Saturday, April 6, 2024

Introducing Marxism: The causes of the post-war boom

 https://socialismtoday.org/the-causes-of-the-post-war-boom

~~ recommended by emil karpo ~~

Karl Marx statue in Karl Marx Allee in Berlin

 

The post-war economic upswing in the countries of ‘the West’ was an unprecedented era of capitalist development rooted in a unique combination of economic and geopolitical factors that cannot be repeated, argues ROBIN CLAPP, in our latest instalment in the Introducing Marxism series.

In this era, convulsed with economic, social, political and environmental crises, capitalism is not able to play even a relatively progressive role in advancing the needs of humankind and, indeed, the planet itself. Increasingly sclerotic, it can neither take full advantage of the marvels of Artificial Intelligence (AI) nor implement multilateral action programmes that alone can effectively begin to counteract potential risks from future pandemics or catastrophic climate change.

Today the system internationally is infected by an interconnected series of irresolvable economic, social and political crises. From the threat of potentially uncontrollable climate change to irreconcilable wars that maim, kill and displace millions, workers’ lives are blighted by fear, uncertainty and the relentless attempts by capitalism to erode the social gains achieved through class struggle in the past.

A very different form of capitalism emerged from the ruins of the second world war, however. It was to become known as the ‘Golden Age of Capitalism’ or the ‘post-war boom’ and was to last from 1950 to 1973.

In Britain in 1943 the Tory MP Quintin Hogg had already warned his compatriots seeking to block meaningful discussion about the formation of a post-war welfare state, that “if you do not give the people social reform, they are going to give you social revolution”.

The Beveridge Report commissioned in 1942 in the UK, had proposed a new type of welfare state that would banish ‘want’, provide social insurance from cradle to grave, and ensure that the type of social deprivation seen during the depression years could not happen again. The election of a Labour government in 1945 owed its mandate to the enthusiasm of a war-weary population that demanded the full implementation of a welfare state, the jewel in its crown being the unveiling of the NHS in 1948.

Hundreds of thousands of council houses were built each year in the UK, by the subsequent Tory administration that came to office in 1950 as well as by the Labour government, while comprehensive education was established for the first time, giving a layer of working-class youth at least a possibility of going on to state-funded higher education.

For many, the old class lines between Labour and Tories seemed to have become blurred as both parties talked about protecting the welfare state, even as the first attempts were undertaken to ration access in some areas, with NHS prescription charges being introduced as early as 1951.

Those reformist evangels of state-directed capitalism in the UK and elsewhere who believed the 1945 Labour government and others were dismantling capitalism brick by brick, have had their illusions shattered in the last decades. Fairy tales about partnership between employer and employee and illusions that reformist governments could wield decisive power over multinational companies while staying within the constraints of the capitalist system have been smashed.

The post-war boom years represented capitalism’s very exceptional response to the devastation caused by a world war and the ruling classes’ fear internationally of revolution catching fire across Europe.

These fears were not idle conjectures moreover. In France, Italy and Greece especially, anti-fascist resistance movements, often influenced and guided by pro-Soviet ideas, posed a grave threat to the capitalist order. Tragically, these potentially revolutionary movements were to be bloodily derailed, as much by the betrayals of the dirty hand of Soviet Stalinism as by the capitalists themselves.

In 1943, Paul Samuelson, a future Nobel Prize winner, writing about the US but, by extension, Europe too, wrote that upon victory and demobilisation “some tens of millions of men will be thrown on the labor market”. He warned that unless wartime controls were extended there would be “the greatest period of unemployment and industrial dislocation which any economy has ever faced”. Another US analyst feared the post-war economic turmoil would be so severe that it would generate an “epidemic of violence”.

Given capitalism’s present ineluctable and multiple crises, and the utter dysfunctionality of world capitalist political leadership and its decaying multilateral organisations like the United Nations, a new coordinated plan to rescue capitalism cannot be replicated in today’s stagnating and utterly changed geopolitical, economic and social landscape.

US capitalism strengthened during the war

The second world war created vast new opportunities for US imperialism and the Marshal Aid post-war restoration programmes contained echoes of Roosevelt’s 1930s New Deal interventionist programmes, designed above all to create capitalist bulwarks of support against the perceived menace of the Soviet Union.

Trotsky understood that the armistice between the imperialist powers that brought to an end the military carnage of the first world war, had not resolved the deep antagonisms that continued to exist between competing nation states, all seeking to expand their markets and hamper their competitors economically and militarily.

