Basically by using, and then managing, the 1970s crisis to discipline the working class in order to reap increased profits and secure and extend the ruling classes' power. It did this using a combination of crisis, free markets and adjusted Keynesianism as part of a ruling elite lead class war against labour.

In the face of crisis in the 1970s, Keynesianist redirection of profits between capitals and classes had become a burden to capital as a whole and had increased the expectations and militancy of working people to dangerous levels. The crisis, however, helped control working class power and was latter utilised as a means of saving capitalism.

Initially the crisis was used to justify attacks on working class people in the name of the free market. And, indeed, capitalism was made more market based, although with a "safety net" and "welfare state" for the wealthy. We have seen a partial return to "what economists have called freedom of industry and commerce, but which really meant the relieving of industry from the harassing and repressive supervision of the State, and the giving to it full liberty to exploit the worker, whom was still to be deprived of his freedom." [Peter Kropotkin, The Great French Revolution, vol.1 , p. 28] The "crisis of democracy" was overcome and replaced with the "liberty to exploit human labour without any safeguard for the victims of such exploitation and the political power organised as to assure freedom of exploitation to the middle-class." [Op. Cit., p. 30]

Then under the rhetoric of "free market" capitalism, Keynesianism was used to manage the crisis as it had previously managed the prosperity. "Supply Side" economics (combined with neo-classical dogma) was used to undercut working class power and consumption and so allow capital to reap more profits off working people. Unemployment was used to discipline a militant workforce and as a means of getting workers to struggle for work instead of against wage labour. With the fear of job loss hanging over their heads, workers put up with speedups, longer hours, worse conditions, less safety protection and lower wages and this increased the profits that could be extracted directly from workers as well as reducing business costs by allowing employers to reduce on-job safety and protection and so on. The labour "market" was fragmented to a large degree into powerless, atomised units with unions fighting a losing battle in the face of state backed recession. In this way capitalism could successfully change the composition of demand from the working class to capital.

This disciplining of the working class resulted in the income going to capital increasing by more than double the amount of that going to "labour." Between 1979 and 1989, total labour income rose by 22.8%, total capital income rose by 65.3% and realised capital gains by 205.5%. The real value of a standard welfare benefit package has also declined by some 26 percent since 1972. [Edward S. Herman, "Immiserating Growth: The First World", Z Magazine] And Stanford University economist Victor Fuch estimates that US children have lost 10-12 hours of parental time between 1960 and 1986, leading to a deterioration of family relations and values. Unemployment and underemployment is still widespread, with most newly created jobs being part-time.

We should point out that the growth in income going to labour includes all "labour" incomes and as such includes the "wages" of CEOs and high level managers. As we have already noted, these "wages" are part of the surplus value extracted from workers and so should not be counted as income to "labour." The facts of the Reagan fronted class war of the 1980s is that while top management income has skyrocketed, workers wages have remained usually stable or decreased absolutely. For example, the median hourly wage of US production workers has fallen by some 13% since 1973 (we are not implying that only production workers create surplus value or are "the working class"). In contrast, US management today receives 150 times what the average worker earns. Unsurprisingly 70% of the recent gain in per capita income have gone to the top 1% of income earners (while the bottom lost absolutely). [Chomsky, Op. Cit., p. 141] Income inequality has increased, with the income of the bottom fifth of the US population falling by 18%, while that of the richest fifth rose by 8%.

Indirect means of increasing capital's share in the social income were also used, such as reducing environment regulations, so externalising pollution costs onto current and future generations. In Britain, state owned monopolies were privatised at knock-down prices allowing private capital to increase its resources at a fraction of the real cost. Indeed, some nationalised industries were privatised as monopolies allowing monopoly profits to be extracted from consumers for many years before the state allowed competition in those markets. Indirect taxation also increased, being used to reduce working class consumption by getting us to foot the bill for Pentagon-style Keynesianism.

Exploitation of under-developed nations increased with $418 billion being transferred to the developed world between 1982 and 1990 [Chomsky, Op. Cit., p. 130] Capital also became increasingly international in scope, as it used advances in technology to move capital to third world countries where state repression ensured a less militant working class. This transfer had the advantage of increasing unemployment in the developed world, so placing more pressures upon working class resistance.

