12 min read

Political Aspects of Malemployment

As the Russian economy ambles into a permanent state of 'partial' mobilization, the political consequences for the underpinnings of the political system and socioeconomic construct frequently mislabeled "Putinism" are stark. Contradictions abound. The 'capitalist' in Russia today, insofar as the aged descriptor has much utility, is in misery. Demand is falling – retail turnover is down approximately 10% vs. 2021 with no evidence that incomes will recover soon. The bullwhip effects seen across economies globally due to Covid are evident from the disruptions and higher logistical and operating costs induced by the sanctions regime. Higher-tech railwagons with larger cargo capacities are no longer being produced. Light automobile manufacture is down around 70% for the year. Over 56% of capital investments made in value-added industries come from the chemicals, petroleum products, and metallurgical sectors – effectively linked in each case to resource extraction and exports that have not been directly sanctioned and depend on foreign demand. Net investment into value-added output – the sector most relevant for any policy effort to minimize the effect of sanctions and export controls – is down 0.9% year-on-year. Investment into agriculture, one of the over-performers of the last 8 years, is down 8.2% and so on. For much of the last two decades, public spending from different levels of government has dominated the business cycle, levels of investment, and by extension levels of consumption. One can see quite clearly just how bad the situation is based on budget revenues:

These figures are nominal, dodging the degree to which inflation is also eroding the relative value of revenues coming in and hiding (somewhat) the passthrough from lower levels of retail turnover and household consumption into tax revenues. These figures ultimately do not do justice to the scale of the changes taking place as concerns capital in Russia. The causes are fairly straightforward. Sanctions have short-circuited the traditional role of exports and Russia's current account surplus. With the loss of ruble liquidity and greater difficulty converting FX earnings into imports of consumer and dual-use goods, the economy is becoming more militarist in nature because of the lack of alternatives. Prime minister Mishustin has explicitly set forward the aim of reorienting SMEs' production to serve the war effort, effectively substituting the household demand that is now drying up with that of the military and defense sector writ large. Some call this phenomenon military Keynesianism, a blunt force deployment of state resources to boost investment and consumption. But doing so misses the reality that state spending in real terms is, in fact, being cut over the next several years and that stimulus is not the highest aim of the authorities despite the fact that 3Q data showed businesses had on net increased their fixed investment by 3.1% year-on-year amid difficult circumstances. Something different and otherwise novel is emerging unlike than 'stimulus' in the traditional sense of the term rooted in the reflexes of past crisis responses.

Michal Kalecki's article Political Aspects of Full Employment, published during the Second World War, captured the revealed preferences of big business and capital despite what wartime economies exposed was possible. Wartime interventions and spending revealed that economies held a great deal more productive capacity and the capability to sustain the employment of every able person should the political choice be made to pursue full employment. Exploding budget deficits had not produced extreme levels of inflation, nor had the employment of virtually every adult possible produced the sort of economic crisis envisioned by proponents of the gold standard, 'hard' money, and overzealous restraint. Rationing and taxation curtailed inflation as output rose. All the more strange, the war produced conditions in which consumption was effectively subsidized through wage controls, labor agreements, and the sheer demand for labor and also produced great increases in the provision of public investment. Factories, ports, roads, airfields, railways went up to help sustain what had become total war. Kalecki's chief insight followed from the political risks for capital brought on by a period of sustained full employment. War had to end eventually, and so would the temporary political conditions producing full employment in capitalist economies.

