Class Struggles and National Debts

The political conflicts and street battles in Greece today foretell what is coming to many countries including the US.  The struggles are basically over what the government spends on and who pays the taxes.  In today’s class-divided societies, classes differ over what governments should do and who should pay the taxes.  Governments in such societies often turn to borrowing — which produces national debts — as ways to defer and postpone the political problems of resolving class struggles focused on the state.  By borrowing, governments can immediately accommodate — at least partly — the different class demands for government spending while postponing the raising of taxes into the future (when they will need to be raised more, of course, to repay the amount borrowed plus interest).

Problems arise when lenders to such governments demand much higher interest payments or refuse to lend more.  Then rising national debts can no longer postpone resolution of the underlying class struggles.  Those debts react back upon and intensify those struggles.  So it is in Greece today, and so it will be elsewhere in the months and years to come wherever governments cope with their societies’ class divisions by borrowing.  Class struggles deferred often become class struggles sharpened.

Employers and employees struggle everywhere over what activities the government should and should not perform.  Employers want governments to support and enhance the profits they seek (build and secure the transportation and communication infrastructures they want, educate their workers, protect their markets, enforce their contracts in courts, etc.).  Employees, in contrast, want the government to support their incomes, families, and standards of living (provide unemployment insurance, social security, medical insurance, public parks, subsidized housing and public education, etc.).

At the same time, employees and employers struggle over who is to pay the costs of government expenditures.  Employers seek to burden employees by shifting income taxes onto middle and lower income earners, by imposing sales and property taxes that fall disproportionally on those earners, and so on.  Employees seek to push tax burdens in the opposite direction (more progressive income taxes, capital-gains and dividends taxes, etc.).

The two sides’ relative strengths — their organizations and resources — usually determine the patterns of government expenditures and what portion of the tax bill each side pays.  Rarely employers and employees agree on these contentious issues.  Mostly, conflicts and struggles between the two sides pressure governments.

Governments fear the political costs of going so far in placating one side that they risk being ousted from power by the other side.  Borrowing thus eases their problems at least temporarily.  Moreover, politicians borrow because the eventual costs of accumulating national debts fall upon their successors.

Of course, lenders to governments come chiefly from employers, not employees.  Lenders are, of course, complicit in building up national debts because they collect most of the interest payments from the borrowing governments.  From the employers’ perspective, the national debt often looks like an attractive lesser evil.  The employers fear that when the government gets into a corner — it needs to spend more, say, to bail out a capitalist crisis — it may find it politically impossible to impose higher taxes on the mass of employees.  Indeed, employees might then seek, and the government might be tempted, to raise taxes on employers.  The employers prefer a lesser evil: instead of taxing us, they say in unison, how about we lend you the money.

Major lenders to governments around the world are banks; hence they are major gainers from national debts.  The current explosion in national debts is thus a bonanza for the world’s banks.  As major contributors to the current crisis, banks now reap major gains from the government borrowing undertaken to cope with that crisis.  The alternative and much cheaper path — to tax employers rather than borrow from them and repay with interest– is barely discussed.

Lenders to governments understand that class struggles postponed may thereby be sharpened.  As Greece’s national debts mounted, lenders worried about the rising interest costs facing the Greek government.  They watched Greek society wrestling over who would suffer to enable the government to pay the interest on its accumulated national debt.  They foresaw a possible stalemate where the Greek government would be unable to either raise taxes or cut spending on employees.  The lenders thus confronted the risk of a Greek government tempted into default, declaring it would not repay its lenders part or all of what it had borrowed (as, for example, Argentina did a few years ago).

The lenders therefore began refusing to lend any more to Greece (or even to roll over debt coming due) or they demanded much higher interest rates.  In effect, lenders demanded that the Greek government either tax employees more or else cut government spending on employees to free up money to service Greece’s national debt.  Or else no more loans and/or much higher interest on loans.  The European Union’s leaders repeated the demands of the private lenders when they offered public loans from the Union at lower interest rates than private lenders.  The European Union’s leaders (chiefly Germany’s Merkel and France’s Sarkozy) shared the fears and perspectives of private lenders that Greece might default.  Then, too, German and French banks were the largest lenders to the Greek government and so had special vulnerability to a Greek government default.

The moral of the story of class struggles and national debts is this: government borrowing is capitalism’s very employer-partisan way out from a political dead end.  It rewards lenders nicely, but it only works for a while.  Employers who avoid taxes and instead lend to governments eventually encounter the risk of default by over-indebted and politically stalemated governments.  Then employers refocus their own and governments’ efforts back on the old, underlying class struggles by concerted attacks to reduce government spending on employees while taxing them more.  Americans will confront the same basic situation as the immense and growing US national debt brings its lenders to a similar crossroads.  Meanwhile, workers from Greece to Portugal, Spain, Italy, Ireland, and beyond ready themselves for massive, sharpened struggles.


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