ownership of the means of production, lord it over the rest of society. While Marx was attracted to this mechanical view, in order to hold capitalists responsible for their crimes, he also recognized that government officials need not be capitalists to do what they wished. The important point was that these administrators had to serve the interests of capital ("objectively," as Marxists say).

Almost from the beginning doubts were voiced: How do capitalists know so well what is good for them? Are they in fact united? Is there some mysterious relationship at work so that whatever policy capitalists need mysteriously appears? Is government necessary if it only carries out orders? Are these instructions part of a capitalist conspiracy? And, if so, why would a ruling class have to mask its power?

Modern Marxists, confronting these questions and researching them, found that public officials were often neither rich nor capitalist. The growth of the welfare state suggested that capitalism might have benevolent aspects. Studies of interest group-government relations, as well as casual observation, revealed continuing divisions within both sides of this relationship. Often it appeared that state organs had different views from those of business and succeeded in imposing them. And so we have found as well. A more adequate account was called for.

Just as Marx and Lenin developed the theory of the vanguard of the proletariat, made up of ideologically conscious intellectuals who better understood the interests of the working class than the workers themselves, there developed among Marxists a theory of what we will call the "capitalist vanguard," a state composed of government officials who know better than industrialists what is good for them.^[6] As Stephen Elkin described the analysis, "class lackeys" became "class fiduciaries.^[7] Because capitalists are engaged in competition and because they are short-sighted, that is, interested in immediate profits, Marxist scholars began to argue that they are unlikely either to organize in a class conscious way or to take a long-range view of their class interests. Therefore (consciously or

not, views vary) capitalists consent to turn over the task of seeing they remain in business to their own government. "Ruling-class members who devote substantial energy to policy formation become atypical of their class," Fred Block explains, "since they are forced to look at the world from the perspective of state managers. They are quite likely to diverge ideologically from politically unengaged ruling-class opinion.^[8]

Such a formulation allows for seeming differences between the state and the capitalists, while assuming shared interests. The state managers' problem then becomes one of keeping the public happy with welfare state measures and regulation while retaining the capitalist character of society and support from the capitalist class. Block describes their response in terms that recall Adam Smith's "invisible hand."

If the state managers decide to respond to pressure with concessions, they are likely to shape their concessions in a manner that will least offend business confidence and will most expand their own power. These two constraints increase the likelihood that the concessions will ultimately serve to rationalize capitalism.^[9]

Business confidence matters because, otherwise, businesses will not invest and the economy will collapse. No conspiracy is needed.

The actions of individual entrepreneurs, in putting forth or withholding their resources, the "investment strike" of Marxist lore,^[10] guarantees favorable state action.^[11] Far from being an impediment to ruling in the interests of capitalists, it turns out that the class struggle helps the vanguard capitalist state persuade the owners of production to adopt far-sighted policies, such as social security and unemployment insurance, to keep them in power.

Marxist analyses pose the right question: How is political legitimacy combined with maintaining the health of the capitalist economy? The tax and budget battles are about that question. A better answer is needed than that the politicians work it out so the capitalists (or, at least, capitalism) always win. If, as Jon Elster pungently puts it, "it is in the political interest of the bourgeoisie that the State should not act in the economic interest of the bourgeoisie," such a proposition is essentially "vacuous."^[12]

Was it in the long-term interest of capitalism to cut income tax rates across-the-board by 23 percent? The administration, at least the president, thought it was, but there were worriers about deficits, like the budget director and Senator Domenici. Should these cuts have preceded rather than followed equivalent spending cuts on domestic programs? President Reagan thought so and persuaded most members of Congress, but not without acknowledging their strong qualms. Was it better to accept huge deficits, though no one intended them, than to accept larger revenues that might have hampered the economy, encouraged larger

domestic spending, and given anticapitalist forces resources with which to expand their clientele? Was it better for capitalism to enact lower income tax rates or rely on tax preferences to directly enhance capital accumulation? Were the majorities who, after 1981, safeguarded the bulk of welfare programs either the better defenders of capitalism because they may have protected its legitimacy or the worse defenders because money was diverted to what some considered less productive uses?