He foresaw the inevitability of a great new inter-imperialist clash at a future stage and understood that another world war would ferment the conditions for mass social uprisings across Europe and the possibility of the overthrow of the Stalinist bureaucracy in the Soviet Union by the means of workers carrying through a political revolution to restore genuine workers’ democracy.

The old ideological constraints clothed around ‘American Isolationism’ from Europe, which had been the guiding principle of US policy since the early 1920s, gradually collapsed, and after formally entering the war in December 1941 the US oversaw the most extraordinary mobilisation of a capitalist economy in the history of the world.

Even before America’s introduction into the war following Japan’s massive bombing raid on its naval base at Pearl Harbour, the onset of European hostilities in 1939 had begun to trigger a feverish expansion in the US economy.

Between 1942 and 1945, 17 million new civilian jobs were created, industrial productivity increased by 96%, and corporate profits after taxes doubled. By 1944, as a result of wage increases and overtime pay, real gross weekly wages in manufacturing were 50% higher than in 1939. Whereas US unemployment had reached 25% at the height of the Great Depression in the 1930s and still stood at 14.6% in 1939, by 1944 it had plummeted to just 1.2%.

Marxists had long recognised the growing economic power of the US over its imperialist rivals. Leon Trotsky, in a speech analysing inter-imperialist rivalries and global relations in July 1924, observed: “the master of the capitalist world – and let us firmly understand this! – is New York, with Washington as its state department”, adding that despite “draping itself in the toga of pacifism, American capitalism is seeking the position of world domination; it wants to establish an American imperialist autocracy over our planet. That is what it wants”.

The US war economy became a command economy, directed by the capitalist state, for the purpose of prosecuting the class interests of US imperialism. The American government became the purchaser of 50% of all the commodities produced across the United States. Wartime planning became far more corporatist and extensive than anything attempted in the pre-war New Deal period, and when powerful companies like the Ford Motor Company questioned government strictures, they faced losing lucrative state contracts.

Civilian car production ground to a halt, with the automobile industry converting their plants to the manufacture of war planes. A contemporary observer noted: “In the early years of the war, Roosevelt consciously pursued a conversion programme to shift industry to a wartime footing. Lingerie factories began making camouflage netting, baby carriages became field hospital food carts. Lipstick cases became bomb cases, beer cans went to hand grenades, adding machines to automatic pistols, and vacuum cleaners to gas mask parts. Behind these shifts was planning; someone had to perceive the similarity between lipstick cases and cartridges”.

The partial control of industry, labour and raw materials by the US state was necessitated by the imperative of winning the war and, at the same time, taking all possible measures to avert the latent but very real possibilities of future uprisings and even social revolutions.

Such temporary state directing was replicated in all of the belligerent capitalist nations, but what made America different was the scale of its operation and the growing realisation of its capitalist strategists that a return to pre-war isolationism would be disastrous for the future stability of the international geopolitical system.

Overall, the US economy grew at a rate of 11%-12% annually throughout the war and by 1944 the US government was actively beginning to look at the building blocks required for the post-war world landscape.

The Soviet Union

 

 

The Soviet Union was emerging strengthened from the carnage of the war, as a result of having the advantage of a planned economy, albeit directed by a bureaucracy many steps removed from the working class and the original ideas of the 1917 Russian revolution.

Economic mismanagement, the persecution and systematic wiping out of a generation of genuine Bolshevik-Communists and military leaders, including Trotsky, and a catastrophic deal with Hitler in the form of the ‘German-Soviet’ Non-Aggression pact in August 1939, had left the Soviet Union ill-prepared in June 1941 when the Nazi armies invaded Russia.

The Eastern Front became a scene of unprecedented destruction, that eventually stretched from Berlin to Stalingrad. A panic-stricken bureaucracy hastily dismantled whole industries and then reconstructed them again in the east of the country in an initially desperate but largely successful attempt to block the Nazis from taking them over in conquered western territories. In this manner, the planned economy, even under the distorted rule of the bureaucracy, demonstrated again its social superiority over the unplanned free market capitalist system.

Nazi Germany waged a war of extermination against the Soviet masses, wanting to bury the last vestige of the regime. Despite thousands of towns and villages being wiped out however and over 40 million eastern Europeans perishing, including more than five of the six million European Jews who were exterminated, the Soviet Union triumphed militarily and an uneasy new world order emerged between the US and the Soviet Union, later characterised as the Cold War.

First steps towards European recovery

As the world’s undisputed economic colossus, in both the Roosevelt and subsequent Truman administrations it was seared into the consciousness of the decisive sections of the US ruling class that the predominant task was to use its economic and military power to restore war-shattered economies in Europe; and in so doing avert the growing and very real threat of Soviet subversion and even outright social revolution in Greece, Italy, France and elsewhere, where resistance fighters and partisans were on the offensive and embracing openly socialist ideas that sought to overthrow the old collaborationist regimes.

