7b) The 4th Cycle, the Golden Age


We saw in Part I how industrial capitalism mutated at the end of the nineteenth century, leaving its ‘infant’ version 1.0 (‘anarchic capitalism’) and growing up into its version 2.0, ‘monopoly’ capitalism (also called ‘state capitalism’).  We have seen that this more ‘grown up’ version starts to emerge at the end of the nineteenth century following a process of monopolistic/oligopolistic concentration promoted either by some advanced (but non hegemonic) countries in a ‘tripartite alliance’ with their national capitalists (industrial and financial), or by the ‘transnational financial elite’ that succeeds in concentrating ownership of industrial and financial activities by exercising their might in the stock market and also via (probably) orchestrated financial collapses.  We could say therefore that right from the start of its version 2.0, capitalism has two souls, one ‘state directed’, and the other one ‘elite directed’.  The ‘state directed’ version responds to what Arrighi (in the book ‘The Long Twentieth Century’) calls the ‘territorialist logic’, that is, the existential necessity that all states have to live and thrive as territorial entities: to organise their societies, to defend their borders, to develop their economies in order to meet the basic needs of their population etc. – in short, to organise social life in a viable manner.  The ‘elite directed’ capitalism, on the other hand, sinks its roots in the colonial history of the merchant elite, and responds to a more purely ‘capitalist’ (i.e. non territorial) logic, as the elite is used, since colonial times, to moving around between countries and organising the global economy and its monetary systems.  It uses the states and their physical and institutional resources but it is not bound to any territorial entity in particular (although its head-quarters are in the hegemonic countries, nowadays in the Anglo-Saxon countries).  This elite tends to act like a parasite that can move around from one ‘host’ body to the other by creating unofficial networks of power (the so called ‘deep state’).   We will see these two modes of capitalism 2.0 alternate their predominance throughout the twentieth century.  In the first part of the century, right from the start of capitalism 2.0 there was a fierce fight between the two modes, intertwined with the hegemonic fight, producing a lethal combination of war and financial instability.  At the end of this bloody struggle in 1945 the state dominated mode seemed to have prevailed and was ‘managed’ by the USA in the Western block and by the USSR in the communist block.  With the rise of Neoliberalism in the 1980s the elite-dominated mode of capitalism takes the upper hand again.  And right now, in our current time of transition, we are seeing the state-dominated mode putting up a fight aimed at taking back control. 

We can say that the initial version of industrial capitalism, the liberal/anarchic form 1.0, sinks its roots in colonialism (that is, in the previous ‘merchant’ phase of capitalism), and that the elite-dominated mode of running capitalism 2.0 (neoliberalism) is the continuation of this trend, adapted to the new (monopolistic/oligopolistic) structure of capitalism.  With the birth of capitalism 2.0 at the end of the nineteenth century, the tendency to ‘throw the shackles’ of the liberal (= British dominated) management of the national economies is set in motion by the stronger countries rivals of Britain (with protectionism, creation of national markets, state expenditure in infrastructure and R&D to develop national industries etc.), and becomes fully developed by 1945.  In other words, during the third Kondratieff cycle what we witness is the evolution of capitalism from its ‘anarchic’ version 1.0 (which is ‘anarchic’ for what concerns freedom of enterprise but at bottom rests on ‘colonial’ power) into an initially only half managed and eventually fully managed version 2.0.  By 1945 we have a full-fledged, ‘adult’ form of state capitalism, which incorporates all the management systems that a modern capitalist economy needs in order to survive.  This full development of state-directed capitalism (managed with the Keynesian paradigm) seemed to have marked the final defeat of the ‘elite-run’ liberal mode of capitalism, as it was clear in 1945 that the only way that a modern capitalist economy could survive was by full state management (otherwise the tendency to crisis already described by Marx and his followers would lead to collapse, as the post-1929 events seemed to have conclusively demonstrated).  In other words, capitalism was in state mode, post-1945, because only the state had mastered a way of running the system without crashing it. However, time would prove that things were more complicated than that, as the financial elite would eventually find a way of running capitalism 2.0 with a new and upgraded version of liberalism, that would succeed in the feat of avoiding a lethal financial collapse while driving a host of other entities (both states and enterprises) bankrupt and gobbling up their assets. It is important to point out that although weakened by the pre-WWII events (and banned from the Bretton Woods conference), at the end of WWII this elite was still alive and kicking and intent upon working in the shade to regain and increase the lost ground. When president Eisenhower famously warned about the military-industrial complex threatening democracy in the USA, he was referring to this phenomenon, which nowadays we also call the ‘deep state’.  The ‘colonial’ system so kindred to this elite in part survived (under cover) in the Bretton Woods architecture for the management of the world economy, with the creation of a common economic space under American hegemony spanning across the whole western block (and including the ex-colonies) with the transnational corporations fully taking advantage of this space, regulated within the framework of the Bretton Woods agreement (the currency union and relative institutions, IMF, world bank and GATT – the predecessor of the WTO).  The Bretton Woods organisation of the world economy was the starting point from which neoliberal globalisation eventually took off.  Therefore one way to understand the nature of post-WWII capitalism (1945-1975, also known as the Golden Age) is by seeing it as an ‘ambivalent’ mode of capitalism, ostensibly state directed, but embedded within a transnational framework that over time morphed into the current neoliberal machine that we are all familiar with.  We could say that this ‘adult’ (2.0) capitalism, very restrained and responsible in ‘state mode’ (under Keynesian management), when it reached its middle age (in the 1970’s) reverted into a turbulent, crisis prone, elite-dominated (and ‘colonial’ at bottom) mode.  It went back to its old ways, but without forgetting the lessons learned in its Golden Age (and even before), that is, how to manage itself and avoid collapsing even while doing wild things.  Over time the transnational elite had refined its ability to pursue economic concentration by slowly strangulating the real economy and then cashing in by means of engineered financial crises.  Up until 2008, it has been able to crash the economies of a long string of captured countries without crashing the whole system.  The elite accomplished this feat by employing (even if often in a twisted manner) many of the economic management tools that had been developed in the 30 ‘glorious years’.  Therefore the best way to start this section, dedicated to the rising part of the fourth Kondratieff wave (1945-1975), is by highlighting the ambiguity of the capitalism that emerged after WWII: fully managed and state dominated, but with a lot of ‘deep state’ aspects always embedded and slowly regaining the upper hand. 

