Capitalism and the State

The idea that the government is the problem of capitalism is true only in the sense that without an adequate government, capitalism fails. In other words, capitalism needs a government and it needs the State. The idea of some neo-liberals that the less State, the better is completely wrong and does not stand up to historical examination.

Liberal Party poster clearly displaying the differences between an economy based on Free Trade and Protectionism. Wikimedia Commons. Public Domain.

The development of capitalism as a global force, which is something that happens in the second half of the 19th century, is due to the exercise of State power. States were realising that in order to be strong, you needed to have a strong economy, and it had to be a capitalist economy.

The most protectionist State in the 19th century was the United States of America. It was not a laissez-faire State at all. It was strongly interventionist. The second most protectionist State was Tsarist Russia. In other words, if your capitalism was not all that strong and if it needed to resist the competition from others, you needed someone, i.e. the State, to establish tariffs to protect you.

The globalisation of capitalism

The globalisation of capitalism begins in 1850, 1860. Before that, capitalism existed in England, Belgium, southern Germany and some small parts of northern France, and perhaps on the east coast of the United States – places where you had coal. There was very little capitalism elsewhere.

Of course, it’s ancient: you had capitalist enterprises in Athens and in Babylon. All you needed was someone owning the means of production, hiring workers, getting them to make chairs or pots or something, and paying them. No one would say that Babylon was a capitalist State, but no one would deny that by 1850, most of Europe was trying to become capitalist.

In the 1860s, there is an amazing coincidence of phenomena. There is a civil war in the United States, which is usually taken to be exclusively about the abolition of slavery and the maintenance of the United States. Yet, in fact, it eliminates the slave economy, which is part of a global economy, because the cotton the slaves made would be sent to Lancashire, and in Lancashire, they made cloth. It was, in a way, also a capitalist war in which the capitalist north took over the south once and for all and eliminated the non-capitalist economy.

What are we anxious about?

Capitalism is a highly dynamic system, unlike pre-capitalist societies. In a pre-capitalist society, if you were a peasant, you tilled the land; at most, you sold your goods at a local market, and that was it. You were anxious, but what were you anxious about? The internal economics of the feudal State? No. You were anxious about wars, foreign invasions, people who devastated your land. You were worried about the Black Death, pandemics. You were worried about the weather. In other words, the anxiety was to do with events which were outside the system, and the rational thing to do was to hope for the best and to pray.

The religiosity of the Middle Ages is explained as a perfectly rational thing. That if you don’t know what is going to happen, if nothing is under your control or anybody else’s control, pray – and pray that the weather will be OK, that there won’t be illnesses, that there won’t be starvation and so on.

Carrier systems will play an increasingly important part in the nation’s growing telephone network. Wikimedia Commons. Public Domain.

With capitalism, it’s different. The system is dynamic. It moves all the time. New technological innovation means that whoever was winning at one stage may be losing at the next stage. If you have a job, you worry about losing your job. If you don’t have a job, you worry that you’ll never get a job. So, the anxiety factor is there all the time.

Solutions offered by the State

So, what does the State do? It tries to build up the idea of a national community. It tries to say, ‘Yes, but we are all French – we are all German – we are all American – we are all British.’ To build a national community, there are various techniques. One technique is that of trying to spread some kind of welfare. Of course, these States have to be rich. The first States to have a welfare system were Denmark, Bismarck in Germany and later, with the liberals in Britain, the British at the beginning of the 19th century. Then, of course, nearly everybody accepted various elements of welfare. So, welfare is something that says, ‘We may all be different, but if something happens to you when you grow old, when you are sick, the State is here – we will help you.’

Another way of creating a national community is ideology: ‘We are a nation. These foreigners want to do us in. These foreigners have been oppressing us.’ Alternatively, if victimhood doesn’t work as a national narrative, States can use the opposite: ‘We are global. We will win. We are the strongest. We will be able to dominate others.’ This is one of the ways in which you establish colonialism.