In otherwise 'normal' conditions, the preference of capitalists to invest or otherwise withhold their capital, thereby reducing incomes, consumption, and production, was driven by confidence. Confidence of course can mean a great many things, but is perhaps best understood as a combination of certainty about returns on investment – the demand/cost side of the ledger – and certainty that the state will not displace or hinder the activity of capitalists. Herein lies an interesting phenomenon if one assumes the profit motive rules all. State spending on public goods – roads, railways, health services, and more – is acceptable so long as the state does not encroach on places where business can extract profits. If the state subsidizes the consumption of workers through the likes of universal basic income, various social transfers, higher minimum wages and other instruments otherwise not too burdensome for the capitalist, the state is effectively underwriting demand that would lead to profits for the businesses able to meet it. One can see this relationship expressed elsewhere by Kalecki (and independently by American businessman Jerome Levy around the same time) through the Kalecki-Levy profit equation, a mechanical accounting of where profit comes from. I recommend Nathan Tankus' note covering the equation as a refresher for anyone unfamiliar:

Investment + Dividends + Government Budget Balance + Household Sector Balance + Current Account Balance = Profits

Government Budget Balance + Household Sector Balance + Current Account Balance = Financial Profits

Government Budget Balance + Domestic Private Sector + Current Account Balance = 0

Should state spending be used to bolster workers' incomes and consumption, that would show up among households, encourage greater investment to meet demand, and likely prompt an increase in imports (thus reducing any current account surplus or increasing a current account deficit). Since demand drives investment, stronger demand leads to greater investment which also leads to greater profits as the money spent by capitalists becomes a worker's income. That investment then expands the productive capacities of the economy to its limits, until hitting sectoral mismatches in supply and demand for materials, capital, and labor that result in inflationary pressures.

Yet capitalists revolt against periods of sustained full employment backed by state support for workers while more frequently accepting state investment into public goods. Kalecki notes that while businessmen may claim to have faith in austerian, classical economic beliefs that call for fiscal probity on the part of the government as a service to the public, their claims belie their class politics. As Kalecki notes the dissonance given the near universal opposition to major fiscal stimulus and Depression-era economic programs intended to help workers:

"Clearly higher output and employment benefits not only workers, but entrepreneurs as well, because their profits rise. And the policy of full employment outlined above does not encroach on profits because it does not involve any additional taxation. The entrepreneurs in the slump are longing for a boom; why do not they accept gladly the 'synthetic' boom which the Government is able to offer them?"

The reason is simple. If governments maintain levels of employment in pursuit of social good, they rob capitalists of the power to determine the level of employment. In effect, they weaken the hold that capital has over labor in enforcing its precarity.  "The social function of the doctrine of 'sound finance' is to make the level of employment dependent on the state of confidence." Translation: the state and working public must come to business like a beggar, hat in hand, when times are tough. Economic ideologies centered on balanced budgets, most often invoking the specter of the simultaneously anonymous and universal child as an object to be protected from predation, are a reflection of a moral order rather than an objectively rational economic one. "The fundamentals of capitalist ethics require that 'You shall earn your bread in sweat' – unless you happen to have private means." Criticisms of labor claiming that unions or individuals want something for nothing are, in general, really about disciplinary imaginaries to be actualized. Should policy remove the threat of being laid off and poverty, capitalists lose their most potent social weapon despite the evident reality that full employment creates opportunities for greater profit. It is therefore an unfortunate home truth that "discipline in the factories and political stability are more appreciated by the business leaders than profits." The power to punish trumps the profit motive. Spend half an hour on Twitter watching right-wing economics, politics, and 'geopolitics' commentators opine about this or that based on a conversation with their rich friends at an investment bank or the party donors or like-minded businesspeople they court and it's obviously true. One sees similar sentiments here expressed, intentional or not, by the annoyance heaped on strikers without reflecting for even a moment exactly why so many people are now convinced the only option left to them to secure their own material security is to withhold their labor in the first place. Perhaps it's most grating expression on Twitter in the last year has been the moral panic of well-off Washington wonks angered by the moral hazard that forgiving student loans apparently induces (one recoils in horror at the licentiousness of people being able to make rent or, as the sound finance brigades demand, actually save).