The upswing of the fourth cycle – Golden Age of capitalism (1945-75)

We start this analysis of Golden Age capitalism with a description of the relevant Kondratieff cycle, the fourth one.  After all the labour turmoil, financial turmoil and wars that marked the downswing of the previous cycle, a raft of new technologies emerge from WWII and are ready to be used to produce the upswing of the next Kondratieff wave.  These technologies will create new consumer industries, new markets and new jobs, and will form the basis for a new expansion of the system. Therefore, what is generally known as Golden Age capitalism constitutes in our analysis the upswing of the fourth cycle.  The downswing will be managed with the neoliberal paradigm, an ‘adaptation on the cheap’, to use Paul Mason’s expression.  Out of this adaptation on the cheap new technologies will emerge, but this time around they won’t bring about a new upswing and will usher in a stalled fifth cycle instead. This is the outline of the whole fourth Kondratieff cycle as provided by Paul Mason (in the book ‘Post-Capitalism):

The Fourth wave (Late 1940s – 2008)

In the fourth long cycle transistors, synthetic materials [nylon, plastic, vinyl], mass consumer goods, factory automation, nuclear power and automatic calculation, electronics, radar, jet engines create the paradigm – producing the longest economic boom in history.  The peak could not be clearer: the oil shock of October 1973, after which a long period of instability takes place, but no major depression.    (In the late-1990s, overlapping with the end of the previous wave, the basic elements of the fifth long cycle appear.  It is driven by network technology, mobile communications, a truly global marketplace and information goods.  But it has stalled.  And the reason why it has stalled has something to do with neoliberalism and something to do with the technology itself.)

For now we will focus on the upswing, the 1945-73 Golden Age of capitalism – and we will shed light on how, during this apparently happy time, the foundations were actually being laid for the complete turn-around that followed.  This is another description of the  technologically driven upswing that followed WWII provided by Ha Joon Chang (int the book ‘Economics: the User’s Guide’): 

‘After the Second World War there was an unusually large pool of new technologies that were waiting to be exploited, which gave impetus to growth: computers, electronics, radar, jet engines, synthetic rubber, microwave (applied from radar technology) and much more.  With the end of the war, a lot of new investments that use these technologies were made, first for post-war reconstruction and then for the meeting of consumer demands pent up during wartime austerity’.

‘It was during the period following the Second World War that the Pentagon worked closely with other national security agencies like the Atomic Energy Commission and the National Aeronautics and Space Agency (NASA).  The interagency collaborations led to the development of technologies such as computers, jet planes, civilian nuclear energy, lasers and biotechnology (Block 2008 as quoted by Mariana Mazzucato in the book ‘The Entrepreneurial State’).  

So this is the general setting:  a massive expansion mainly of internal markets driven by a raft of new technologies.  In order to understand this Golden Age capitalism (the upswing of the fourth wave) we need to analyse its main features one by one.  As anticipated in the previous sub-chapter, at this point I will put the whole picture of a paradigm together.  In chapter 3 I have described the Keynesian paradigm mainly in economic terms (with added references to the political and geopolitical equilibrium that made it possible and the changed equilibrium which led to its downfall).  Now I will add all the other relevant aspects that make up this paradigm (Balance of power, growth strategy, cultural hegemony, permanent warfare, official representation and true state of the market system, industrial policy) all manifestations of the three constituent layers of a paradigm that I have outlined in the Introduction to this blog: hegemonic arrangements, class struggle (upper and lower) and technology.   At the end of this sub-chapter we will see how the main new technology that was developed within this paradigm ended up playing a fundamental role in shaping the next ‘disrupted’ ‘neoliberal’ fifth wave.  The first thing we need to look at in order to understand Golden Age capitalism is its complex power structure.  

THE BALANCE OF POWER – At the start of the post-WWII period we have a rather balanced power structure.  In the world there are two rival blocks, headed by the USA and the USSR. The presence of a rival acts as a powerful restraint on Western capitalism and makes it much more amenable to accepting the creation of a welfare state, something that economic necessity (the necessity to avoid another Great Depression) seemed to impose and a well organised and militant working class, just back from the battlefields, very vocally demanded.  As we have noted, the financial elite is still alive and well, but forced by the circumstances to take a back-seat approach. The state-dominated mode of running capitalism prevails in this phase (symbolic, in this regard, is the fact that the bankers were kept out of the Bretton Woods conference); however, the transnational financial elite will carry on working in the shade towards its economic concentration plan by carving out ever-larger transnational spaces for its corporations.  For what concerns the lower class struggle, the working class is strong and emboldened by the full employment policies pursued by the states, therefore the traditional imbalance of power between workers and their bosses (industrial capitalists) is being reduced.  To sum up, the total structure of power consists of two superpowers at the world level, prevalence of official state power at the national level but constantly contrasted by the ‘deep state’, prevalence of an industry based economy, therefore prevalence of industrial capitalists (over the financial ones), but in potential contrast with the financial elite as well as facing strong workers militancy, emboldened by full employment policies, themselves necessary to keep the spectre of collapse (and of communism) at bay. The institutional framework that was created to run the capitalist economies of the Western block in this phase reflects this balance of power. 

