3. Fiscal Policy
In Hegemony, the fiscal policy affects the players in two specific ways. On one side, it restricts the amount of money the state can spend or lend, and, on the other, it determines the potential size of the public and private sector. Let us, for the sake of understanding, divide this policy into two topics: Public expenditure and public debt and the question of the ownership of the means of production.
3.1 Public Expenditure and Public Debt
Public expenditure describes all expenses made by a government in order to allocate a certain number of financial resources to all public policies – social policies, labor market policies, health policies, educational policies, child protection policies, pensions, security, infrastructure, and so on. Public debt is created by budget deficits, whereby public expenses are larger than public revenue. Additionally, this situation can arise when the state is burdened with loans. In general, public debt is expressed as a ratio/percentage of the Gross Domestic Product (GDP).
Socialism
A socialist nation relies on a very large public sector and state interventionism in economic and social processes is one of its main drivers. Public expenditure is very high due to the overarching role of the state in the distribution of resources: The state is the main employer, has the main responsibility for the welfare of the country, and conducts crucial investments for its economic growth. In the social sphere, increased public and social expenditure enables free and universal access to public and social services. Thus, as the state is the primary economic agent and uses its citizens´ savings, public debt should be avoided, but external debt (which the state owes to foreign creditors) might be required to import vital goods.
Social Democracy
Social democracies possess a medium-sized public sector. Social democrats emphasize that the market, especially if unregulated, will gradually create economic inequalities by redistributing wealth from bottom to top. Thus, public expenditure is high in order to finance and sustain an extensive welfare state to counteract those dynamics. Additionally, public businesses operate alongside private enterprises and the state only intervenes to regulate, adjust, and correct market imbalances and failures. Therefore, social democrats regard budget deficits and public debt as acceptable as long as the increased expenditure is being used to attenuate recessions, stimulate growth, and boost employment. Hence, social democrats endorse the extension of aggregate demand (i.e., the total demand for goods and services in an economy) which is a key element in Keynesian thought.
Neoliberalism
In neoliberal societies, markets are the leading forces of the economy. Hence, neoliberals promote limited state interventions so as not to disturb their operation. Consequently, the public sector is small and public expenditure low. The public sector must be small, so it doesn’t collide with private initiatives and disrupts the competition on the free market. Public expenditure should be kept at low levels to keep the welfare state residual to cover only those citizens in absolute need. As such, neoliberals propose a strict budgetary discipline to avoid public debts at all costs as according to them, the restriction of the free market provokes rising unemployment, the weakening of the economy, and economic crises.
Debate on Public Expenditure and Public Debt
In the debate surrounding fiscal issues, socialists and neoliberals represent two radical stances with social democrats taking the middle ground.
Social democrats, as well as socialists, are opposed to the neoliberal position of a minimal state. Both camps hold the opinion that a large state is essential for the regulation of social and economic affairs as the free market is unable to adequately provide citizens with necessary social goods (e.g., health, education, employment prospects). Hence, high public and social expenditure can fund public policies that can reduce social inequalities and promote social development. But while for socialists the state completely replaces the market principle, social democrats regard the state as a safety net and guarantee against the failures of the free market.
On the other side of the spectrum, rising levels of public debt during the 1970s was one of the main arguments for the limitation of the public sector by neoliberals. According to them, the expansion of the welfare state led to a surge in public debts and fueled economic crises. Neoliberals promote the idea that a large public sector inhibits economic growth, and that state interventionism distorts competition and, therefore, the self-regulating abilities of the market.
3.2 Ownership of the Means of Production
When we talk about the means of production, we refer to the question of who controls and exploits the main productive units in a given economy. In general, those units are considered to be (the control over) labor, land (e.g. natural resources), and capital (e.g. tools, machinery, buildings). The question of who owns the means of production is one of the central points of contention of the presented schools of thought as it bears far-reaching implications for the social relations embedded in the mode of production.
Socialism
Socialism is a political, social, and economic philosophy that strongly opposes the private ownership of the means of production. This opposition stems from their demand that the means of production should be owned by the ones most involved in the production process, i.e., the workers themselves. They argue that in the capitalist system, the proletariat is forced to sell its labor power as it has no access to any other means of production. Simultaneously, the owners of the means of production do not pay the workers the monetary equivalent of their labor but, instead, constantly skim off the surplus value they generated, thus, accumulating capital. Therefore, they promote the socialized ownership of industries and production units as they believe that this would democratize the production process and, hence, pave the way for an emancipated and more equal society. To reach this goal, socialists propose that the state controls the means of production in the early stages by nationalizing businesses and implements social cooperatives as the backbone of the economy. In conclusion, the public sector becomes the main economic agent on the way to a classless society without the existence of private property (which should not be confused with personal property, i.e., personal belongings).
Social Democracy
A social democracy is designed to operate in a capitalist system. As such, social democrats do not oppose private ownership of the means of production but support state interventions in order to correct market imbalances and failures as well as the public ownership of certain essential services which, according to them, the market is not able to provide. Most importantly, this means that services such as health, education, electricity, water, and so on usually remain in public hands in social democracies as they deem them as too important to be subjected to profit interests. Additionally, the state also regulates the operation of private enterprises as social democrats believe that unfettered capitalism creates inequality and is prone to crises. In conclusion, this school of thought proposes the co-existence between the private and public ownership of the means of production.
Neoliberalism
Neoliberals propose to grant even greater control of the means of production to private enterprises and to minimize the public ownership as, in their view, the self-regulating abilities of the market mechanism cannot be replaced by central planning and will only be distorted by state intervention and regulation. That is the reason why neoliberals also suggest the privatization of key state-run enterprises such as public utilities, education and health as they believe that this would enable a more effective provision of better and cheaper services and would allow consumers to have a greater variety of choices. In short, neoliberals recommend a nearly non-existent public sector and an all-encompassing private sector.
Debate on the Means of Production
In general, the debate surrounding the ownership of the means of production between those three camps can be located on a public-private axis with Socialism taking its left- and neoliberalism the right end, while social democracy is being located in the middle. All of those perspectives locate the problems in completely different areas and offer answers with contrasting socio-economic implications:
According to socialism, capitalists disregard the needs of workers as they are only interested in accumulating capital and exploiting labor power. They do not want those individuals to be able to control the economy but rather want a democratic production process that will be supervised by the state. For them, markets cannot be flawless as they possess inherent failures and imperfections which lead to crises, the formation of monopolies, and imperialism.
Here, however, proponents of neoliberalism strongly disagree. For them, all those dynamics named above are only symptoms of a situation in which the state is too powerful and distorts the functioning of markets. First of all, they argue, the price mechanism as a key feature of markets enables information about supply and demand to travel much faster than a government might be able to achieve by centrally planning the economy. Secondly, state-run businesses provide a major disincentive for private businesses as they do not need to constantly improve and evolve in order to remain competitive.
Lastly, social democrats try to go the middle path and incorporate aspects of both ideologies. They believe in a strong state, but do not go as far as pure socialists as they still regard capitalism as the most efficient politico-economic system. On the other hand, they disagree with neoliberals regarding the functioning of markets and, instead, propose to embed them in a regulative framework to minimize their harmful effects, e.g., the formation of monopolies and the deepening of social inequalities. Additionally, the state needs to intervene especially in times of crisis to adjust and solve existing imbalances.