The Yalta and Potsdam conferences held in 1945, convened between the victorious US, UK and Soviet Union, drew up a new map of Europe. Defeated Germany was to be split into an eastern zone controlled by the Soviet Union and a western one under the control of the US, UK and France.

The US and its allies understood that it was vital that the newly created west Germany be rescued in order to restore stability, unlike in 1918 when the German republic, engulfed in the flames of social revolution, was deemed responsible for the war and made to pay crippling reparations enshrined through the subsequent Treaty of Versailles.

Although the German fascist regime had been defeated and divided, west Germany was still the largest market and the prime exporter of capital goods on the continent. The necessity for its swift recovery was accelerated by a US gift of $1.4 billion through Marshall Aid, while old trade restraints upon its ability to export were removed as it was reintegrated into the capitalist market. This was made necessary for geopolitical as well as economic reasons, in order to minimise the threat of workers’ discontent and drive a dollar wedge between the dismembered states. West German industrial production consequently doubled between 1950 and 1957, with GNP surging by 9%-10% annually.

Later west Germany was at the heart of deepening European integration through joining NATO in 1955 and three years later becoming a founder member of the European Economic Community.

The threat from Stalinist Russia, which in 1949 had created a rival economic bloc around the Council for Mutual Economic Assistance (COMECON), ensured that the US was compelled to continue its largesse, including to defeated Japan which was put under an American umbrella and protected economically and militarily as a vital counterweight to Soviet and later Chinese Stalinist influence in East Asia. Tokyo’s economic recovery was rapid and an explosion of consumer exports led to massive trade surpluses, which by the 1980s were to become the cause of acute friction with the US.

The Bretton-Woods Agreement

The first step assisting and directing the repair of shattered economies and a fractured international financial system was taken even before the end of the war in July 1944 with the ratification of the Bretton Woods agreement.

The dollar was to become the financial ambassador for dominant US imperialism and a new financial order was established, that henceforth would govern monetary relations among signatory states. The dollar became the world’s new reserve currency with a fixed relationship to gold at an exchange rate of $35 to an ounce. Massively benefiting US imperialism, the dollar was now “as good as gold” and had additional qualities in that it could earn interest and was more flexible than the precious metal.

In undertaking this task America would benefit from expanding markets for its rapidly developing exports, particularly in construction and infrastructural projects at first, but later in consumer commodities too. Other capitalist countries were powerless to stop the imposition of the dollar’s new status.

Members of the Bank of England smarted at the indignity of seeing sterling lose its former pre-eminence as the world’s ‘most trusted currency’, with one claiming that Bretton Woods represented “the greatest blow to Britain next to the war”.

Bretton Woods paved the way for the setting up of the International Monetary Fund (IMF) and the World Bank, institutions still functioning today and which, despite the eventual break-up of the Bretton Woods monetary system in 1971 as the post-war boom was stuttering to a halt, still act largely under the guidance and interests of American imperialism as financial instruments dictating capitalism’s agenda on its 189 participants.

Post-war reconstruction

Despite the large-scale physical destruction of industry, cities and basic infrastructural services in Europe, Japan and large parts of Asia, the war had not altered the basic underlying laws that operate in the development of capitalist economy, and in fact became one of the factors in triggering the boom that began to gather speed from 1946 onwards, propelled by US imperialism.

With consumer and capital goods destroyed or at best in very short supply, a huge market now opened up. Marx explained that every recession is followed by a recovery, admittedly in the current period often shallow and lubricated by ever greater quantities of debt which act as a drain upon future investment.

Then unlike now, however, the scope for productive investment, the further integration of the world market under the hegemony of US imperialism and the consequent recovery in both the mass and rate of profit was immense.

The new ‘Cold War’ rapidly emerging between US imperialism and the Soviet Union was a crucial impetus to the unveiling in 1948 of the European Recovery Programme, popularly known as the Marshall Aid Plan, followed a year later by the formation of the North Atlantic Treaty Organisation (NATO). These momentous steps shored up the consolidation of western Europe laying the basis for what was to become the development of the post-war boom.

Between 1947 and 1951 the US Marshall Aid Plan saw the US pump $13 billion (equivalent to $800 billion today) in foreign aid to European countries. The non-repayable aid benefitted America hugely, as European nations were directed to buy US manufactured goods and raw materials, which were then contracted for shipment on American merchant vessels.

