Question

Discuss the process of decline in the 1970s, economically, socially, politically, etc. Why were so many institutions seemingly in decline at this time? How did various groups respond to that perception?

Answer 1

A capitalist economy is like a very complex machine. It involves millions of individuals and capitalist firms, all making decisions that are not deliberately coordinated beforehand. The many gears of this machine do not automatically mesh. When some people decide to save part of their incomes, it does not automatically mean that they will find others who want to borrow and invest. When some people decide to invest, it does not automatically mean that they will find buyers for the goods produced as a result. Whether the gears of a capitalist economy mesh or not depends on the institutional framework in which capitalist companies operate. If the institutional framework does not work, and the gears do not mesh, the result is a crisis.

The most severe crises may actually threaten not only the established framework, but even the continued existence of the capitalist system itself. In the last century, there have been three periods of profound crisis in the framework institutions of U.S. capitalism: the Great Depression of the 1930s, the crisis of the 1970s, and the current crisis. Of these three, the Depression was the most profound, though it did not come close to threatening the capitalist system in the United States (it came much closer in other capitalist countries). Both the Depression and the crisis of the 1970s, however, resulted in major changes in the framework institutions of U.S. capitalism. The Depression ushered in an era in which the framework included a relatively large government role and powerful unions in the most important industries. This is sometimes known as the period of “regulated capitalism.” The crisis of the 1970s ended this era and ushered in another, characterized by a new framework in which the government role diminished and unions were gravely weakened. This is sometimes known as the era of “neoliberal capitalism.”

A retrospective look at the crisis of the 1970s—as a pivot between two different eras in the history of U.S. capitalism—is not just an exercise in nostalgia. Rather, it is an opportunity to try to extract lessons from the history of U.S. capitalism, including this and other crises, to apply to the current crisis and its possible outcomes.

The “Golden Age” of U.S. Capitalism

Mainstream (“neoclassical”) economists often act as if capitalist economies operate according to unchanging universal laws, and that any violation of these “laws of the market” (such as government macroeconomic intervention, industrial regulation, social welfare spending, unions, etc.) inevitably spells disaster. The performance of the U.S. economy during the so-called “Golden Age,” from the late 1940s to the early 1970s, belies this view.

During this period, the U.S. economy was less characterized by the “free market” policies favored by today’s mainstream economists than during the periods before or since. A much broader consensus existed among economists and policymakers of the need for government intervention to stabilize the overall economy, prevent recessions, and maintain full employment.

The limited capital-labor accord included the willingness of large employers to recognize unions and bargain collectively, and the unions’ acceptance of management control over the production process in exchange for wage increases tied to productivity growth, health and retirement benefits, and job security

The capitalist-citizen accord included the government commitment to preventing mass unemployment and the establishment of the social welfare state. These were responses to the Great Depression and the upsurge in social protest during the 1930s, and helped moderate the levels of social protest in the late 1940s and 1950s. Again, the idea of an “accord” requires serious qualification. In the era before the main advances of the Civil Rights and women’s liberation movements, most of the U.S. population was excluded from any accord. These grievances would give rise to the explosive social protests of the 1960s.

The “Pax Americana” refers to the dominant position of the United States in the capitalist world. In the early postwar period, the leading U.S. companies had little to fear from international competitors, then only beginning to emerge from the ruin of the Second World War. U.S. political and military power, meanwhile, helped secure sources of cheap raw materials and energy. The U.S. government propped up friendly dictators whom it could count on to “fight communism,” maintain the security of U.S. companies’ investments, and quash efforts at labor organization. When this strategy failed, as when socialist or nationalist governments came to power and threatened U.S. companies’ property or access to cheap labor, the U.S. government engineered coups or intervened militarily.

Capitalists found plenty to complain about in the postwar social structure of accumulation, especially the large role of government and the relative strength of the labor movement. Government macroeconomic stabilization policies, the welfare state, and large powerful unions in the core industries, however, were part of an institutional framework that fostered capitalist profitability and economic growth. Government macroeconomic stabilization policies helped to prevent recessions, and the loss of sales and profits they entail. Social welfare programs, like unemployment insurance, acted as “automatic stabilizers” by moderating the decline in incomes and spending during recessions. The existence of unions and the steady increase in real wages helped to fuel booming demand for the products churned out by growing mass-production industries.

The conditions that fostered successful capital accumulation and economic growth in the United States during the “Golden Age” broke down toward the end of this period. The postwar institutional framework, so successful in conventional terms for a quarter century, gave way to crisis not only because conditions changed around it, but because its own operation undermined its continued viability.

