Neoliberalism, the dominant ideology of modern capitalism, is under sustained challenge. For the past quarter of a century neoliberalism, sometimes called market fundamentalism, the policy of non-intervention in the economy, has been the ideology, and the set of policies that go with it, which has adamantly opposed the rights and attempted to drive down the living standards of the working class all over the world. Now the economic crisis is forcing the authorities to intervene, regulate, and even nationalise firms. Is neoliberalism dead?
It seems the neoliberal rulebook has been torn up. Martin Wolf,
economic guru of the Financial Times, dates the change from the
collapse of Bear Stearns last March. "Remember Friday March 14th: it
was the day the dream of global free-market capitalism died. For three
decades we have moved towards market-driven financial systems. By its
decision to rescue Bear Stearns the Federal Reserve, the institution
responsible for monetary policy in the US, chief protagonist of free
market capitalism, declared this era over. It showed in deeds its
agreement with the remark by Joseph Ackerman, chief executive of
Deutsche Bank that, 'I no longer believe in the market's self-healing
power.' Deregulation has reached its limits."
As the crisis bit into the popular consciousness, the popular press
recorded the same thought, on a lower intellectual level. The hard
right Daily Express headline screamed, "Don't let the spivs destroy
Britain (17.09.08)." The article began, "Millions of British families
are facing the destruction of their livelihoods as the nation's economy
teeters on the brink of catastrophe, brought low by the greed and
stupidity of spivs in high finance." Suddenly the Masters of the
Universe, the wealth creators in the City and Canary Wharf, had become
"spivs and speculators," to use Alec Salmond's phrase.
The Archbishop's of Canterbury and York have chipped in their three
penn'orth. Rowan Williams denounced the speculation, which had, "Been
the motor of astronomical financial gain for many in recent years". He
went on that the crisis shows, "The truth that almost unimaginable
wealth has been generated by equally unimaginable levels of fiction,
paper transactions with no concrete outcome beyond profit for traders".
John Sentamu told the bankers straight, "To a bystander like me,
those who made £190m deliberately underselling the shares of HBOS, in
spite of a very strong capital base, and drove it into the arms of
Lloyds TSB, are clearly bank robbers and asset strippers."
He makes an unassailable point, "One of the ironies about this
financial crisis is that it makes action on poverty look utterly
achievable. It would cost $5bn (£2.7bn) to save six million children's
lives. World leaders could find 140 times that amount for the banking
system in a week. How can they tell us that action for the poorest is
too expensive?"
These people are worried sick about the financial crisis. What, in
form, is a financial crisis is, in fact, a crisis of capitalism. In an
unplanned economy, money is the sole nexus between people. As Marx
explains, "As long as the social character of labour appears as the
monetary existence of the commodity and hence as a thing outside actual
production, monetary crises, independent of real crises or as an
intensification of them, are unavoidable." (Capital Vol. 3 p. 649)
Emergence of neoliberalism
Neoliberal ideology emerged as a result of the economic thunderstorm
that brought the great postwar boom to an end. In 1973-74 we saw the
first generalised crisis of world capitalism. The preceding period from
1948 to 1973 had proved to be a golden age for world capitalism.
Production went up year after year, as did living standards. In this
situation of full employment the capitalist could afford to make
concessions to keep the wheels turning and the profits rolling in.
After all, the working class, at least in the advanced capitalist
countries, had a very favourable bargaining position.
The ideology associated with the golden age was Keynesian economics.
Now it is not true that Keynesian remedies caused or prolonged the
great boom. This was explained at the time by Ted Grant (see Will there
be a Slump? 1960). However the era was such a contrast with the
interwar period of mass unemployment and struggle that the perception
of all classes of the population was that capitalism had changed
fundamentally. Booms and slumps, it was generally believed, had been
banished to the history books.
Clearly the 1973-74 recession came as an enormous political shock.
The working class internationally mobilised to defend the gains of the
postwar period. The ruling class, for their part, was determined to
drive down living standards and restore the rate of profit. As a result
of this clash, a revolutionary wave swept across the capitalist world.
All the earlier certainties were thrown up in the air and called into
question. In addition to rapidly rising unemployment the world economy
experienced spiraling prices. The immediate trigger for inflation was
the oil price crises of 1973 and 1979. Never before had we experienced
inflation together with recession. This was called stagflation. This
was the crucible that produced neoliberalism.
handful of right-wing economists, of whom Milton Friedman was the most
well known, had never swallowed the Keynesian myth that capitalism has
been tamed. They received more and more ruling class backing as
Keynesian economics went into crisis. By the end of the 1970s they
dominated economics faculties in the universities. Their ideas were
widely received, including by Labour Prime Minister James Callaghan,
who told Labour Party Conference in 1976, "We used to think that you
could spend your way out of a recession and increase employment by
cutting taxes and boosting government spending. I tell you in all
candour that that option no longer exists, and in so far as it ever did
exist, it only worked on each occasion since the war by injecting a
bigger dose of inflation into the economy, followed by a higher level
of unemployment as the next step."