All these disputes occurred within an overwhelming consensus of the political stratum as to the merits of capitalism. Such doubts as the Democrats would display about the market's wonders were always subordinated to claims of loyalty to dominant economic ideology. Media scorn of Richard Gephardt's rather mild protectionism in the 1988 campaign or labeling Jesse Jackson's policies as radical, shows that dominance, what Italian Marxist Antonio Gramsci would call the hegemony of capitalist ideology. In America capitalism is what everyone swears they want; because no one is exactly sure how to maintain it, however, the lot of state managers is not happy.

Can the notion of state managers have much meaning if it does not include the chief executive? If that is so, in what sense can it include Ronald Reagan? Perhaps his willingness to impose costs on businesses, as in the tax reform, so as to improve long-term conditions for market capitalism, fit this scheme. Is President Reagan, then, the epitome of the socially advanced leader of the state apparatus who knows what is good for capitalism even (or especially) when capitalists themselves disagree?

Perhaps we can view politicians as a group, with all their disagreements, as united in commitments to both capitalism and political institutions. The politicians who look most like Block's state managers are the experienced politicians in the legislature, particularly on revenue and appropriations committees. Fair enough, but what kind of state is colonized so easily by less socialized members of the ruling class, such as Stockman, Reagan, and Regan?

Claus Offe expresses the difficulty of the state managers' task well. (Exactly who they are, we will discuss next.) He argues that the state is, at one and the same time, biased, independent, and troubled. The state, defined as the institutions and the norms that regulate relationships between private and public sectors, is biased because it attempts to maintain the dominance of market relationships. It is independent (or relatively so) because it must try to reconcile acceptance of capitalism by the mass public (legitimacy) with capital accumulation (effectiveness). The state is troubled because it must simultaneously try to reconcile conflicts (1) within the capitalist class, (2) between that class and workers, (3) within its own ranks, and (4) between itself and the rest of society.

Offe treats the state as a political body trying to keep sufficient distance

between itself and society to avoid being overwhelmed by the problems it is supposed to solve. In this sense, though Offe does not explicitly say so, his detailed analyses of policy formulation suggest that maintaining the image of the state as a neutral arbiter may be a fiction, but necessary, if the state apparatus is to save itself from the system of relationships it is desperately trying to safeguarded.^[13] Being in the fray, while being above it, budgeters would agree, is neither an easy nor an enviable position.

Déjà vu. Translated into their own vocabulary, participants in the battles of the budget could only assent to Offe's description of them as state actors. Of course, they would not accept his characterization of their dominance. After all, it is hard to square his evocative description of their beleaguered status as dominating anything. Our participants are sensitive to what they consider misunderstanding. In tax reform, they, the governors, tried to show they were not merely a "switchboard state," passive implementers of other people's desires, but also a "switchblade state," ready to attack those who stood in the way of their conception of general interest. They would show "the special interests" who was in charge. And they did. But not without concern, as Offe suggests, about possibly diminishing capital accumulation. They took actions that at least kept the deficit from growing much larger than it otherwise would have been. If a rise in interest rates or some other factor they could not control vitiated their efforts, that was life, frustrating but inevitable. They were biased; they were in charge; and, to complete Offe's portrait, they were also troubled.

There is truth in Evans, Rueschemeyer, and Skocpol's conclusion that "state interventions in socio-economic life can, over time, lead to a diminution of the state and to a reduction of any capacities the state may have for coherent action."^[14] Thus, the combination of spending growth (especially on entitlements), rising social security taxes, Kemp-Roth tax cuts, and tax reform, all of which make it politically difficult to raise income tax rates, restricted the range of feasible alternatives for economic management in general and the debt in particular.