Initially the US permitted recipients to temporarily levy higher tariffs on its own goods as compared to European ones in order to stimulate the continent’s recovery. In a further act of support to beleaguered Europe, the US provided funds for the European Payments Union which was to become a regional clearing system designed to boost continental trade.

European economies faced flattened railways, roads, bridges and ports. Millions were homeless and displaced. Agricultural production was in tatters and some countries stood on the brink of widespread famine. Through Marshall Aid 16 countries received assistance, with Britain receiving around 25% and France a further 18%.

Simultaneously the US provided military assistance to Greece and Turkey in order to assist those regimes in defeating left-wing insurgents and becoming part of the newly crystallising Soviet bloc.

As early as 1947, industrial production had recovered to pre-war levels in those countries allied to the US. Among the key nations in Europe, the French economy grew impressively with only Japan recording a faster growth rate between 1950 and 1973. France became Europe’s largest agricultural producer and exporter, with a service sector that expanded rapidly.

Italy too underwent an economic transformation, regularly achieving annual growth rates of over 6% in the 1950s. In the aftermath of the defeat of Mussolini’s fascist regime, a mass migration of over nine million Italians from the countryside and less developed south to the northern urban centres hugely boosted the rapidly developing manufacturing, construction and export industries. In addition, southern Europe became strategically important for US imperialism as a bulwark against the spread of Soviet influence.

The Marshall Aid programme helped hugely to stimulate demand and by 1952 European industrial output had grown by 35%. A little acknowledged fact is that the CIA received 5% of the total funds allocated through this policy, using the money to establish ‘front’ businesses in several European countries in order to further assist in neutralising the Soviet threat, creating pliable trade unions and blacklisting suspected ‘communist agitators’.

Thus was laid the basis for the long economic recovery with the US at the steering wheel. New forms of mass transportation, communications, industrial processes and prototypes which were unable to be brought into production in the depression-ridden 1930s, now began to be rolled out. Chemicals, plastics, light metals and other commodities like synthetic rubber became usable on a mass scale in production.

Infrastructural investments, including a huge surge in housing and construction, all stimulated demand, expanding markets and creating rapid increases in productivity, along with full employment levels and rising wages.

The post-war years saw international trade liberalised within the capitalist West as the economic protectionism that blighted much of the period between 1918-1940 gave way to a deepening of international trade between nation states. This was rubber-stamped by the creation of the General Agreement on Tariffs and Trade (GATT), that sought to facilitate cooperation between nations under American hegemony and more smoothly manage global economic affairs.

The supply of consumer goods available began to grow rapidly as demand increased, particularly in the US but then more broadly. Electrical household gadgets and later televisions and cars became affordable for the middle class and a growing section of better-paid workers.

Production outputs soared, investment levels constantly rose, and profits swiftly recovered. All of these developments tended towards a sustained development in the productivity of human labour power, continually fuelling the economic boom as the 1950s progressed.

The role of the state and Keynesianism

An important feature of this ‘golden era’ of capitalism was the role undertaken by the state in attempting to modulate and direct economic affairs.

The British economist John Maynard Keynes had before the war asserted that aggregate demand – measured as the sum of spending by households, businesses, and the government – was the most important driving force in an economy. He contended that capitalist free markets have no self-balancing mechanisms that lead to full employment, and therefore the state becomes compelled to step into specific key areas of the economy with governmental-led policies that aim to secure full employment and price stability.

The post-war embrace of a broad Keynesian approach to economic management is often exaggerated as one of the most decisive factors in driving the boom forward, and although it is indisputable that state expenditure helped to maintain demand for both consumer and capital goods, its use was undertaken not to introduce ‘socialism’, but to rescue those ailing private industries which were incapable of reviving and providing cheap raw materials for a hungry market. Principally the capitalists demanded the state become involved to do what they alone could not afford to undertake.

State-directed capitalism of this form had nothing in common with creating a genuine plan of production as the first step in building an economy in a workers’ state. In essence, the role of state expenditure and the nationalised sector was to lay a foundation for the rebuilding of a badly damaged private model. State-run industry cannot dictate to the requirements of private capital. It is private industrial and especially finance capital that calls the shots.

Another driver of the post-war boom was the continuing escalation in armaments expenditure, made imperative by the Western powers as a bulwark against Soviet expansion. With Germany dismembered into western and eastern sectors, eastern European countries firmly under the control of Moscow, and an escalating nuclear arms race, an exponential growth in weapons production erupted.

Despite providing a growing market for the producers of capital goods and employing many hundreds of thousands of workers, from scientists to soldiers, ultimately most of the capital invested by states upon weapons of destruction, from tanks to nuclear arsenals, is unproductive fictitious expenditure, that only increases the debt burden upon society and does not therefore add to the store of global value.