INSTITUTIONAL FRAMEWORK – this part has been described in the chapter dedicated to the Keynesian Paradigm, therefore it’s not necessary analyse it in depth.  Here I would like to draw attention to a basic dichotomy of these institutional arrangements.  At the national level we have the Keynesian framework, consisting of: a) an economy based on industry, b) monetary and fiscal policies promoting full employment rather than price stability, c) financial repression, d) welfare state.  This framework embodies a democratic and progressive tendency: running the economy for the benefit of the many.  This democratic arrangement is dictated by the fact that capitalism (especially financial capitalism) had ‘screwed up’ really badly in the previous phase, and it was necessary to restore trust, to rebuild the countries destroyed by the war, and to heal the wounds caused by years and years of war, depression and instability – all in the presence of a rival which needed to be outperformed.  On the other hand, at the international level, the tendency that prevailed was ‘imperial’.  This imperial tendency is embodied in the Bretton Woods system in which the proposal made by Keynes (creating a special currency – the Bancor – for international exchange, to be run in a democratic way by taxing trade surpluses and using the money thus collected to help deficit countries to upgrade their economies) was rejected and instead a hierarchical approach was put in place, with the US and its currency at the centre of the system (what is known as ‘the exorbitant privilege’) and the satellite countries tied up within a currency union and therefore forced to follow the monetary policies of the hegemonic country, and dependent on it as the ‘importer of last resort’.  On top of it all, explicit American predominance in the supranational institutions created to run the system (the IMF and the World Bank) obtained by unequal distribution of voting rights.  It so happened that this system was managed in a benign way (by creating money for the whole block and thus permitting the individual economies to produce real wealth and prosper, although much less than their full potential would have allowed) in the first thirty years of its existence, precisely due to the existing balance of power in society and at the international level.  But the fact that the ‘imperial’ tendencies continued to live and thrive under a thin façade of democracy and de-colonisation cannot be overlooked.  

It is important also to highlight the fact that this formal way of managing the international monetary/institutional system (with explicit rules and institutions, as well as a currency union) is an absolute innovation. The previous system, the Gold Standard, had come with a much more basic form of governance, as in the past international economic governance was provided mainly by means of formal empires.  Now we have the reverse situation, dismantling of the previous empires, and institution of a formal  international governance (itself aspiring to replicate a sort of ‘covert’ empire).  

The evolution of free trade agreements under the GATT (General Agreement on Tariffs and Trade) framework, eventually replaced by the WTO (a proper institution as opposed to a series of treaties as the GATT was), provides a clear example of this tendency to restore free trade as a stepping stone toward rebuilding an informal empire.  In the heyday of its empire and firm technological lead (the nineteenth century), Britain had managed to keep many formally independent countries tied as vassal states by means of free trade agreements.  These agreements had all expired without being renewed and by the time of WWII the prevalent regime was protectionism. Immediately after WWII the tendency of the USA was to promote free trade agreements as much as possible.  However, as the nation-states were still strong, this was not smooth sailing, and it took many negotiating rounds to gradually lower trade tariffs and barriers.  And it was not until 1995 that finally the hegemonic country managed to create a more generalised system of free trade with the WTO.

Therefore we have a system that is in part democratic, albeit mainly out of necessity, and in part ‘imperialist’, although it has to disguise this fact.  This sort of arrangement although it turned out to be very stable in economic terms (due to the way it was managed), was in reality criss-crossed by all sorts of tensions which eventually would lead to its subversion.  Therefore, although it must have felt very stable for the people living in those times, it was actually ‘in transition’.  This is how Ha Joon Chang describes the remarkable economic stability of those times:

‘Output fluctuated much less than in the previous periods, not least thanks to Keynesian fiscal policy, which increased government spending during downturns and reduced it during booms.  The rate of inflation was relatively low and there was a very high degree of financial stability.  During this period virtually no country was in banking crisis.  In contrast, since 1975, anything between 5 and 35 per cent of countries in any given year have been in banking crisis, except for a few years in the mid 2000s.  So in every measure the Golden Age was a remarkable period’. 

To sum up, we are in a very ambiguous situation, with two major trends: a progressive one, with the potential to evolve towards more democratic forms of management of the economy and of society, along with a more regressive one, striving often with non obviously visible, ‘undercover’ means, to restore a colonial type of order not just in the ex-colonies but also within Western societies.  Therefore the best way to understand the true nature of Golden Age capitalism is by looking at it through the lens of its multi-faceted tensions, giving rise to an assortment of overt and covert wars.  Maybe one way of summing up the essence of Golden Age capitalism is by labelling it as ‘covert war’ capitalism.  Covert (or cold) war not just against the Soviet Union, but also against civil society, against Third World countries and against the subordinated Western allies.  Waging a cold war against the allies and against civil society, while at the same time showering them with a lot of ‘goodies’ (= consumerism), and allowing them to have ‘democratic’ institutions.  The first one of these ‘covert war’ features is the growth strategy. 

The GROWTH STRATEGY pursued by the hegemonic power is a non-explicit policy feature of Golden Age capitalism (the official narrative is that market forces determine the direction of economic development), but nonetheless a very real one. The overall growth strategy pursued in those thirty years was based on mass production, mass consumption and the American Dream but also on the welfare state (creating jobs and meeting needs outside the market system) as well as the ‘warfare’ state in the USA (creating war related jobs with its oversized military sector scattered all over the world).  This growth strategy was the expression of several objectives:  the necessity to stabilise capitalism, the desire to hold a covert empire together by generating consensus, the desire to score points against the rival block but also the desire to fight a much more devious war to keep the Western masses at bay.  The hegemonic country, the US, basically is committed to creating money (as well as recycling its trade surpluses) and investing it both in its own domestic economy and in that of its allies.  This growth model is based on mass production + high salaries, to create new internal markets and promote a consumerist lifestyle.  This serves to stabilise the economy, and in this sense it is similar to what had happened during the ‘belle époque’.  Back then the growth model ‘happened’ as a result of various forces and it was based on empire (opening up new external markets) infrastructure (railways and paved roads), and the conversion of leisure time into market activities.  Now growth will be pursued and planned in a much more strategic manner, designed to achieve several objectives (geopolitical predominance as well as control of the masses via cooptation) and was based on post war reconstruction, infrastructure (roads, cars, airports and the tourist industry) suburbanisation (the famous ‘building houses and filling them with goods’), consumerism, as well as welfare spending and, on top of it all, a huge amount of military spending (proxy wars, the arms race and US military bases sprawling everywhere). 