Everybody sees the budget squeeze, but what does it mean? The politicians, instead of blaming the system, blame themselves and each other. Their laments and frustration have filled this book. The general feeling of Democrats, for instance, that taking more than one-fifth of GNP in federal taxes would hurt them at the polls, followed by Reagan's 1984 victory, severely constrained their future action.^[15] They might be said to have sacrificed their principles to expediency. Yet this, catering to pronounced public opinion, is what politicians think they are supposed to do. In their eyes, the state ought never, never to be more than partially autonomous because that would mean democracy is dead.

Where Marxists see ineluctable contradictions of capitalism, based on

the opposed interests of capitalist and other classes, our politicians see the old Burkean dilemma between good government and representative democracy. Marxists suspect that the problem is unsolvable, that politicians cannot maintain both a growing economy and popular support, because the logic of the economic system is to immiserate the masses eventually. Few American politicians would agree. They think (and, so far, they have been right) that capitalism, prosperity, and democracy ought to be self-reinforcing; it is their task to make sure this happens.

Although politicians do not see hopeless contradictions of capitalism, an influential school of commentators take seriously their Burkean dilemma and see possibly catastrophic contradictions of democracy. Ironically, some conservatives who see the state as a source of order in society, and therefore care most for state capacity, moved during the 1970s to a position much like that of Marxists.

Stagflation in America and stagnation in Europe during the 1970s, which accompanied the growth of governmental budgets, led conservatives to wonder whether an excess of democracy was making their societies ungovernable.^[16] Because both society's resources and government's ability to solve problems, like reducing crime or dependence on governmental welfare payments, were limited, one felt government was being overloaded. Richard Rose put it simply: "Governments become overloaded when expectations are in excess of national resources, the government institutions, and the impact that its outputs can achieve. Such an overload arises from the decision of citizens individually and in organized groups to ask more of government than it can in total provide."^[17] Because people expected more than government could deliver, it would lose legitimacy. "Because of the lack of any widely shared belief in the legitimacy of the present order," according to Samuel Brittan, the pursuit of private self-interest, driven to excess by "the process of political competition," would overwhelm public institutions.^[18] Competition for votes led the parties to offer ever more ample subsidies, which would bankrupt government first economically and then politically. Whether a decline in legitimacy would exacerbate governmental incapacity or vice versa, democratic capitalism might be in as bad shape as Marxists claimed it was.

While winning elections required avoiding tax increases, Samuel Huntington wrote, the same forces required expanding benefits. The (familiar sounding) result, he feared, would be perpetual inflation.^[19] Ordinarily abstruse mathematical and geometrical modelers had a field day pointing out the democratic road to perdition. Among the earliest was this warning: "Thus from our model we reach the politico-economic conclusion that a pure democracy with all parties seeking to maximise

public supports is doomed to increasing inflation and political disintegration."^[20]

The earlier concern with economic dislocation soon gave way to a profound unease about political collapse. The state was in trouble. Thus, as Michel Crozier puts it, "the more decisions the modern state has to handle, the more helpless it becomes. Decisions do not only bring power; they also bring vulnerability."^[21] The more government intrudes into the lives of citizens, that is, the more welfare payments it must offer, the more it is hemmed in by prior commitments—budgetary promises—and becomes less able to meet new and rising expectations. This gap between promise and performance, Huntington feared, "could lead to deep feelings of frustration, a reaction against existing political institutions and practices, and a demand for a new political system that could and would do what had to be done."^[22]

Soon enough, given the rooting of causality within an overloaded political system, the call was, in Anthony King's words, for suggestions on "how the number of tasks that governments have come to perform can be reduced."^[23] Although this call was certainly not in line with Marxist preferences, it was based on a parallel analysis.

