How then are we to interpret the current mess? Does this crisis signal, for example, the end of free-market neoliberalsim as a dominant economic model for capitalist development? The answer depends on what is meant by the word neoliberalsim. My view is that it refers to a class project that coalesced in the crisis of the 1970’s. Masked by a lot of rhetoric about individual freedoms, liberty, personal responsibility and the virtues of privatisation, the free market and free trade, it legitimised draconian policies designed to restore and consolidate capitalist class power. This project has been successful, judging by the incredible centralisation of wealth and power observable in all those countries that took the neoliberal road.
One of the basic pragmatic principals that emerged in the 1980’s, for example, was that state power should protect financial institutions at all costs.
Put crudely, the policy was: privatise profits and socialise risks; save the banks and put the screws on the people.
Banks behave badly because they do not have to be responsible for the negative consequences of high-risk behaviour. The current bailout is the same old story, only bigger…
Current policies propose to exit the crisis with a further consolidation and centralisation of capitalist class power.
As Andrew Mellon (US banker, Secretary of the Treasury 1921-32) once famously remarked, ‘In a crisis, assets return to their rightful owners’ (i.e. him). And it will be the same this time unless an alternative political movement arises to stop it.
This does not mean that they are not going to redesign the financial architecture because they must. But who are they going to redesign it for?
Will the powers that currently hold sway seek merely to clean up the problems at popular expense and then give the banks back to the class interests that got us into the mess? This is almost certainly where we are headed unless a surge of political opposition dictates otherwise.
Meanwhile, the big banks that remain are stashing away funds to resume payment of the huge bonuses they paid before the crash.
Whether we can get out of this crisis in a different way depends very much upon the balance of class forces. It depends upon the degree to which the mass of the population rises up and says, ‘Enough is enough, let’s change this system.’
Alan Budd, Thatcher’s chief economic advisor, later admitted that ‘the 1980’s polices of attaching inflation by squeezing the economy and public spending were a cover to bash the workers’ and so create an ‘industrial reserve army’ which would undermine the power of labour and permit capitalists to make easy profit ever after.’
Labour availability is no problem now for capital, and it has not been for the last twenty-five years. But disempowered labour means low wages, and impoverished workers... But inflation in asset values cannot go on forever. Now it is the turn of the United States to experience the pain of falling asset values, even as US policy makers do their level best to export their perverse versions of capitalism to the rest of the world.
In a desperate attempt to find more places to put the surplus capital, a wave of privatisation swept round the world carried on the backs of the dogma that sate-run enterprises are by definition inefficient and lax and that the only way to improve their performance is to pass them over to the private sector. This dogma does not stand up to any detailed scrutiny. Some state-run enterprises are indeed inefficient and some are not. Travel the French train network and compare it to the pathetically privatised US and British systems. And nothing could possibly be more inefficient and profligate than the privately insured health care system in the United Sates.
Government polices have exacerbated rather than assuaged the problem. The term ‘bail-out’ is inaccurate. Taxpayers are simply bailing out the banks, the capitalist class, forgiving then their debts, their transgressions, and only theirs. And the banks are using the money, not to lend to anybody but to reduce their leveraging and to buy other banks. They are busy consolidating their power.
The problem is that the economic theories and orthodoxies, which manifestly failed to predict the crisis, continue to inform our debates, dominate our thinking and underpin political action. Without challenging these dominant mental conceptions there can be no alternative (as Margaret Thatcher liked to say) other than a botched return to the sort of capitalism that got us into this mess in the first place.
The capital-labour relation always plays a central role in the dynamics of capitalism and my lie at the root of the crisis. But these days the main problem lies in the fact that capital is too powerful and labour too weak, rather than the other way around.
With one of the largest public budgets at that time (1975) in the capitalist world, New York City, surrounded by sprawling affluent suburbs, went broke. The local situation, orchestrated by an uneasy alliance between state power and financial institutions, pioneered the neoliberal ideological and practical political turn that was to be deployed worldwide in the struggle to perpetuate and consolidate capitalist power. The recipe was simply enough: crush the power of labour, institute wage repression, let the market do its work, all the while putting the power of the state at the service of capital in general and if investment finance in particular. This was the solution of the 1970s that lies at the root of the crisis of 2008-9.
The neoliberal movement that began in the 1970s, for example, constituted a radical ideological assault upon what the state should be about. To a degree it was successful (and often is was not), it led a wide-ranging state-sponsored changes in daily life (the promotion of individualism and an ethic of personal responsibility against a background of diminishing state provision), as well as in the dynamics of capital accumulation. Margaret Thatcher dissolved the London City Council in 1986 because it resisted her neoliberalising project…
One of the key transformations that occurred in the character of the state after the mid 1970s was the devolution of powers to local administrations. Controlled devolution turned out to be one of the very best means to exercise and consolidate centralised control.