The results of these policies are not surprising: this period achieved the highest growth rate ever.  In the words of Ha Joon Chang: ‘Between 1950 and 1973 per capita income in Western Europe grew at an astonishing rate of 4.1 per cent per year.  The US grew more slowly, but at an unprecedented rate of 2.5 per cent. Japan grew much faster at 8.1 per cent, starting off the chain of ‘economic miracles’ in East Asia. In addition unemployment, the bane of the working class, was virtually eliminated in the advanced capitalist countries (Western Europe the US and Japan)’. 

CULTURAL HEGEMONY – This growth strategy heavily relying on mass consumption leads us straight into the next feature: a model of social control based on cooptation and manipulation of the masses.  Mass consumption is accompanied by the spreading of an artificial popular culture emanating mainly from commercial entities via advertising, television shows, Hollywood movies and the mass media industry in general.  Mass consumption and the new popular culture are the main weapons of a war whose aim was to change the mentality of the workers.  What used to be the autonomous popular cultures of the peasant and working classes (in their various country-specific versions), is very rapidly replaced by an artificial hedonistic culture originating from the USA (the American Dream) and imposed from above via the mass media, advertising and also more official institutions (such as public education, corporate employment etc.).  This combination of consumerism and the new mass culture end up completely transforming the mentality of the working class, which quickly abandons its previous culture, life style and aspirations (based on popular wisdom, resilience in the face of adversity and strong social ties) and is easily co-opted into a consumerist, instant gratification sort of life-style, apparently free from old fashion fetters (considered the remnants of a bygone era of economic scarcity) but in reality completely conditioned by the true centres of power in society – this is what the Frankfurt philosophical school calls ‘the administered existence’.  Needless to say, this form of conditioning over time completely disables the working class as a countervailing power.  This was a time in which in left wing circles (but also in state circles) plans to gradually transfer to the workers the property and/or the control of enterprises (what would have amounted to evolutionary system change) are variously discussed, but never really take off.  As the idea of revolutionary change is shelved as well, more or less explicitly, due to obvious obstacles, the remaining focus of the working class will be, for the next decades, mainly economic: obtaining larger and larger salaries as a compensation for their subordinate role in society and alienated work life.  This form of resistance is the least threatening for the people in power, and ties in very well with the role in which they intended to relegate the workers: that of mindless consumers.  Many analysts argue that the working class was never really revolutionary (to believe this was a fatal mistake made by the Marxists) and that the ideas of socialism and communism were in reality elaborated by bourgeois intellectuals, and never really taken to heart by the working class.  This is probably correct, but in any case the working class used to have its own traditional culture, ancient wisdom and autonomous aspirations, which were wiped away by the consumerist ‘cultural revolution’.  I find interesting Paul Mason’s point of view.  He argues that the working class never pursued a change of the economic system, but they did have their own objectives: they wanted to retain control over work processes and to develop their own culture and communities, back in the early twentieth century still very vibrant. As the workers never really aspired to change the system, but only to carve for themselves autonomous spaces within it, the ruling classes found it relatively easy to impose a new cultural hegemony, and grow the system in the direction of consumerism and war (especially covert war to keep an informal empire).  Be that as it may the subject of manipulation and cultural hegemony as a form of covert class war leads us straight into the next feature, that of permanent – overt and covert – warfare.

PERMANENT WARFARE – while the potential resistance of the working class is being disabled by this disguised war in the form of conditioning and manipulation (and not forgetting also more open forms of war, such as the wiping out of the radical left during the 50’s in the US by means of a witch hunt known as McCartism), other covert wars take place in the national as well as the international arena.  The most obvious of them is the Cold War.  As mentioned before, this will become a new permanent feature of capitalism.  As nuclear weapons make impossible a direct confrontation between superpowers, the old fashioned military war is replaced by a low intensity, long duration and pervasive competition fought on many fronts (economic, scientific etc, as well as a string of proxy wars around the world).  Closely related to the cold war, and part of a strategy of holding together the informal American empire (itself a continuation of the British one) in a crafty and covert manner, are a long string of more or less covert actions, less obvious but still widely recognisable (coups d’etat, destabilisations, political assassinations, support of terrorist and separatist groups and interferences of various types) designed to chain mainly third world countries to unsatisfactory geopolitical ‘alliances’ and to a state of permanent underdevelopment.  The resources to fight all these wars are made available by the ‘exorbitant privilege’ (a rather comprehensive, but by no means exhaustive account of these actions can be found in the book ‘Killing Hope’ by William Blum).  Much less known are the covert wars waged by the hegemonic power against its own ‘First World’ allies.  This series of actions is known as the ‘Stay Behind’ program, launched by the CIA just after the end of WWII.   The existence of this program is ‘proven’ by a long series of documents now in part de-classified.  Essentially, what took place is a permanent infiltration of the secret services (to operate terrorist attacks and other forms of interference) as well as the more official institutions of these ‘allies’ in order to obtain the same results as for Third World countries: to maintain undesired geopolitical alignments and to prevent ‘too much’ or the wrong kind of economic development.  That is, to prevent them from competing in some very strategic high tech sectors and to eventually transform them into ‘vassal states’, a transformation that was operated also by means of cultural domination.  It took many years to completely colonise the ‘allies’ but we can see in our present days, in which most of western Europe finds itself trapped in a completely irrational and unresponsive monetary and political arrangement, that the operation has succeeded.  It has to be said that many covert actions were also carried out by these same states against each other.  We are now entering the realm of the ‘deep state’ (= the institutional arm of the transnational elite, created by infiltrating all official institutions by trusted ‘affiliates’) and of the covert wars waged by the transnational financial elite against all states, including the hegemonic one.  As mentioned before, during the Golden Age the transnational elite keeps a low profile and has to live with the fact that the economy is managed by the state authorities, often for the general good.  But the elite is still very much alive and well. The financial markets have been disabled as an instrument of economic warfare, but the elite has very strong connections within the military industrial complex, keeps on spreading its economic power via transnational corporations….and is still able to make and break American presidents….

