Capitalism and Welfare

Sorry, let me get into the topic a little bit deeper.

Leftists generally agree with the analysis that in a capitalist state that the function of the government is to mediate the disputes between classes where they arise. In order for a state to be a capitalist state, and in order to maintain a capitalist economy, the state must rule in favor of the capitalist class on nearly every critical issue. What that means in practice is that capitalist "democracies" end up being de-facto dictatorships of capital, because if the state ever stops representing the interests of capital then capitalism could not function. And as a result capitalist democracies requires working class interests to be disenfranchised from the political process.

You can see this sort of thing all throughout the history of American politics. The American constitution explicitly excluded any working class people from voting, you can't get much more blatant than creating rules that only gave white, land-owning men with at least 40 acres of land the right to vote and participate in government. America has a long history of average people taking to the streets and fighting to expand voting rights to more and more people, but with every expansion of voting rights you can usually find an equivalent push back to prevent "the wrong people" from voting. Abolition giving freedmen the right to vote was met with incredibly repressive black codes (and extra-legal Klan violence), Reconstruction era reforms were met with Jim Crow laws, the civil rights act of the 60s was met with gerrymandering, strategic under-funding and targeted removal of polling locations, and in modern politics we have a campaign finance system that all but guarantees that the only way to run a viable campaign in most political races is to get the approval of the donor class so that you can raise the millions of dollars necessary to run a political campaign. Which essentially means that the people with money get to pick who your options are before they ever print a single ballot. (You'll also notice that a lot of political disenfranchisement has been done along racial lines, and in America specifically race and class are deeply intertwined issues).

So, with that groundwork laid out we arrive at the contradiction that your post observes. "If the government represents the interests of businesses when it comes to issues like wage regulations, then why does that same government also provide things like welfare benefits to working class people?" And to answer that question, we are going to need to talk about what the purpose of welfare benefits in a capitalist state actually is.

Lets zoom out a little bit and talk about what functions unemployment in general serves in a capitalist economy. To start, lets define unemployment. For the purposes of most economic analysis, unemployment/underemployment is someone seeking out work but cannot find work or is not satisfied with the number of hours or skill level of the work they are offered. This definition of unemployment excludes people who are not on the job market, so children, people attending school and higher education, retirees, and those who simply aren't seeking work aren't included in unemployment numbers.

So now that we've defined unemployment the way that economists usually define unemployment, a good question to ask is why do capitalist economies even have unemployment? There's always work that needs to be done and needs that are going unfilled, which means there is an unmet demand for labor. You can see this in aspects like our crumbling infrastructure, homes in disrepair that need fixing up, unhoused people who need shelter, hungry people who need food, and so on. So why is it that capitalism can have so many needs that go unmet while at the exact same time have a significant portion of the labor market ready and willing to work but still unable to find a job?

This is a basic consequence of how capitalism organizes the economy. What work gets done and what the priorities of the economy are is decided by the private business owners who hoard the nations resources and who act as gatekeepers between labor and the tools that labor uses. And those private businesses set those priorities and make those decisions exclusively in pursuit of their own self interest, and their only guiding principle is trying to maximize their own profits to the greatest degree possible.

But that still doesn't completely answer the question. Private owners make their profits by hiring the labor of others and keeping a share of the fruits of that labor for themselves. The more people a business is able to hire, the more people there are to generate that value for the business owner to take. So why does capitalism perpetually have unemployment when theoretically business owners could hire those unemployed people and take the value of their labor too? Aren't capitalists just leaving money on the table?

Let's explore that idea a little further and think about what would happen in an economy with full employment. Using our definition of unemployment from earlier, full employment would instead mean that everyone who is looking for a job is able to find as much work as they'd like at their relevant skill level and experience. In this scenario, since no one else is looking for work, there is no one who is readily available to replace you if you quit. This fact gives you tremendous negotiating power against your boss in wage negotiations. Typically, when a capitalist invests in a business and purchases capital they are stuck with an investment that depreciates in value from the moment they buy it and they want to offload that investment as quickly as possible. This deprecation can take the form of investing in a technology or machinery that will soon be rendered obsolete by the forward march of technological progress,  storage and energy costs from holding on to raw materials, the quick deterioration of perishable goods, or the normal ravages of weather and time. What this means is that every moment that they hold onto their investment into capital they are losing money on average. In order to transform that investment in capital in to useable goods or services that have a higher exchange value than they originally paid, they need to apply labor to those materials. Specifically, they need to apply your labor, because if we have an economy with full employment then there is no one left to replace you if you decide you don't want to do that job.

