The Role of Foreign Exchange Speculation in the Demise of the Workers’ State and the Genesis of the Bourgeois Left

Meghnad Desai with Bill Clinton

There is a growing consciousness among nationalists and even conservatives that the “Left” – those parties or cultural elements that previously defended the interests of the working class – have largely abandoned the proletariat in favor of “woke”, identity-oriented platforms that not only do not serve workers’ interests, but actually further capital’s ends. Neoliberal economist and propagandist Meghnad Desai, formerly of the London School of Economics, provides a useful summary of a major contributing factor to this decades-long trend in his largely boring but occasionally interesting 2002 book Marx’s Revenge: The Resurgence of Capitalism and the Death of Statist Socialism.


The key to the dismantling of the workers’ state, as he explains, was the abolition of the gold-based monetary system established by the Bretton Woods Agreement:

This was a historic moment. Just as the British government was rejecting Keynesian reflationary policies, French Socialists – who had just come to power in 1981, with François Mitterrand as President – decided to pursue an aggressive Keynesian policy. Here was an unusual situation in the realm of economics – an experiment to test the rival theories. Of course, the experiment was not conducted under ideal laboratory conditions, but the UK and France were similar enough to be suitable guinea pigs. There was also a clear ideological demarcation between a Conservative government in the UK and a Socialist one in France. Each government had sufficient legislative strength to implement its programme. […]

The French experiment had to be abandoned and reversed in 1983. The prospect of a Keynesian reflation alarmed the financial and foreign exchange markets. Unfortunately for the French Socialists, these markets had recently learnt to operate on a global scale. There had been a decade of floating exchange rates following the collapse of the Bretton Woods system. The French, along with their German ally, attempted to rebuild a fixed exchange rate system – the European Monetary System, with its Exchange Rate Mechanism (ERM) – in 1979. This system confined the range of fluctuations in the exchange rate for the French franc against all other currencies to 2.5 per cent. The adoption of Keynesian policy, with its concomitant rise in deficit, led to a capital flight from France, and a collapse in the market for French government debt. A large trade deficit, as well as capital flight, compelled France to depreciate the franc. The ERM, launched only four years previously, had to deal with a crisis in one of its major currencies. The franc had to be “realigned”. The reflationary policy had to be abandoned. Indeed, following this blow to its national prestige, the French government moved over completely to a policy of exchange rate stability – the franc fort – and let unemployment go up to whatever level was necessary to defend this exchange rate. [1]

An embattled Mitterrand in 1983

Under the new global regime of floating exchange rates, political parties’ socialist programs were in effect held hostage by international finance:

Exchange rate movements were triggered by expected shifts in budget deficits and money supplies. A government seen as soft on inflation, as likely to run budget deficits, experienced a depreciation in its currency. To stave this off, it needed to increase interest rates on its short-term debt. Thus, anticipated movements in interest rates also became an object of speculation by the market, often forcing governments to take action sooner than they intended. Rules of orthodox finance – balanced budgets, control over money supply – became de rigueur for governments. 

This went against the grain of socialist parties. They were committed to Keynesian policies – full employment, growth, and in some cases redistribution of income in favor of the poor. The instruments for such policies were budget deficits, low interest rates, progressive taxation. But it took skill to navigate the fiscal ship of state in the new turbulent international markets. The conservative parties championed tax cuts and reverse redistribution. Reagan cut income taxes on the advice of the California economist Arthur Laffer, and Thatcher followed suit. Socialist parties could not reconcile balanced budgets and low taxation with an active expenditure policy to create jobs. […]

It was not immediately obvious to socialist parties that a change had taken place, requiring fresh thinking. To begin with, there was resistance to abandoning old policies. Many of these parties had […] come to power for the first time after decades, and wanted to try out the nostrums they had championed. Their supporters expected nationalization, rapid growth, higher wages and full employment. They were faced with compulsions from outside which they had not anticipated. One after another, European socialist parties in office had to learn the lesson that France learnt in 1983. [2]