Domestically, the so-called “capitalist-citizen accord” broke down in the politically explosive 1960s. Mass social movements—civil rights, women’s liberation, anti-war, environmental—were part of this change. Increased pressure for social reform also gave rise to increased government regulation of private business. Under the old “economic” regulation, government agencies had overseen specific industries such as railroads, trucking, telecommunications, utilities, or banks. In contrast, the “new social regulation,” including environmental, consumer-protection, occupational safety and health, and anti-discrimination laws, affected companies across all industries. Regulation was a way, in the late 1960s and early 1970s, for the government to respond to increasing demands for reform without increasing government spending (already surging for both domestic and war purposes). Capitalist corporations railed against the new regulations as imposing onerous new costs of doing business.

The crisis of the 1970s marked the end of the “Golden Age” framework and the advent of “neoliberal” capitalism. The triumph of an economic policy agenda hostile to government economic intervention, social welfare programs, and labor organization was part of a broader shift to the right in U.S. politics. The right drew on currents in U.S. political culture pining for an imagined past of individual independence and blaming government regulation, taxation, and social programs for the perceived economic and moral decay of society. It tapped into and fueled a backlash against the civil rights and women’s liberation movements. Conservatives channeled this rage into attacks on social programs and affirmative action. It also drew on the power of nationalism, and the identification of many ordinary people with the superpower status of the United States. It promised to reverse recent blows to the national self-image—the defeat in the Vietnam War, the rise of OPEC and the oil shocks, the Iranian Revolution and hostage crisis, the apparent loss of economic dominance to international competitors—and to restore the country to its rightful place of worldwide supremacy. These were the pillars of right-wing “populism” in the 1970s and 1980s, and to a great extent remain so today.

n the 21st century, historians have increasingly portrayed the 1970s as a "pivot of change" in world history, focusing especially on the economic upheavals that followed the end of the postwar economic boom. In the Western world, social progressive values that began in the 1960s, such as increasing political awareness and economic liberty of women, continued to grow. In the United Kingdom, the 1979 elections resulted in the victory of its Conservative leader Margaret Thatcher, the first female British Prime Minister. Industrialized countries, except Japan, experienced an economic recession due to an oil crisis caused by oil embargoes by the Organization of Arab Petroleum Exporting Countries. The crisis saw the first instance of stagflation which began a political and economic trend of the replacement of Keynesian economic theory with neoliberal economic theory, with the first neolibera lgovernments being created in Chile, where a military coup led by Augusto Pinochet took place in 1973.

Novelist Tom Wolfe coined the term "'Me' decade" in his essay "The 'Me' Decade and the Third Great Awakening", published by New York Magazine in August 1976 referring to the 1970s. The term describes a general new attitude of Americans towards atomized individualism and away from communitarianism, in clear contrast with the 1960s.

In Asia, affairs regarding the People's Republic of China changed significantly following the recognition of the PRC by the United Nations, the death of Mao Zedong and the beginning of market liberalization by Mao's successors. Despite facing an oil crisis due to the OPEC embargo, the economy of Japan witnessed a large boom in this period, overtaking the economy of West Germany to become the second-largest in the world.  The United States withdrew its military forces from their previous involvement in the Vietnam War, which had grown enormously unpopular. In 1979, the Soviet Union invaded Afghanistan, which led to an ongoing war for ten years.

The 1970s saw an initial increase in violence in the Middle East as Egypt and Syria declared war on Israel, but in the late 1970s, the situation in the Middle East was fundamentally altered when Egypt signed the Egyptian–Israeli Peace Treaty. Anwar El Sadat, President of Egypt, was instrumental in the event and consequently became extremely unpopular in the Arab world and the wider Muslim world. He was assassinated in 1981. Political tensions in Iran exploded with the Iranian Revolution in 1979, which overthrew the Pahlavi dynasty and established an Islamic republic of Iran under the leadership of the Ayatollah Khomeini.

Africa saw further decolonization in the decade, with Angola and Mozambique gaining their independence in 1975 from the Portuguese Empire after the restoration of democracy in Portugal. The continent was, however, plagued by endemic military coups, with the long-reigning Emperor of Ethiopia Haile Selassie being removed, civil wars and famine.

The economies of much of the developing world continued to make steady progress in the early 1970s because of the Green Revolution. They might have thrived and become stable in the way that Europe recovered after World War II through the Marshall Plan; however, their economic growth was slowed by the oil crisis but boomed immediately after.