At times of crisis, the irrationality of capitalism becomes plain for all to see. Surplus capital and surplus labour exist side by side with seemingly no way to put them back together in the midst of intense human suffering and unmet needs. In the midsummer of 2009, one third of the capital equipment in the United States stood idle, while some 17% of the workforce were either unemployed, enforced part-timers or ‘discouraged’ workers. What could be more irrational that that?
In effect, the neoliberal revolution succeeded in privatising the production of the surplus. It liberated capital producers from constraints – including geographical constraints – and in the process undermined the progressive redistributive character of state functions. This produced the rapid increase in social inequality.
The central problem to be addressed is clear enough. Compound growth for ever is not possible and the troubles that beset the world these last thirty years signal that a time is looming to continuous capital accumulation that cannot be transcended except by creating fictions that cannot last. Add to this the facts that so many people in the world live in conditions of abject poverty, that environmental degradations are spiralling out of control, that human dignities are everywhere being offended even as the rich are piling up more and more wealth under their command, and that the levers of political, institutional, judicial, military and media power are under such tight dogmatic political control as to be incapable of doing much more than perpetuating the status quo.
Yet the absolute necessity for a coherent anti-capitalist revolutionary movement must also be recognised. The fundamental aim of that movement has to be to assume social command over both the production and the distribution of surpluses.
Designing a society without capital accumulation is no different in principle to designing a city without cars. Why can’t we all just work alongside each other without class distinction?
Universities continue to promote the same useless courses on neoclassical economics or rational choice political theory as if nothing has happened and the vaunted business schools simply add a course or two on business ethics or how to make money out of other people’s bankruptcies. After all, the crisis arose out of human greed and nothing can be done about that.
The current knowledge structure is clearly dysfunctional and equally clearly illegitimate. The only hope is that a new generation of perceptive students (in the broad sense of those who seek to know the world) will clearly see this and insist of changing it.
The first lesson it must lean is that an ethical, non-exploitive and socially just capitalism that redounds to the benefit of all is impossible. It contradicts the very nature of what capitalism is about.
The great betrayal of the intellectuals who became so complicitous with neoliberal politics from the 1980’s onwards has first to be reversed before any meaningful alliances can be constructed with the deprived and the dispossessed.
It seems sometimes as if there is a systematic plan to expel low-income and unwanted populations from the face of the earth.
The wave of financialisation that occurred after the mid-1970’s has been spectacular for its predatory practices style. Stock promotions, and market manipulations; Ponzi schemes and corporate fraud; asset stripping through mergers and acquisitions; the promotion of debt incumbency that reduces whole populations, even in the advanced capitalist countries, to debt peonage; disposition of assets (the raiding of pension funds and their decimation by stock and corporate collapses) – all these features are central to what contemporary capitalism is about.
Crisis may be, for this reason, orchestrated, managed and controlled to rationalise the irrational system that is capitalism. This is what the state-administered austerity programmes, making use of the key levers of interest rates and the credit system, are often all about.
Deliberate provocation of crisis by state policies and collective corporate actions is a dangerous game. While there is no evidence of active and narrow conspiracies to create such a crisis, there are plenty of influential ‘Chicago School’ macroeconomists and economic policy makers around the world, along with all sorts of entrepreneurial opportunists, who believe that a good bout of creative destruction is required now and again for capitalism to survive and for the capitalist class to be reformed. They hold that attempts by governments to ward off crises with stimulation packages and the like are profoundly misguided. Better by far, they say, to let a market-led ‘structural adjustment’ process (of the sort typically mandated by the IMF) do its work. Such medicine is necessary to keep capitalism economically healthy. The closer capitalism gets to its death’s door, the more painful the medicine. The trick is to not to let the patient die.
The present economic difficulties both in the US and Britain, as well as throughout Europe, are essentially being deepened for a political reason rather than out of economic necessity. That political reason is the desire to have done with capital’s responsibility to cover the costs of social reproduction.
There is, evidently, a grand divide in the political strategy emerging. Much of the West is perusing the holy grail of deficit reduction (resulting in reductions in standards of living) through austerity, while the East, along with the emerging markets of the South, follows an expansionary Keynesian strategy. If global growth is to revive, them it will be because the Eastern path of Keynesian stimulus prevails.
The logic of endless capital accumulation of endless growth is always with us. It internalises hidden imperatives, of which the invisible hand of the market is but one, to which we either willingly or mindlessly submit, no matter our ethical inclinations.
And while it may seem perversely appropriate to condemn North America and Europe to slow growth and endless austerity, this is only done in the name of defending the privileges of the plutocracy and goes nowhere when it comes to…the impossibility of endless compound growth.
The problem of endless compound growth through endless capital accumulation will have to be confronted and overcome. This is the political necessity of our times.