Kalecki's insights then expand to include the significance of full employment as pursued in fascist societies, whereby full employment is pursued in an attempt to militarize and rearm. Thus instead of leading to higher levels of consumption and improvements in welfare, resources are denied to households and transferred to the state for the purpose of making war. This is where I find his insights most interesting when considering what exactly is happening today in Russia, especially because of the flagrant abuse of the term 'fascism' by commentators, hawkish academics, and grifters now emboldened by the brutal realities of the Russo-Ukrainian war.

The regime that has developed in Russia since the default of 1998 can safely be described as "neoliberal" in its policy orientation, though the term does a significant disservice to the historical antecedents and elite preferences among Russian elites. These preferences have comparatively little to do with the ideological traditions of ordoliberalism or the neoliberal turn of the 1970s and 1980s and rather reflect material realities and constraints on the state as well as its economic position and incapacities in the face of geopolitical competitors. Still, it is easy to lose sight of the fact that a decade-long inflationary crisis gave rise to what we now, mistakenly in my view, call Putinism or Putinomics. Curbing inflation in 1998 required something akin to a shock from above. Gorbachev's reforms robbed the Soviet state of the power to control the money supply – enterprises controlled their own banks, subverting assumptions about the efficient allocation of capital or costs of credit – some regional governments went so far as to issue their own parallel scrip to be redeemed for rubles, and trade liberalization and easy monetary policy in the wake of the collapse, lobbied for by the Duma and businesses, accelerated the dollarization of the economy and move towards barter as inflation wrecked the real exchange value of the ruble and borrowing rubles to buy foreign currency offered hefty returns. Undoing the damage took years, in no way aided by a war of secession in Chechnya and unending fights over the control of strategic assets and policies. Put another way, the crises of 1987-1998 evolved into a fight over the capacity of political institutions to 'discipline' interest groups that only resolved to some degree with the domestic default on August 17 1998.

The consensus agreement that emerged from that default included an understanding that the scores of monotowns and comparatively inefficient regional economies developed around heavy industries and resource extraction in frequently remote, underpopulated areas would not be forced into liquidation. In effect, a political choice was made to avoid mass unemployment at the expense of capital and productive efficiency. By default and design, this arrangement poses greater inflationary risks than might otherwise be observed across the Russian economy. Regional wages are adjusted upwards to account for higher costs of living in remote areas, corporate structures are frequently redundant from Soviet-era practices, and suboptimal outcomes are accepted as a political necessity. Allowing mass unemployment and a sudden collapse in regional living standards has, to date, been unthinkable politically despite the creeping centralization of political and financial power in Moscow. Since populations have to be sustained above what are otherwise optimal costs and through the extensive use of formal or informal subsidies, there is greater pressure on the Bank of Russia and fiscal institutions to instill some sort of discipline. Money must go unspent and unborrowed in place of more explicitly violent means of repression.

Austerity, therefore, has a useful political logic for the regime as it has incorporate what are otherwise 'neoliberal' bugbears into its policy framework and assumptions. Inflation being a political phenomenon as much as anything, the revealed preference to slash spending on public goods and only undertake income support for workers when absolutely necessary or electorally advantageous simultaneously allow the regime to discipline business – we are not going to bail you out without making you pay us – and labor – you will have to earn your standards of living in sweat until you retire. Much of the political disorder that arose at the end of the USSR came from the fate that befell Gorbachev. He was forced to buy loyalty and spend his way through reforms that were undoing the state apparatus that managed the economy in the first place. Deflation done right binds capitalists and the public alike to the state. It is not just the sack, but the capacity to take all that the capitalist owns or, often more accurately, enjoys that form the coercive basis for these relationships. In wartime, the loss of foreign markets and alternatives further increase what might be called the 'carrot' but is more realistically the hard tack in the equation. There is nowhere else to turn.