In this scenario of full employment, you have the bargaining power to demand the full value that your labor adds as your wages, and your boss would be happy to pay it just so that they can use up capital that is deprecating in value so that they don't keep losing money. So the result of an economy with full employment is that labor can more easily negotiate a fair wage that accurately represents the value that their labor adds, and business owners will tend to break even on their investments at best.

However, this scenario would not last very long in a capitalist economy. If business owners are unable to make a profit off of labor because this increased negotiating power has made labor too expensive, then the demand for labor would start going down. Business owners would agree to this kind of arrangement long enough to offload any capital that they have already invested in, but they won't stay in business if there isn't any profit to be made. So you would see businesses start closing up shop, and the number of available jobs would start going down until you start introducing unemployment again. Once you have sufficient levels of unemployment, the leverage in wage negotiations shift back in favor of the capitalist. Now the negotiations are something along the lines of, "Why should I pay you the full value of your labor when I could instead hire the unemployed person on the street who is desperate and willing to work for scraps?" Your wages are no longer tied to the value your work produces, but they are instead tied to how desperate for scraps your potential replacement is. Unemployment has a depressant effect on wages, and the lower down your boss is able to push your wages the more profit they are able to keep for themselves from the fruits of your labor. This effect that this pool of unemployed people has on depressing wages and maximizing profits for the capitalist class forms the basis for what Marx referred to as "The Industrial Reserve Army of Surplus Labor."

Finally, after that long detour, we get to the reason capitalist states provide welfare benefits like food stamps and unemployment insurance to working class people even though the state represents the interests of businesses and doesn't really care about working class people. The answer is that those welfare benefits aren't designed with your well-being in mind. They are simply levers used to manage The Industrial Reserve Army on behalf of the capitalist class. The capitalist class needs a certain level of unemployment and underemployment to be maintained in order to depress our wages and maximize their own profits. And if we look at this state of affairs in a macabre kind of way, we can see that it's not in the interests of the capitalist class for unemployment/underemployment to be a death sentence. This is because if the Industrial Reserve Army starts dying off, we quickly start swinging back towards that full employment scenario where you become irreplaceable at your job and can negotiate for better wages.

With this understanding of concepts like the industrial reserve army, we can get a much better understanding of the history of social spending in America. We have eras like the great depression which are characterized by unprecedented levels of social spending and the creation of a large and varied assortment of welfare programs and public works projects, despite the fact that this was one of the most financially difficult periods of American history. And what we end up seeing is that these public spending projects (alongside of the wartime spending of World War 2) were incredibly successful at not just creating an economic recovery, but at propelling the American economy to unimaginable heights and turning America into an undisputed global economic superpower after the end of the war. And despite those policies being so successful, by the time the 70s roll around and we have a country that is wealthier than it has ever been, we suddenly start getting told that we don't have the money to keep funding all of these social welfare programs and we need to start being fiscally responsible and cut back on spending, with a huge push towards neoliberal austerity politics in the Reagan years and continuing on since then.

If you see government as doing the best that it can do to serve the people with the resources it has available, then it doesn't make sense that it can suddenly summon resources out of thin air to fund social spending during a major depression, and then suddenly tells you that we can't afford those policies anymore when at a time when the country is wealthier than any nation has ever been in all of human history. But both of those things make sense when you view the role of welfare as a lever that is used to manage the Industrial Reserve Army on behalf of the capitalist class. The government was willing to provide generous welfare benefits and public works programs during the great depression because they needed to maintain the industrial reserve army while the economy recovered (and also because those masses of unemployed people who were struggling to survive and were being left to die on the street were developing some revolutionary sentiments (see The Bonus Army)). And once the economy had recovered the result was more jobs being created and fewer unemployed/underemployed people competing for those positions. Low unemployment means higher average wages, so even though there was plenty of money to fund all of that social spending we still got austerity cuts and a loss of public sector jobs in order to push more people back onto the job market so that they could rejoin the industrial reserve army and depress wages/maximize profits for the capitalist class.