The division between the masses and the elite

It’s difficult to simply categorise a society as the elite versus the masses. This is the language that many populists use: ‘We are with the masses. The others are part of the elite.’ The elite itself is split. The elite itself does not know as a monolithic body what to do, precisely because it represents different interests. The elite is divided between the old elite, the new elite, the regional elite, the financial or industrial elite – the London or Parisian, in the case of France and Britain. The masses themselves are also deeply divided, which is the basis of modern politics. Political parties try to tell the masses this is what they need. As a result, some people vote for one; others vote for another.

What is interesting is that, at least in Western Europe, in the course of the 20th century, hardly any parties won anything on the basis of overt pro-capitalist policies. Very few parties won a lot of votes by saying, ‘Vote for me and I’ll make the capitalists even richer.’ The big parties in Europe were either Christian Democratic parties, as was the case in Italy, Germany and Austria, or socialist parties, or one-nation conservatives. You also had the Gaullists, which was a nationalist party in France.

State and economy: a peaceful balance?

The balance between the State and the economy cannot be fixed because the economy is dynamic and it moves constantly, so politics has to adapt to an ever-changing economic dimension.

Think of the British economy. Fifty years ago, it was a largely manufacturing economy. Now, the British economy is more of a service economy and its manufacturing sector accounts for only 10–11% of the economy. The State must adapt to the changes in the economy. This is the nature of capitalism itself – it forces everybody, including the capitalists themselves, to change.

Think of the United States, where the top firms are more or less now in the idea business: Facebook, Microsoft, Apple. These are ideas. They’re not manufacturing; the Chinese are the manufacturers. The Americans have the ideas, or, alternatively, they sell things – Amazon, Walmart. That’s the American economy. It would be unrecognisable at the beginning of the 20th century, when the American economy was largely a manufacturing and an extracting economy.

Globalisation and anxiety

Romanian Peasants with Patrol, 1877. Wikimedia Commons. Public Domain.

The fear of globalisation is conjoined with the successes of globalisation. Some will win; some will lose. Let me give you an example of how globalisation can affect ordinary people. Late 19th century Romania was the fourth largest exporter of wheat in the world. The Romanian peasants had a horse and a cart and they sold their wheat, usually to Jewish entrepreneurs, who sold it on the world market. Then, someone in the United States perfected a tractor and produced more wheat and the international price of wheat dropped. That ruined Romania. The Romanian peasants were victims of globalisation. They did not know that the fault, if there was a fault, was with American tractors. But they sold the thought it was the Jews’ fault, as they were no longer buying as much wheat as they used to. As a result, there were pogroms.

So, you have these weird effects of globalisation on people who try to come up with an explanation as to why it is that they are on the losing side – and, of course, there will be people who will exploit these fears.

Coming to terms with it

We should come to terms with the idea that anxieties are inevitable in capitalism. It’s part of the history of capitalism. We can’t do without them. It’s like life itself. Some will be more anxious than others. There could be some remedies. There are ways in which the State and the health service will look after you.

When Bismarck introduced pensions, they would start at the age of 70. Most workers in Germany died before the age of 70. So, it was a very cheap reform. Now, of course, people die between 80 and 90, and therefore it’s very expensive. Also, then, people started working at 14, 15. Now, they go to university.

So, the society we live in is a society which exists reasonably well on the basis of people working only between the ages of 20 to 65 – so 45 years. On top of which, they have weekends and three-, four-, five-week holidays. So, they don’t work very much and they die in old age, unlike the people in the 19th century.

Discover more about

anxiety and capitalism

Sassoon, D. (2021). Morbid Symptoms: Anatomy of a World in Crisis. Verso.

Sassoon, D. (2019). The Anxious Triumph: A Global History of Capitalism, 1860–1914. Allen Lane.

Anxiety and capitalism: The golden couple