Criticism of capitalism itself needed
WORLD VIEW:THE ECONOMIC problems we face are structural not cyclical, global rather than regional and on a par with previous major crises in the 1890s, 1930s and 1970s.
The era of neoliberal capitalism in place since the early 1980s, together with the associated geopolitical hegemony of US superpowerdom, has been pulled apart by its own self-destructive contradictions.
That means we must think about these problems systemically instead of assuming a few years of budget reform and austerity will restore the former paths of growth based on cheap finance and growing private indebtedness. Even if that were to happen it would reproduce the instability that gave rise to the banking crisis of 2008 even more intensely.
The financial sector grew tremendously as a proportion of the most advanced economies, displacing manufacturing and multiplying inequalities in the US especially. These inequalities are dramatised there by the Occupy Wall Street movement now organised in 239 US towns and cities with its 1/99 slogan: the top 1 per cent of US households commands more than 20 per cent of national income compared to 9 per cent in the 1970s. The protesters’ ability to make that point so concretely adds greatly to their appeal.
Economic recovery will take place in a different world. Its contours are now being put in place by political struggles over who should bear the cost of rescuing that kind of capitalism and how this should be organised at regional and global levels.
The crisis is also reviving the question of whether a better world beyond that system needs to be imagined, rather than assuming political choice is limited to one or another of its varieties, as many on the left concluded in the 1990s.
Structural and systemic approaches have been weakened in academic economics by the loss of historical perspective and the triumph of formal modelling – a point made by Kevin O’Rourke in a posting on the Irish Economy website recently, which attracted a large response.
As he said: “One of the most important things that a bit of history gives you is a sense of the importance of context. A model will work very well in some technological or institutional contexts, but not in others.”
As a result, “you had people seriously peddling the line that austerity would be expansionary in the wake of the biggest downturn since the 1930s – and these claims were influential in Europe, it seems clear, in the fateful spring and summer of 2010”.
O’Rourke’s departure from TCD to Oxford is a considerable intellectual loss for this country, especially if he and other economic historians are not replaced.
Alternative ways of thinking about capitalism have been revived, including Marxist ones, although they are still comparatively weak and disjointed.
As Nouriel Roubini puts it: “Karl Marx had it right, at some point capitalism can self-destroy itself. That’s because you cannot keep on shifting income from labour to capital without not having an excess capacity and a lack of aggregate demand. We thought that markets work. They are not working. What’s individually rational . . . is a self-destructive process.”
Italian Marxist economist Riccardo Bellofiore says: “This crisis is not just a financial crisis, but a capitalist crisis: it is part of an attack on labour.”
He wants to see a New Deal as a part of a wider programme of the European left, including socialisation of investment, banks as public utilities, state intervention to provide direct employment and capital controls. This would reverse the “privatised Keynesianism” of the neoliberal decades. He laments the lack of internationalism and says only European struggles can resist austerity and deliver decent reforms.
In their new book The Crisis of Neoliberalism, French economists Gérard Duménil and Dominique Lévy draw on Marx, Thorstein Veblen, John Maynard Keynes and JK Galbraith to argue that the crisis is not merely the outcome of mismanaged financial deregulation but of contradictions inherent in the US economy under the regime of upper-class enrichment which “pushed economic mechanisms to, and finally beyond, the frontier of sustainability”. Investment declined and their consumption soared, along with associated financial securitisation and hedge funds on Wall Street.
The parallels with 1929 are uncanny. They suggest there are three major social forces at play in a class struggle to determine the outcome: the capitalists led by financiers; a technocratic managerial class; and the popular classes, whose previous creation of the New Deal in the US and the welfare state in Europe in alliance with the other two helped stabilise capitalism in the 1950s.
The authors believe a “neo-managerial” technocratic alliance is the most likely outcome now, putting the welfare state in question.
But that depends on the social struggles to come. German social historian Jürgen Kocka says it was not the capitalists who reformed their system in the 1930s. “Rather it was the interplay between the capitalist crisis, massive criticism of capitalism and political actions based on social mobilisation in the public sphere – an interplay which generated partial solutions to basic problems and thus led to structural reforms.”
He adds: “Capitalism needs its critics. Presently criticism of capitalism is weak – quite in contrast to the 1930s.”