This is a famous description of the ‘deep state’ in the words of John F Kennedy (addressing the American Newspapers Publishers Association in 1961):

‘We are opposed around the world by a monolithic and ruthless conspiracy that relies primarily on covert means for expanding its sphere of influence–on infiltration instead of invasion, on subversion instead of elections, on intimidation instead of free choice, on guerrillas by night instead of armies by day. It is a system which has conscripted vast human and material resources into the building of a tightly knit, highly efficient machine that combines military, diplomatic, intelligence, economic, scientific and political operations.’ 

In addition to all of these more or less hidden wars, there is another one, the only one that happens in full daylight:  what I have called the ‘lower’ class struggle, the one fought by the workers against their bosses, the industrial capitalists.  This is a time in which national industries (both public and private) are central in the economy and industrial capitalists are very conspicuous figures, for better or worse.  They are still called bourgeois by the left-wingers and considered ‘the enemy’ although society is changing rapidly and this term is fast becoming obsolete in its cultural connotations.  Not unlike the workers, the ‘bourgeois’ have also entered the new hedonistic mass culture and abandoned their old austere and ‘moralistic’ one. Therefore we could say that at least in cultural terms the class divide was indeed fading (as the supporters of the system liked to claim); increasingly there is only one distinction within the same general culture: upmarket and downmarket (along with different marketing ‘tribes’) – this will become ever more evident starting from the 70s.  Be that as it may, the industrial strife over wages and working conditions is at this time very fierce and in full view and is accommodated by continuous productivity rises that permit both wages and profits to rise.  This strife is also managed with the help of state mediation of the conflict, as well as industrial policy in order to produce productivity gains, as well as accommodating growth policies pursued by the hegemonic power. All in all, this arrangement ties in well with the neutralisation of the working class via consumerism, as well as the stabilisation of the system via the same thing: mass consumption to avert the classical overproduction crisis.   It is a fully managed form of capitalism but nobody likes to admit it.  In this criss-crossing of war games, all players have a strong interest in keeping their cards hidden.  This leads us to the misconceptions about the true nature of the system, and how these misconceptions conditioned (and still do) the actions of the various players.

OFFICIAL MIS-REPRESENATION OF THE ‘MARKET’ SYSTEM – At the time of the Golden Age the official narrative (including what is taught in university textbooks) is still based on the centrality of the market and of free enterprise, although Keynesian theory and the necessity of state intervention to correct undesirable market outcomes, is also taken on board.  However, an open discussion and disclosure of how the system really works (something that presumably only the actual operators at the top levels, both public and private, truly understand) never takes place.  This is not surprising, given the proliferation of covert wars.  One conspicuous example to illustrate this point: the ‘secret’ of money creation is kept completely out of the public debate and out of textbooks and remains reserved for the experts. The Marxist counter-narrative didn’t help to clarify the true (technology driven, oligopolistic and fully managed) nature of capitalism 2.0 either, as the Marxists had not fully understood (and the few remaining ones still haven’t even to this day) the implications deriving from the profound mutation that took place after the 1890s. 

Class struggle implications of this incorrect understanding of the system – As noted before, there was a strand of thought, within the fractious left-wing galaxy, advocating the gradual socialisation of enterprises (= transitioning into socialism by means of gradual reform) but this avenue was never pursued too earnestly.  The origins of this strand of thought can be traced back very early after the initial development of capitalism 2.0. This is how Paul Mason puts it:

‘What’s important is that Hilferding effectively ruled out any further mutations of capitalism beyond the model established in the 1900s. […] 

Lenin was getting closer to Hilferding’s thesis.  In his book ‘Imperialism’ (1916) he called the new, declining model ‘imperialism’, considered as ‘capitalism in transition’ – the scale of organization  – by vertically integrated corporations, cartels and the state – meant that the economy was actually becoming socialised under capitalism. Nation states had become aligned with the interests of their dominant industrial companies. [….]

[Hilferding’s] theory remained influential for a very long time. As late as the 1970’s you could argue that, though capitalism had survived longer than expected, it was still essentially a state directed, heavily monopolised and national system.  Left wing supporters could still believe that a world of state-owned airlines, steel mills and auto companies could easily transition to socialism’.