The end of the Golden era

The trigger that first signalled the beginning of the end of the greatest economic expansion in world history was ignited in August 1971 when the US announced the suspension of the dollar’s convertibility into gold. The greenback had struggled throughout most of the 1960s within the parity established at Bretton Woods as inflation devalued the dollar and international trust in it being able to preserve its promise of convertibility began to falter.

France especially began to suspect that the dollar was not worth what it claimed to be and demanded payment in gold and not in debased paper bills, a process that theoretically could have ended up emptying the gold reserves stored in Fort Knox, thus creating a calamitous crisis, potentially on the scale of 1929. Hence, the US capitulated and Bretton Woods broke down, fracturing an important instrument in the post-war financial settlement.

Two years later the embargo organised by the Arab oil-producing states in the Organisation of the Petroleum Exporting Countries (OPEC) in response to the 1973 Yom Kippur war saw the price of oil – cheap and plentiful in supply in the boom years – quadruple rapidly, plunging the world economy into sudden economic crisis. This led to simultaneous slowdowns on a scale not seen since the 1930s, opening up a new period of geopolitical and economic volatility that ushered in the era of free-market neo-liberal economic thinking based upon a return to the monetarist nostrums of pre-war capitalism.

Globally the golden age of the post-war boom years was a highly unusual period for capitalism. The capitalist state was pressed into playing an unprecedented role in directing economic affairs, a step made imperative by the multitude of crises that threatened the system as it emerged from the bloody war.

The return to the ‘normal’ chaotic cycle of capitalism based on the free and largely unregulated movement of market forces brutally imposed by Margaret Thatcher in the UK and president Ronald Reagan in the US as a response to the seizing up of the world economy after the 1973 oil crisis, brought the boom years to a shuddering close as old-style supply-side economic nostrums began to be brutally reimposed. The exceptional period of growing state-direction in capitalist affairs had run out of steam as Marxists predicted would eventually be the case.

Capitalism never proceeds in a straight line. The expansionist era had witnessed many bitter class conflicts over wages and conditions as trade unions, strengthened by full employment, were able to secure significant victories for their members.

Important social gains too were made as a result of the confidence that working people began to feel. Significant struggles around the fight for equal pay for women and the first widespread stirrings of the LGBT movement took place in the 1960s.

Larger numbers of young people than ever before were able to enter higher education, and alongside young workers often exhibited a less reverential attitude towards the establishment through their embracing of youth cultures that questioned capitalist values. Youth were to the fore in participating in huge anti-war demonstrations against US capitalism’s bloody military involvement in Vietnam, while some began to seek out socialist ideas. It was in this period that the Militant newspaper (forerunner to the Socialist Party) was formed, in 1964, proudly proclaiming itself as the ‘Marxist paper for Labour and Youth’, although throughout the period the forces of genuine Marxism remained modest. Yet the revolutionary uprising of the French working class in 1968 shook capitalism everywhere and was the overture to the intensified class struggle that was to denote the stormy 1970s and 1980s.

In the US the Civil Rights struggle exploded, while uprisings in Hungary in 1956 and Czechoslovakia in 1968 rocked the Soviet bureaucracy and were early warning signs of the political crisis that was to eventually lead to the toppling of the Stalinist regimes from 1989 to 1991.

The boom years saw an acceleration in the decolonisation process, as pressure for self-government forced imperialist countries to concede independence while seeking to retain economic strangleholds over their former colonies.

With the US and the Soviet Union supporting rival factions in national social liberation struggles even this era failed to establish significant periods of world peace, despite the urgings of bodies like the UN, which in essence represents those very same class forces that stand opposed to the working class.

It is clear that capitalism now is at an historical impasse, as millions more are continually plunged into poverty, hunger, and conflict. Even securing clean water for the inhabitants of Earth is beyond this doomed system.

Today’s picture is one of historically low productivity rates, financial markets divorced from reality, rising geopolitical tensions, a retreat from multilateralism, staggering debt crises, widening inequality levels, and an over-heating planet, all irresolvable under the profit system.

This is the most dangerous conjuncture for capitalism since the 1930s and it screams out for the socialist transformation of the world. The next period will see new legions of workers and youth join the fight against capitalism and embrace socialist ides.

New mass workers’ parties will be forged through class struggle that will challenge capital, rather than comply with or capitulate to it. The programme of Marxism will be taken up internationally, arming the new generation with the political weapons that can finally dispatch the dictatorship of the market into the dustbin for ever.

 

 


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