The current stage of ‘neo-capitalism’ or ‘state monopoly capitalism’ is characterized by a qualitatively expanded role of the state in capitalist social formations.footnote1 One expression of this huge politico-economic weight of the modern state is the prolonged expansion in state expenditures, such that they now exceed one half of gross domestic product in contemporary Britain.footnote2 Yet despite this, there have been only isolated studies by Marxists which systematically examine the causes and consequences of this unprecedented growth. In the following sections we propose to outline the patterns and trends in state expenditure in the major capitalist economies; briefly to analyse the nature of the modern capitalist state and its socio-economic setting; in the light of this to attempt an explanation of the growth and composition of state expenditures; and finally to consider briefly some of the major economic and political consequences of this phenomenon. Beforehand, however, it is incumbent on us to consider current theories and state why we regard them as unsatisfactory or incomplete. To this end, the recent studies of O’Connor, Yaffe and Barratt Brown will be singled out for attention.

The Fiscal Crisis of the State by James O’Connorfootnote3 is an important book representing the first systematic attempt by a Marxist to come to grips with the explosion of state expenditure since the Second World War. Its complexity means that any brief discussion will necessarily do it an injustice, and the reader is referred elsewhere to an extended review of it.footnote4 Briefly, the growth of the state is, for O’Connor, both a cause and consequence of the expansion of monopoly capital. The growing socialization of production necessitates greater state intervention to ensure private accumulation and profitability; hence social capital expenditures on roads, education, research and development, etc. This stimulates the development of productive capacity, notably in the monopoly sector of the economy, but demand for its products rises less fast bringing about tendencies to surplus capacity and surplus population. This in turn generates a further round of social expenses designed to generate demand but not add to capacity: surplus capital necessitates military expenditure and the surplus population requires an expansion of state functions in welfare relief, etc.footnote5 The result is a two-fold growth of state expenditure: on indirectly productive social capital and on unproductive warfare-welfare expenses. This growth tends to a structural gap between state revenue and expenditure, or a fiscal crisis of the state. The outcome of this can take a variety of forms, the major one of which is inflation, the solutions to each creating further problems.

Whilst the first part of the argument (concerning the growth of social capital) is sound and whilst the whole is embellished with many powerful insights, the second part rests on two false ‘laws’ of Marxist political economy: the tendencies to immiseration of the working class and to underconsumption.footnote6 The first is nowhere seriously entertained today, but the second continues to flourish, most notably in the usa where the influence of Baran and Sweezy’s Monopoly Capital continues strong.footnote7 It thus represents in this respect a sophisticated version of their argument, and indeed of associated theories of the permanent arms economy.footnote8 For Baran and Sweezy it was not the economic nature of arms spending which made it ideal for offsetting tendencies to underconsumption, but its political nature. Given the power structure of us monopoly capitalism there were powerful forces opposing the growth of Federal spending on civilian items,footnote9 but there were no established private interests opposed to the expansion of the military establishment, which moreover had other functional consequences for monopoly capital. O’Connor on the other hand correctly recognizes the productive contributions of many other state activities today. But for him, precisely because they augment productivity in the monopoly sector, they exacerbate the gap between this and the demand for its products, thus furthering the need for state expenses (welfare relief, etc.) to cope with the resulting surplus population. A dynamic interplay thus occurs as a result of the two contradictory functions of the state—to aid private capital accumulation and to legitimize its social relations—but this is premised on the existence of tendencies to overproduction in the monopoly sector.

The errors of Marxist underconsumption and associated breakdown theories have been exposed elsewhere.footnote10 These errors undermine all attempts to explain the growth of modern state expenditure as an offset to lack of demand elsewhere in the economy. The theory of the permanent arms economy—the most popular variant of underconsumptionism—is not even in tune with the facts, since military spending has continually declined as a share of the total in all western countries since the early 1950s.footnote11 Kidron’s attempt to resurrect it by demonstrating that military spending acts instead as an offset to the falling tendency of the rate of profit has been refuted.footnote12 More generally, all such theories suffer from two related weaknesses: the lack of a historical approach and a mechanistic distinction between the economic base and the superstructure, between objective and subjective factors. Purdy argues well against the first (in connection with the arms economy theory): ‘Attention is focused on the function of arms spending within an ongoing capitalist economy. The historical genesis of the arms economy is ignored . . . . The arms race is a historically specific feature of a particular stage of capitalist development. To confine analysis to an account of its functional role in modern capitalism is to fall into one of the basic methodological faults of bourgeois social science: the complete failure to understand the present as history.’footnote13

The same argument applies to all theories of the state premised on ‘breakdown’ theories of the economy. The associated error is a false polarization of the economy and the superstructure. The former is seen as an autonomous ‘factor’ leading, if unchecked, to some form of economic breakdown, whereas the latter is interpreted as a passive instrument in the hands of the bourgeoisie whose functions are determined by the offsetting action required in order to avoid or check the tendencies to breakdown. We shall argue below that the capitalist state is characterized by a relative autonomy from the economic structure and is responsive to the ongoing struggle between and within the dominant and dominated classes. All this is in fact recognized by O’Connor,footnote14 and this is the real merit of his book, but it coexists uneasily with a functionalist view of the state stemming from his underlying analysis of the economy.