Although we can say, with hindsight, that pursuing this sort of transition could have been a very fruitful line of action, it was never too popular in leftist circles, as it was considered ‘reformist’ and therefore too willing to compromise with the system.  The idea of a clean revolutionary break (facilitated by the perennially hoped-for collapse) was much more attractive to the core activists (themselves coming for the most part from the more educated, higher classes) while most of the working class was content with consumerism and trade unionist fights for higher wages. The reason why this possibility (gradual nationalisation or transfer of shares to the workers promoted by state intervention) was seen with suspicion is probably due to the fact that in the early twentieth century the state was still, as Marx had famously said, ‘the board of directors of the bourgeoisie’.  Therefore in the early twentieth century revolutionaries such as Lenin were highly suspicious of the trend taking place at the time, bourgeois states becoming aligned with the interests of their dominant industrial companies and using their workers and peasants as cannon fodder in order to conquer colonial space for their national industries.  However, in the second part of the twentieth century it would have been a completely different story, as the states had been evolving in a more democratic direction as a result of all the events leading up to WWII, and this is true even after taking into account all the covert wars taking place below the surface.  Therefore the possibility of gradually socialising the economy would not have been an unrealistic way to exit capitalism.  However, it was advocated more in state circles and state enterprise circles (and therefore by what we could call the ‘enlightened’ national bourgeoisie) rather than within the actual working class.  Be that as it may, capitalism 2.0 seems to have escaped a correct understanding, due both to the interest of its main beneficiaries (the ruling classes) to misrepresent it as a ‘level playing field’ able to achieve progress and prosperity via market competition, as well as to the mistakes of its main critics, the Marxists, tending to see it as un-reformable, and in any case destined to collapse, system of imperialism and exploitation…

THE TRUE STATE OF MARKET COMPETITION – While in the high tech and capital intensive sectors of the economy monopoly/oligopoly capitalism was the norm, in the low tech sectors a high number of small enterprises was able to survive and thrive, within each national market, by means of state intervention in support of internal demand as well as non explicit protectionist barriers (health & safety regulations, state bureaucracy, licensing rules etc.) to prevent these enterprises from being gobbled up by much stronger foreign competitors (the transnational corporations increasingly coming under the ownership of the transnational elite). The presence of these ‘lower-echelon’ markets contributes to validate the narrative of free enterprise. Therefore, as the economy presented the superficial appearance of being based on market dynamics, the mythology of free market competition as the as the ‘natural’ mode of operation of a capitalist economy had no problem surviving in the perception of the general public, despite the huge transformation that the system had actually experienced.  The way the system actually worked was that, within the national borders, and also in the international space, there was a sort of controlled competition: the general rules and regulations, as well as the very conditions of existence of enterprises, were set by the nation-states with their economic policies and, further up the chain, by the hegemonic power.  In the words of Karl Polanyi as quoted by Mazzuccato (in the book ‘The Entrepreneurial State’):

‘The road to the free market was opened and kept open by an enormous increase in continuous, centrally organised and controlled interventionism’.  Mazzuccato: ‘In Polanyi’s view, it was the state which imposed the conditions that allowed for the emergence of a market-based economy.  Polanyi’s work has been revolutionary in showing the myth of State vs. market distinction: the most capitalist of all markets, i.e. the national market, was forcefully ‘pushed’ into existence by the State.  If anything it was the more local and international markets, which have pre-dated capitalism, that have been less tied to the State.  But capitalism has been strongly embedded in, and shaped by, the state from day one.’

This fact described by Polanyi, true of industrial capitalism since the beginning, is even more true for what concerns Golden Age and all advanced capitalism.  We have conclusively shown by now that capitalism 2.0 was able to avert crisis and survive only thanks to layer upon layer of institutional arrangements and government intervention.  This basic truth is recognised by the general public in an ‘intuitive’ manner, quite aside (and in complete cognitive dissonance) from the abstract representation of the economy that they have, as a consequence  the official narrative.  Proof of this is the fact that, when ‘the economy’ doesn’t do well, people blame the government, not the ‘free markets’, and the parties in power tend to lose the next elections.

As the system is managed in a progressive manner during the Golden Age, by redistributing wealth towards the bottom of society, and as the hegemonic country facilitates growth with various growth strategies, this type of governance is conducive to establishing a thriving middle class and working class, the customers of a myriad of small and medium sized enterprises.  However, the most complex productions are handled by very large enterprises, often transnational (mainly American owned), increasingly coming under the control of the transnational elite, while the frontiers of technological development, and the direction of it are determined mainly by state investment, as we will see, and access to very strategic technologies is reserved for the hegemonic country (by means of covert wars). So the system has the appearance of competition but in reality it is a controlled system.  This will be clear with the advent of the neoliberal paradigm.  Once the rules of the game are changed, over time the middle class disappears and so do medium and small enterprises.  Therefore the system is controlled, in many ways. This leads us into the next feature, industrial policy.

INDUSTRIAL POLICY – state industrial policy had existed at least since the times of Walpole (British ‘Prime Minster’ between 1721-42, as Ha-Joon Chang points out in his book ‘Bad Samaritans’) and in a more structured manner since the beginning of capitalism 2.0, but now a more formal and systematic pursuit of an industrial policy in order to shape the development of a country’s economy is unavoidable, given the level of complexity that technology has reached at this point. Governments are responsible for maintaining and upgrading an economic set-up – a mix of private and public enterprises, traditional sectors and cutting edge ones –  that allows the country to be relatively self sufficient (= able to pay for its imports).  Therefore at this stage of capitalism 2.0 we see the addition of industrial policy as one of the main levers of state management of the economy, designed to foster its long-term viability (while counter-cyclical monetary and fiscal policy can only act in the short-run, for a given level of economic development).  An economic paradigm based on mass production, and in which countries need to keep up with the competition in order to maintain balanced trade and the parity of their exchange rate under the Bretton Woods rules, necessarily needs government intervention in order to achieve the desired and needed industrial structure to cope with the situation.  In addition, the success of war-time planning of the economy during the second World War had diminished scepticism about the feasibility of government intervention and facilitated this development.  While at the same time the accepted narrative as well as the perceived necessity to avoid being seen as having communist tendencies, favoured keeping a low profile about it, also to avoid the attention of the competition.  As state intervention in this aspect of the economy (industrial policy), so very central for the future of any society, becomes ever more important with the increasing complexity of current technologies, the tendency to keep a low profile about it makes the chasm between the system as it is, and its commonly accepted representation, ever deeper.  To get an idea of how different governments tackled the problem, we can use Ha-Joon Changs words (taken from the book ‘Economics: the User’s Guide’):

‘Many governments practiced selective industrial policy that deliberately promoted targeted ‘strategic’ industries through a range of measures, such as trade protection and subsidies.  

