No brakes on runaway train of capitalism

Political leaders need to realise that you can’t save an economy by destroying a society, writes FINTAN O'TOOLE

Political leaders need to realise that you can't save an economy by destroying a society, writes FINTAN O'TOOLE

WHY, IN the midst of the biggest economic crisis since the 1930s, is European governance so puny and ineffectual? The answer does not lie in the absence of visionary, charismatic leaders: Helmut Kohl cut a figure no more dazzling than Angela Merkel, but he was able to respond boldly to a major historic challenge. It lies, rather in one of the great paradoxes of modern history.

The paradox is this: only the social democratic left can save capitalism from itself. Finance capitalism is inherently unstable and self-destructive. It creates circumstances in which vast amounts of money can be made from gambling, from pyramid schemes and from socially toxic behaviour that corrodes the very societies on which it depends. Left to its own devices, it will implode.

This is what happened in the 1920s, when the “irrational exuberance” of gung-ho unregulated finance capitalism created the Great Depression. The system that westerners had assumed to be permanent and universal – liberal democracy and a market economy – came very close to extinction. Capitalism was saved, ironically, by the left. Social democrats of various shades in the US and in post-war Europe created a radically altered version of capitalism. There were four basic modifications to the system. Governments intervened in the economy on Keynesian lines, seeking actively to manage demand. The freedom of the so-called “free market” was limited by tough regulation, especially of the finance industry. International institutions and agreements (the International Monetary Fund, the World Bank, Bretton Woods) sought to control fluctuations in exchange rates and foster long-term investment. And governments, especially in the aftermath of fascism, sought to redistribute enough wealth to ensure at least basic levels of decency for all citizens.


All of this energy – both intellectual and political – came from left of centre. Social democrats were strengthened, not just by the near-collapse of capitalism, but by the threat of communism. It was better for economic elites to compromise with the soft left rather than to risk the rise of the hard left. And, in spite of itself, capitalism was saved. The checks and balances – political, institutional and social – curbed its inherently reckless and anarchic tendencies.

We now have a generation of political leaders in Europe and the US raised on the dismantling of this compromise. Those now in power – and perhaps more importantly, those who advise them – are the children of the rebirth of militant, unfettered finance capitalism. This is a process which began in 1971, when Richard Nixon dissolved the Bretton Woods system of fixed exchange rates, was turbo-charged in 1979 and 1980 with the elections of Margaret Thatcher and Ronald Reagan and, by the 1990s had become the new “common sense”.

This counter-revolution was so successful that most of western social democracy eventually capitulated and decided to join in. With the zeal of converts, old social democratic parties became cheerleaders for a renewed hyper-capitalism. It was Bill Clinton, heir to the New Deal, who signed off on the dismantling of the Depression-era Glass-Steagall Act that separated commercial from investment banks. It was New Labour, under Tony Blair and Gordon Brown, that declared the end of boom and bust, formally ditching the belief that uncontrolled finance capitalism would lead inevitably to another crisis.

So here is one of the great differences between what flowed from the Great Depression and the current crisis: back then, there was a powerful and eventually successful social democratic alternative. That alternative was capable of generating large-scale, bold initiatives, both within western countries and between them. Crucially, it focused very heavily on the human and social consequences of the crisis. Its primary insight was that you can’t save an economy by destroying a society.

Jobs, housing, pensions, health care and education were at the very heart of the response to the crisis – not as the areas to be attacked but as the springboards for recovery. The big problem for capitalism now is that it has been far too successful in eliminating its left-of-centre critics. There is a generation of economists that has never even read Keynes, a generation of right-wing politicians whose mentality has been formed solely by the belief that the more “free” the market and the less interventionist the state, the better. And a generation of social democrats who’ve more or less given up.

And here’s the other paradox: neo-liberal ideology is both in utter disarray and completely dominant. The basic proposition of capitalism – I take the risks, get the rewards if I’m right and take the pain if I’m wrong – has melted like a snowman in Hell. Key parts of the militantly right-wing ideology that became the orthodoxy are mired in almost comic contradiction. Take privatisation, for example. We in Ireland are being told we must swallow a brilliant new version – massive nationalisation of toxic financial sludge (Anglo Irish) but privatisation of real assets (the ESB). Someone, to recall Richard Harris’s infamous lines, left this ideological cake out in the rain.

Yet, the runaway train ploughs on, scarcely aware that it ran over the people who make the brakes.