But now that economic mobilization has begun more formally, led by the new Coordination Committee tasked with redirecting resources and output from civilian sectors to the military, the need for economic slack runs completely against the political aims of the regime in Ukraine. With hundreds of thousands of higher-paid workers leaving, diminished interest from migrant laborers who now face a more difficult set of calculi, and conscription taking working-age men from productive pursuits to the military (a net drain on public resources at the expense of the state), slack undermines reverse industrialization. Slack undermines maximizing output at existing factories and with the existing stock of capital goods imported or otherwise. Slack denies the regime the capacity to truly mobilize for war in a systematic way while reducing the costs of conscription in the first place. There is, however, no alternative.

Were the regime to take the final step towards the fascist policy of full employment in pursuit of a totalizing war, it would need far better coercive institutions and capacities to prevent labor from realizing its power. The specter of mass strikes has a long, complicated history in Russia, a frequent sign of turmoil and upheaval to come. Instead, the system is trapped within the parameters of what might be called malemployment. This is not strictly 'bad' from a social perspective – it is better to have people paid and surviving than not after all – but distorts the political options available to the regime. Unemployment levels must be managed in Goldilocks fashion amid wartime mobilization, aided in part by the social institutions in Russia surrounding the workplace. Total mobilization isn't just an issue in terms of costs or protests against the war. It would undo much of the 'glue' that holds the country in apathetic limbo. The military would be competing with productive industries feeding it for bodies. Workers would have far more power from withdrawing their labor for political purposes as well. One can easily imagine coal miners, roughnecks from oilfields, mechanics at Russian Railways, and more reaching a breaking point if too many casualties are sustained, too many friends off to the recruitment office and not coming home. Equally the managers of state enterprises and large firms would be on the phone with the presidential administration, with the Ministry of Labor, with whoever would help demanding more be done to stop workers from demanding more as their wages buy them fewer imports over time, as the exchange rate becomes less reliable an indicator about their purchasing power, as the luxuries afforded by the economic gains made after 1998 become more dear and rarer. The conscious choice to rob the country of growth after 2008 made it possible to slow boil society like a frog as the regime slid into war.

With these constraints in mind, the system of 'malemployment' is effectively a system whose strengths rely on its weaknesses. Import substitution will likely never take place as intended precisely because the conditions necessary to achieve it would render the regime's strongest tools to condition and discipline the public irrelevant. Conscription can be managed in stages, in part, because there is slack left and the threat of the sack keeps most people's heads down or otherwise incentivizes them to sign up given the lack of other options. Capitalists are not an independent class in Russia, this is an important distinction from the logic presented by Kalecki, but equally the state is mined for money as a business venture by those in command of its leading institutions and companies or with access to the right individuals. The need to be able to instill discipline vertically trumps any material gain or logic that would allow the regime to more readily achieve its aims in going to war with Ukraine and, as they conceive it, the West more broadly. The longer current conditions go on and the fiscal system retrenches, the worse the contradiction between these competing interests becomes. Desperation is the best motivator for anyone signing up to serve at this point. Imagine the devastation when wave after wave of conscripts return home to find things even more desperate than they left them. Everyone will in fits and spurts be forced to defend or justify their complicity given how much worse it can get, equivalent to the political mobilization of abjection.

One can not accurately describe Russia as fascist. To do so assumes a degree of coherence, a real ideology, and set of mobilizational outcomes that defy the underpinnings of the regime now in place. Better to think of Russia as the political manifestation of the Tory or factory owner with a violent streak in extremis. There's a reason that Finance Minister Anton Siluanov and other economic technocrats complained that the West's collective economic response to Covid exemplified the "childish diseases of leftism." Russia, in their view, suffered from high inflation because of the lack of discipline seen elsewhere. Privation is a moral good, dressed up in the language of economic objectivity (despite the complete lack of empirical evidence for claims casually thrown around about the effect of the Federal Reserve or quasi-Soviet "speculators" on commodity markets). The West is not merely an enemy of Russia, it is profligate and morally decadent because it lives for today and defies our interests. The country won't be able to ever mount the challenge to American hegemony it had hoped for within the current coordinates of the economic system the regime has built. Regime security comes first. Without slack and the sack, things fall apart.