[Next level up] In addition, many European countries took private enterprises into public ownership or set up new public enterprises, or State Owned Enterprises (SOEs), in key industries, such as steel, railways, banking and energy (coal, nuclear and electricity).  In countries such as France, Finland, Norway and Austria, SOEs are deemed to have played a key role in generating high growth during the Golden Age by aggressively moving into high-technology industries that the private sector firms found too risky. 

[next level up] Governments in countries such as France, Japan and South Korea did not stop at promoting particular industries and explicitly coordinated policies across industrial sectors through their Five Year Plans – an exercise known as indicative planning, to distinguish it from the ‘directive’ Soviet central planning. The US government officially had no industrial policy [in keeping with its role of chief custodian of the economic orthodoxy and chief opponent of the communist threat] but greatly influenced the country’s industrial development [more than any other country] by providing massive research funding to advanced industries such as computers (funded by the Pentagon), semi-conductors (US Navy), aircraft (US Air Forces), the Internet (the DARPA – Defense Advanced Research Projects Agency) and pharmaceutical and life sciences (National Institutes of Health).  

Between the 1950s and the mid-1990s US Federal government funding accounted for 50-70% of the country’s total R&D funding, which is way above the figures, around 20%, found in such ‘government led’ countries as Japan and South-Korea.  Without Federal government funding for R&D  the US would not have been able to maintain its technological lead over the rest of the world in key industries like computers, semiconductors, life sciences, the internet and aerospace’.

This leads us back into the main thread of this chapter: technological development analysed through the lens of the Kondratieff cycles and specifically how the technologies developed by the DARPA during the fourth cycle were fundamental in the dramatic reshaping of capitalism that took place soon afterwards.  But before we get to this issue in the next section, we need to make a few last reflections on who were the really progressive forces and on the true nature of this ‘unusually benign’ but in the end rather short lived parenthesis of capitalism that is known as the Golden Age.

Who were the truly progressive forces? – Industrial policy links us back to our previous observations regarding the projects of socialising the means of production.  As the states were heavily involved in the economy, it was natural that in those environments (policy making and SOE circles) many people started thinking in the direction of increasing the level of socialisation of enterprises.  In some countries even parties more on the right wing of the political spectrum, on and off had this type of proposals on their agendas. Therefore there was a tendency both on the part of state related circles and on the part of some strands of the labour movement to encroach in a realm that the capitalists saw as naturally their own.  This project never came to pass, in large part due to the ‘consumerist’ turn taken by society (and possibly also as a result of other forms of covert warfare) but it is further proof that ordinary Western governments (but also many ‘nationalist’ post colonial governments in other parts of the world) had the potential to be a much more deeply progressive force in society, than the left credits them for.  And so did some enlightened members of the ‘bourgeoisie’, or the upper classes as we would call them today, who served in these governments.  A lot more than many workers who seemed to be contented (and still are) with consumerism and/or welfare provisions (including the latest proposal, basic income).  This is due to some very basic dynamics that expose some people in top public positions to the vital necessity that each state has of having to maintain its economic as well as geopolitical viability in the high-tech (and covert-war riddled) world we live in.  On the other hand ordinary people, used to contending with more everyday sorts of issues and subject to massive doses of deception, don’t tend to attain those higher level aspirations.  

The true nature of Golden Age capitalism – We can now recall our initial considerations regarding the true nature of the post WWII settlement: criss-crossed by many tensions and pulled in opposite directions by a very progressive tendency (mainly state-led but also to some extent present in left wing circles) along with a very regressive one (mainly covert and driven by the transnational elite, but also by industrial capitalists of all nationalities).  This temporary (lasting only thirty years) arrangement is characterised by a heightened state of ‘cold war’ and a pervasive state of deception, and it is by its very nature an arrangement in transition, as the various tensions present from the very outset of this ‘solution of compromise’, tend to pull it in different directions.  In the minds of many who lived at the time the system might have seemed to have reached a state of stability and rational governance, as the economy was under control and producing very good results, the wars and horrors of the first part of the century were over for the most part, and life seemed to have finally reached a level of normality in the advanced countries (once the fear of an impending nuclear war receded), in which ordinary people, for the very first time in history, didn’t have to worry about making ends meet and were actually free to pursue their own aspirations (albeit greatly influenced by advertising and mass conditioning).  In newly de-colonised countries as well, there was a slow but constant progress, and this is probably the reason why they started to be called developing countries (until neoliberalism took care of the problem…).  In a very real way the feeling that this arrangement should be the normality still persists in Western society.  This is a ‘normality’ of life which we used to take for granted, due to the level of technological progress which we have now reached, and cannot really come to terms with the fact that neoliberalism is taking this ‘normality’ away from under our feet.  Yet technological development, the very enabler of higher standards of living, acted as the spanner in the works of Golden Age capitalism, because the development of Information and Communication Technology turned out to be a major facilitator of the neoliberal counter-revolution.   However, in a world in which the progressive forces did not fully understand the true dynamics of the system, and the regressive ones were not only much more aware, but also very skilled in covert war techniques, it is no wonder that this was the final outcome.  

In the next section we will explore this theme: we will see how from the collective efforts and huge expenditures of state directed and funded industrial policy of the Golden Age, a revolutionary technology was developed which ended up playing the role of a Trojan horse, greatly facilitating the success of a regressive development (neoliberalism) rather than a progressive one, as it had always been the case in the past.  It was a great missed opportunity, as the progressive forces did not fully understand the potential that the post-WWII paradigm offered for a transition into post-capitalism (a system operating with very low or no profits net of inflation, and in which a large part of the economy is either in public hands or in the hands of workers controlled enterprises) and eventually the transnational elite was able to close in on both radical aspirations to transform the system as well as on the much more modest aspirations of the working class for a reasonable degree of comfort and freedom from the constant struggle for survival that had characterised the life of the lower classes since time immemorial.  Before we look at the development of the new information and communication technologies that turned out to play a perverse role, we must go back to our main thread and verify our model. We need to analyse how incremental change (technological and institutional) came about this time around (in the rising part of the fourth wave), what were the main factors driving it and how they compare with those of the previous cycles. 