This policy of capital-led class war, a response to the successful working class struggles of the 1960s and 1970s, obviously reaped the benefits it was intended to for capital. Income going to capital has increased and that going to labour has declined and the "labour market" has been disciplined to a large degree (but not totally we must add). Working people have been turned, to a large degree, from participants into spectators, as required for any hierarchical system. The human impact of these policies cannot be calculated. Little wonder, then, the utility of neo-classical dogma to the elite - it could be used by rich, powerful people to justify the fact that they are pursuing social policies that create poverty and force children to die.

As Chomsky argues, "one aspect of the internationalisation of the economy is the extension of the two-tiered Third World mode to the core countries. Market doctrine thus becomes an essential ideological weapon at home as well, its highly selective application safely obscured by the doctrinal system. Wealth and power are increasingly concentrated. Service for the general public - education, health, transportation, libraries, etc. - become as superfluous as those they serve, and can therefore be limited or dispensed with entirely." [Year 501, p. 109]

The state managed recession has had its successes. Company profits are up as the "competitive cost" of workers is reduced due to fear of job losses. The Wall Street Journal's review of economic performance for the last quarter of 1995 is headlined "Companies' Profits Surged 61% on Higher Prices, Cost Cuts." After-tax profits rose 62% from 1993, up from 34% for the third quarter. While working America faces market forces, Corporate America posted record profits in 1994. Business Week estimated 1994 profits to be up "an enormous 41% over [1993]," despite a bare 9% increase in sales, a "colossal success," resulting in large part from a "sharp" drop in the "share going to labour," though "economists say labour will benefit — eventually." [cited by Noam Chomsky, "Rollback III", Z Magazine, April 1995]

Moreover, for capital, Keynesianism is still goes on as before, combined (as usual) with praises to market miracles. For example, Michael Borrus, co-director of the Berkeley Roundtable on the International Economy (a corporate-funded trade and technology research institute), cites a 1988 Department of Commerce study that states that "five of the top six fastest growing U.S. industries from 1972 to 1988 were sponsored or sustained, directly or indirectly, by federal investment." He goes on to state that the "winners [in earlier years were] computers, biotechnology, jet engines, and airframes" all "the by-product of public spending." [cited by Chomsky, World Orders, Old and New, p. 109]

As James Midgley points out, "the aggregate size of the public sector did not decrease during the 1980s and instead, budgetary policy resulted in a significant shift in existing allocations from social to military and law enforcement." ["The radical right, politics and society", The Radical Right and the Welfare State, Howard Glennerster and James Midgley (eds.), p. 11]

Indeed, the US state funds one third of all civil R&D projects, and the UK state provides a similar subsidy. [Chomsky, Op. Cit., p. 107] And after the widespread collapse of Savings and Loans Associations in deregulated corruption and speculation, the 1980s pro-"free market" Republican administration happily bailed them out, showing that market forces were only for one class.

The corporate owned media attacks social Keynesianism, while remaining silent or justifying pro-business state intervention. Combined with extensive corporate funding of right-wing "think-tanks" which explain why (the wrong sort of) social programmes are counter-productive, the corporate state system tried to fool the population into thinking that there is no alternative to the rule by the market while the elite enrich themselves at the publics expense.

So, social Keynesianism has been replaced by Pentagon Keynesianism cloaked beneath the rhetoric of "free market" dogma. Combined with a strange mix of free markets (for the many) and state intervention (for the select few), the state has become stronger and more centralised and "prisons also offer a Keynesian stimulus to the economy, both to the construction business and white collar employment; the fastest growing profession is reported to be security personnel." [Chomsky, Year 501, p. 110]

While working class resistance continues, it is largely defensive, but, as in the past, this can and will change. Even the darkest night ends with the dawn and the lights of working class resistance can be seen across the globe. For example, the anti-Poll Tax struggle in Britain against the Thatcher Government was successful as have been many anti-cuts struggles across the USA and Western Europe, the Zapatista uprising in Mexico is inspiring and there has been continual strikes and protests across the world. Even in the face of state repression and managed economic recession, working class people are still fighting back. The job for anarchists to is encourage these sparks of liberty and help them win.