"If you can't beat them, join them": Mitterrand and Reagan

“As the UK followed the US lead in deregulating capital movements as well as plumping for a floating rather than a fixed exchange rate,” Desai relates with pleasure, “a basic building block for the state’s control over the economy was removed.” [3] As consolation, however, the remnants of the “Left” would be permitted to save face by shifting to a bioleninist discourse that posed no revolutionary threat to international capital:

There was scope for progressive policies within the fiscal bounds. Governments could meet the challenge posed by the women’s movement, by ethnic minorities, by an ageing population. They tried to build a “rainbow coalition”, but many of these people were poor. It became necessary to think of ways to direct public spending specifically to the poor. There was also revulsion on the Left against bureaucratic and elitist administration of welfare benefits. Decentralization, devolution, self-organization, were imperative demands. These were fiscally neutral, and socialist parties experimented with new and cost-effective ways of meeting these new demands. 

The shift in the electoral base of socialist parties was the reason behind the new demands. Large-scale manufacturing industry was declining in importance as the biggest provider of jobs.  Products which were now well known, with their technology standardized – mature manufactures – were being relocated abroad to Asian and Latin American countries where labour was cheap and skilled. Blue-collar jobs were under pressure in the OECD [Organisation for Economic Co-operation and Development] countries by the 1980s, albeit to varying degrees. The Anglo-Saxon economies – the UK, the USA – were in the forefront of manufacturing decline. But France and Germany were not able to resist the tide. Everywhere in advanced capitalism, manufacturing had to specialize in new knowledge-intensive products – pharmaceuticals, aerospace, telecommunications, information technology – while shipbuilding, automobiles, textiles and electrical goods were moving away. New service industries took their place. Financial services were the fastest-growing, but also information-processing, communications, advertising, design, fashion. These were the new “abstract” goods. But these industries employed graduates, and were typically small enterprises with flexible working hours and non-hierarchical structures. The traditional working class was shrinking. A new heterogenous collection of white-collar employees was supplanting the proletariat. The Left had to come to terms with the middle-class electorate. […]

The notion of a proletariat ever eager to challenge the capitalist system was itself under scrutiny. Trade-union membership was shifting largely to white-collar workers in the public sector, or in the knowledge-based private industries. The traditional worker with a lifetime job – 48 years, 48 weeks per year, 48 hours per week (including overtime) – was disappearing. But his image as a revolutionary was also being questioned. Women’s movements highlighted the exploitation in household work, and the sturdy proletarian became part of patriarchy. The emergence of Third World countries in the international arena brought out questions of colonialism, and the ways in which the “labour aristocracy” of the advanced capitalist nations had benefited from imperialist exploitation. Was there a proletariat? How were classes defined? [4]

“If there was no definable proletariat with impeccable revolutionary credentials, the only opposition to capitalism could come from reformist socialism,” Desai summarizes:

Yet the 1980s showed the weakness of reformist socialism […] Reformist socialism thrives when capitalism prospers, but unfortunately, it was usually called to office only when capitalism was in trouble. As soon as problems were solved, the bourgeois parties reaped the benefits of prosperity. In the 1980s, bourgeois parties had shown much tougher attitudes to solving structural problems of capitalism. The reformist socialists had to follow suit lest, in good times as well as bad, they were supplanted by their enemies. 

“Socialist parties ended the 1980s with the future of socialism very bleak. They never had a revolutionary programme, but they had now lost their coherent class support,” he concludes [5]. More bluntly: “Capital had been freed from labour,” as Ambalavaner Sivanandan of London’s Institute of Race Relations unsentimentally put it [6]. 


Rainer Chlodwig von K.


Rainer is the author of Drugs, Jungles, and Jingoism.


Endnotes

[1] Desai, Meghnad. Marx’s Revenge: The Resurgence of Capitalism and the Death of Statist Socialism. New York, NY: Verso, 2002, pp. 271-272.

[2] Ibid., pp. 280-281.

[3] Ibid., p. 298.

[4] Ibid., pp. 281-283.

[5] Ibid., pp. 283-284.

[6] Ibid., p. 309.