Fiscal Crisis Of The State Essay ⋆ Political Science Essay Examples ⋆ EssayEmpire

The theory of the fiscal crisis of the state developed in response to a widespread consensus of the 1960s that the capitalist state’s enhanced, downwardly redistributive economic role was likely to continue. Thus writers like Andrew Shonfield (1965) and Harold Wilensky (1975) could envisage the continued growth of the welfare state as both integral to the contemporary phase of advanced capitalist development and desirable as a means of reducing inequality and of raising living standards more broadly. Confidence in this scenario fractured as a result of the economic crisis of the early 1970s, when traditional Keynesian remedies appeared no longer to work, and the result was stagflation.

While there had always been a libertarian critique of the Keynesian welfare state, Marxists also were unconvinced of its sustainability. Although they, too, foresaw the likelihood of continued expansion, they saw this not as a further advance on the path toward socialism but instead as a prolongation of crisis. Thus Paul Mattick (1969) could write that Keynesianism “mistakes the postponement of a problem for its disappearance.” He, like many other Marxists, including Norman Ginsburg (1979), foresaw the limit of the mixed economy as that point where state expenditure finally crowds out private capital accumulation, presaging the famous critique of economic liberals Robert Bacon and Walter Eltis (1976).This was based on the view that taxation drained the surplus and that an ever-decreasing share of the surplus was left available for private investment, thereby further reducing the expected future surplus.

The perceived inadequacy of this treatment of state expenditure led James O’Connor (1973) to formulate an alternative Marxist theory of public finance. Accordingly, the capitalist state has a dual role: that of both facilitating and legitimating capitalist accumulation. Creating the conditions for accumulation might appear easiest if achieved via outright coercion, but this threatens regime legitimacy and ultimately social order. Instead the state must legitimate the system, often via concessions to social groups or classes out with the dominant bloc. This can take the form of ideology, as when policies that benefit the dominant class are titled and rationalized in a suitably positive manner (as contributing to “stability and growth,” for example).

Consequent to the facilitation and legitimization of accumulation, state expenditure can be classified as social capital and social expenses. Social capital indirectly contributes to accumulation, in that it constitutes an investment that mitigates if not reverses (however temporarily) the tendency of the rate of profit to fall. Education, health care, transport infrastructure, and business parks are social investments. Social capital also takes the form of social consumption, which is expenditure that lowers the reproduction costs of labor. Education, health care, and social insurance belong in this category. Social expenses relate to the state’s legitimization function and encompass welfare expenditure and the costs of the state’s repressive and ideological apparatus.

In reality almost all state expenditures relate to the accumulation and legitimization functions, given the state’s dual role and contradictory character. Spending on education, for example, comprises social capital in the form of training programs, social consumption in general schooling, and social expenses (for example, security guards).

Given the contemporaneous growth of the monopoly sector and consequent socialization of capitalist production and exchange, the state’s role grew accordingly. The fiscal crisis, in O’Connor’s treatment, concerned the financing of the state’s activities, because the appropriation of the surplus remained in private hands. The structural gap or fiscal crisis results from the taxpayers’ resistance to financing further social capital expenditure. The crisis intensifies owing to the use of state power in favor of particularistic ends. The resulting struggle is resolved (if that) politically, whether through formal elections, lobbying, “corruption,” or public campaigning.

O’Connor’s work proved more influential in Europe than in the United States, where O’Connor based his study. Subsequent studies by Ian Gough (1979) and Claus Offe (1984) incorporated O’Connor’s analytical framework, and, in their respective ways, indirectly anticipated the radical restructuring of the Keynesian welfare state that has taken place since 1980. While O’Connor acknowledges his failure to predict the rise of neoliberalism, the seeds of that rise could be detected in his location of fiscal crisis. Theoretically, his work anticipated much of the later writing on social capital. And while the capitalist state’s economic role today is no longer as characterized by downward redistribution, the growth of the state’s repressive apparatus, whether in increased military expenditures or in expanding penal incarceration, and the growth of public-private partnerships for the provision of social capital, in addition to other forms of corporate welfare, demonstrates the continued validity and vitality of fiscal crisis theory.

Bibliography:

Bacon, Robert, and Walter Eltis. Britain’s Economic Problem: Too Few Producers. London: Macmillan, 1976.
Fine, Ben. Social Capital versus Social Theory: Political Economy and Social Science at the Turn of the Millennium. London: Routledge, 2001.
Ginsburg, Norman. Class, Capital, and Social Policy. London: Macmillan, 1979.
Gough, Ian. The Political Economy of the Welfare State. London: Macmillan, 1979.
Mattick, Paul. Marx and Keynes: The Limits of the Mixed Economy. Boston: Porter Sargent, 1969.
O’Connor, James. The Fiscal Crisis of the State, 1973. Reprint with new introduction. New Brunswick, N.J.: Transaction, 2001.
Offe, Claus. Contradictions of the Welfare State. Cambridge: MIT Press, 1984.
Shonfield, Andrew. Modern Capitalism: The Changing Balance of Public and Private Power. London: Oxford University Press, 1965.
Wilensky, Harold L. The Welfare State and Equality. Berkeley: University of California Press, 1975.

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