David Stockman's concern with ideology, with finding a way to define some demands as legitimate and others as not, was a practical response to the conservatives' view of the government's dilemma. His "Social Pork Barrel" article argued in 1975 that government's capacity to make policy was limited by old (and bastardized) policies. His answer, a radical market position, was one example of how concern with the capacity to govern has led to renewed discussion about the proper boundaries of political life. "The concept of politics," Offe observes, "turns reflexive; politics centers on the question of what politics is about—and what it is not [he means, we think, ought not to be] about."^[24] He accuses contemporary (neo)conservatives of aiming "at a restrictive redefinition of politics, the counterpart of which is looked for in the market, the family, or science."^[25] Just this, indeed, is the view taken in Michel Crozier, Samuel Huntington, and Joji Watanuki's The Crisis of Democracy .^[26] The private realm of family, work, locality is their preferred arena.

In turn, Huntington views with alarm "the prevalence of oppositional political values and ideologies among key elements of the population" who will first overload government and then delegitimize it for its failure.^[27] Radicals and conservatives play into one another's fears.

The conservative distrust of democracy has a long pedigree in American political thought. There can be too much of a good thing: democracy must be dammed up and channeled so it cannot overflow its banks and destroy the very society it normally waters. Alexander Hamilton's distrust

of the populace ("Your 'people,' sir, is a great beast!") distilled that fear to its essence. His partner in The Federalist, James Madison, expressed the fears more powerfully and acceptably than Hamilton, arguing that checks and balances, federalism, and a large country that made it difficult for interests adverse to theirs to form coalitions could preserve freedom from the "tyranny of the majority."

Few of our sainted founders would have described their constitution as a democracy; the whole point was to be a republic, something better. Lincoln's description of a government "of the people, by the people, and for the people" would have seemed, four score and seven years earlier, radical and extreme. Tom Paine might have applauded; others would not.

Yet, by his time, Lincoln's phrase distilled what Americans chose to believe about their government. Something like the Civil War could never have been justified by the kind of lesser-evil arguments made in the The Federalist . Certainly the notion that government was the province of an elite of learning and virtue was destroyed in the Jacksonian political revolution of 1828. Andrew Jackson, his allies, and (reluctantly) his Whig opponents built a political system in which the people were the source of legitimacy. Jackson's genius was to make the presidency into the "tribune of the people" by turning it into an opponent of big government, a strategy emulated by Ronald Reagan. Politicians won (and win) office by proclaiming their similarity to the common man.

The fear of democracy lived on in two transmuted forms. First, and weakest, was distrust of government itself. For most people, government seemed a possible threat to liberty. The logical extension, that democracy threatened liberty, was less popular. Reagan maintained his position by saying government was alien and uncontrolled, in essence undemocratic. That meant, however, that if "the people" wanted big government, it was legitimate. For all that Reaganism tapped into deep American values, on that issue he faced a serious difficulty. Democratic practice, the source of his own legitimacy, justified his opponents as well. Democracy, within these limits, is as hegemonic as capitalism, and democracy itself severely limits capitalism's hegemony.^[28]

The second repository of fear of democracy was reverence for the Constitution itself. If citizens did not share the attitudes of the Founders, they still had been socialized into respectful awe of their work. Thus, the political structure was very difficult to change, and that structure, by hamstringing government, inhibited the exercise of the public's will (if such a thing existed) through government. Ironically, for conservatives, the separation of powers that limited government by the unruly passions of the public also limited "responsible government" by elites.

Supporters of the welfare state believe it will improve, perhaps preserve,

democratic capitalism. Marxists hope, and conservatives fear, that it will not because it will not be able to accommodate all the demands: To Marxists, capitalist failure provokes those demands; to conservatives, democratic failure invites those demands. In either case, the budget crisis seems to prove the excess of demands.

Both Marxist and conservative analyses sound strange in an America where neither democracy nor capitalism is easily challenged. They may sound alien for another reason as well. If something exists, it must have interests; the concept of "state interest," except in certain legal contexts, would make Americans very uncomfortable. We Americans speak instead of the public interest and ask if the state is serving it. Indeed, our political structure and ideology are oriented toward blocking a distinct state interest from arising. It is hard enough to identify the American state, never mind its interests.