Considerations regarding the Kondratieff cycles

We have seen that in the first two cycles, according to Paul Mason’s model, business competition and workers resistance drive technological change, this change brings disruption until government intervention creates new institutional arrangements that enable the whole paradigm to work smoothly.

Next level up: in the third cycle technologies become complex enough and expensive enough that only big enterprises are able to handle them.  State intervention is needed both to build these enterprises and to support them by providing infrastructure, basic research, education etc., but also expansionist wars to open up new markets.

I have therefore added interstate competition but also the upper class struggle as trigger factors – taking on board the fact that the transformation of ‘anarchic’ into ‘monopoly’ capitalism was promoted, in some countries, not so much by state authorities but by the financial markets and the transnational elite hiding behind them.

Therefore at this stage the main driver of technological innovation is inter-state competition mixed with ‘deep state’ competition (or upper class struggle).  New technologies are developed by a combination of state sponsored basic research and R&D conducted in corporate labs. The working class is still very active with its resistance in shaping the resulting dynamics.

How does this model evolve during the Golden Age?

We have seen that during the Golden Age we have a very managed paradigm.  Competition still exists but it happens within very defined boundaries. The enterprises of advanced states, as well as their whole economies, compete against each other, but only within limits, as the whole Western block is organised by the USA, it has a hierarchic structure, with Germany and Japan functioning as the other two main economic poles sustaining the whole economic structure of the Western block (as described by Varoufakis in the book ‘The Global Minotaur’), and with the USA acting as the ‘buyer of last resort’ for the whole system and promoting growth and cooperation.  Within these limits interstate competition does take place, while the transnational elite slowly encroaches on the realm of the state markets via the transnational corporations, and the working class is still very active in demanding higher wages, thus contributing to push the ‘race to the top’.  So the model is fairly similar to that of the previous cycle for what concerns the mature technologies.  

However, we have mentioned that the ‘spanner in the works’ will be introduced as a result of important developments at the frontiers of technology.  And we have mentioned that in this realm there is no competition within the western block, as it is being suppressed by means of covert war, and also by the sheer financial power of the USA, granted by its ‘exorbitant privilege’.  This type of competition takes place only between the two superpowers (US and USSR) and is limited to the realms of the space race and the arms race; for the rest, the exploration of the frontiers of knowledge remains pretty much the exclusive preserve of the USA, and increasingly of the ‘deep state’, as its covert power gradually rises within the hegemonic country as well as the rest of the western block.

Therefore the model illustrated by Paul Mason and integrated with inter-state competition and upper class struggle still holds during the Golden Age, but the developments at the frontiers of knowledge start to deviate from the pattern.  It has to be noted also that the mode of ‘competition’ is changing, as overt competition is increasingly accompanied by an intricate tangle of covert warfare.  Both of these developments will be crucial for the successful introduction of the neoliberal paradigm, as we will see in the next section.

At this point it is worthwhile to sum up all the main characteristics of Golden Age capitalism, as we will continue to use these same categories in the next section and will describe/examine how they were transformed in the neoliberal era.

Technological setting – massive development of new consumer industries following a raft of new post-WWII technologies

Balance of Power – distributed (USA vs USSR – state vs deep state – industrial capital vs workers)

Institutional framework – democratic tendency (Keynesian management of national  economies) accompanied by an imperial tendency (Bretton Woods agreement and institutions as the framework for a new undercover version of the old British empire)

Growth strategy – full employment as the main public policy target, achieved with: consumerism + welfare state + warfare state = growth strategy compatible with the double objective of avoiding another post-1929 depression while keeping the masses at bay

Cultural hegemony – mass culture, mass media and mass consumption = constant deployment of assorted manipulation techniques in order to keep the masses at bay

Permanent warfare – many overlapping wars: Cold war + covert & overt wars against ex-colonies + covert wars of USA against its allies + covert wars between allies + covert war of deep state against official states + covert war against the masses (growth strategy + cultural hegemony) + overt class conflict between Industrial capital and labour

Misrepresentation of the market economy – neither the official representation of the economy (as an ‘automatically’ self balancing system with some state intervention in case of market failure) nor the representations prevalent in Marxist circles (unredeemable exploitative system) are adequate to fully understand the true nature of capitalism 2.0 – a fully managed system in which the market is an almost completely tamed animal.

True state of Market competition – a system of controlled competition within the national markets is in force, in which the states set the rules and create the conditions for medium and small enterprises to survive, while more capital intensive productions are handled by SOEs or transnational corporations in oligopolistic conditions.

Industrial policy – due to the necessity to maintain parity of exchange rate and balanced trade, and to the complexity of existing technologies, states become fully and officially (although not too loudly) involved with industrial policy

Transition issues – eventually (during the 70s, 80s and 90s) the transnational elite/deep state wins against the workers (transformed into a consumerist mass), against the USSR (collapsed in 1989-91), against the states (whose governments are variously infiltrated and destabilised or replaced as a consequence of various ‘regime change’ operations) and over time manages to pass a series of reforms (financial deregulation, delocalisation of enterprises and free trade agreements) designed to rebuild an undercover empire.  The notable aspect to highlight at this point is that the new technology developed under Golden Age capitalism (the Information and Communication revolution) will turn out to be highly instrumental in creating and consolidating the new version of capitalism, neoliberal globalisation.  The full story is in the next section…


Go to 7c) The 5th Cycle, Neoliberalism