This represented a rejection of any attempt at reflationary policies
in the face of growing unemployment. It was an acceptance of monetarist
economics and of capitalist ascendancy. Monetarism, which is part of
the canon of neoliberalism, is not just a dry economic theory. It is a
calculated assault weapon on the working class. The monetarists harked
back to the time before Keynes when economists admonished governments
not to interfere in the economy, but just keep a tight grip on the
money supply. If, as they sneered, the Keynesians were 'yesterday's
men', then they were 'the day before yesterday's men.'
Neoliberalism triumphant
Why should the government not interfere in the economy? Because the
doctrinaires believed the market (capitalism), left to itself, would
produce 'optimal' results. Markets get it right! This smug revival of
nineteenth century laisser faire ideology was a weapon against the
nationalised industries fought for by the working class, against the
mixed economy that gave workers some protection against the rigours of
the market, against the welfare state and all the gains made by the
workers in nearly a century of struggle against unfettered capitalism.
According to neoliberal principles even an attempt at redistribution
should be abandoned as an attack on the 'natural' outcome of market
forces since the existing division of income and wealth is produced by
the market. In effect the market was god. If there is unemployment,
then wages must be too high. Cut them to restore full employment. This
is madness, but madness that serves the ruling class well.
Associated with neoliberalism was talk of 'globalisation.' Tariff
barriers were coming down all over the globe. Capital was expanding
everywhere. Its proponents argued that 'globalisation' meant that
resistance was futile. Because capital was endlessly mobile, nation
states were becoming powerless. They had to reduce taxes on profits and
obey the multinationals' every wish or they would simply move their
money elsewhere. Regulation had to be torn up. Workers would be
blackmailed into accepting lower and lower wages or they would lose
their jobs altogether. It was a race to the bottom. Resistance was
futile! We have argued elsewhere that this was ruling class propaganda, a simplistic picture of reality.
Neoliberal triumphalism got an echo because of the collapse of the
Soviet Union and the associated Stalinist regimes in Eastern Europe.
Capitalism had won the Cold War! So it seemed there was no alternative
to capitalism (or 'the market,' as apologists came to call it). This
was the theme of Francis Fukuyama's 1989 essay The end of History?
Neoliberalism was at first believed to be so obviously opposed to
the working class interests that it could not be applied in a political
democracy. The workers would vote against it. So they imposed it as an
'experiment' in Pinochet's Chile, under conditions of military
dictatorship. After the 1973 coup, the military felt itself strong
itself to destroy free trade unions, sweep away the welfare safety net,
privatise many industries, open up all the county's resources to
imperialist exploitation and massively impoverish the working class.
Just what big capital wanted! Neoliberal policies were pushed through
by means of torture and assassination.
The Chilean nightmare
was persuaded by the 'Chicago boys', economic disciples of Friedman who
infested the corridors of power after the coup to conduct a sweeping
deregulation of the banks. This proved to be a disaster, leading to a
devastating monetary crisis in 1982. Pinochet was then forced to
re-regulate the banks in order to prevent a banking collapse.
The fact that neoliberal policies don't work and can be shown to
have never worked has never actually been a problem for their
advocates. The only sense in which neoliberal policies ever 'work' is
that they swing the balance of forces against the working class. That
is what they are intended to do.
Next up as a proponent of neoliberalism was Margaret Thatcher. The
British electoral system allowed Thatcher to have landslide victories
in the elections with at most 43% of the electorate. Her government
complacently presided over mass unemployment of over three million.
Some of their economic policies, such as sky-high interest rates that
choked off investment and caused sterling and British goods to become
completely uncompetitive on world markets, seem deliberately intended
to shed jobs and annihilate great swathes of manufacturing industry.
The unemployed were used as a whip against employed workers in order to
turn the tables against organised labour. Coal was stockpiled in huge
quantities as part of an intended showdown with the miners, seen as the
brigade of guards of the labour movement. A viable coal industry was
destroyed out of political spite. None of this was 'efficient' in the
normal sense of the word. It amounted to an immense squandering of
resources that could have been used to benefit society. But then,
capitalism does not have as its purpose social benefit. Private profit
is its driving force. Thatcher's mantra was 'there is no alternative.'
Millions of workers hankered back for the secure full employment and
rising living standards of the golden age. In one sense Thatcher was
right. That era had gone for good. Neoliberalism intended to restore
normal capitalist business as usual – and thoroughly nasty it was. The
only way to defend living standards now was to change society.
In the USA Ronald Reagan also pursued the neoliberal agenda, which
by the 1980s had become the dominant ideology of the capitalist world.
The international economic institutions – the IMF, World Bank and now
the World Trade Organisation – became fortresses of neoliberalism,
pitilessly bullying the poor countries on behalf of imperialism to open
up their services, industry and agriculture to the rich countries,
privatise their industries and make their natural resources freely
available to foreign looters. The councils of the European Union,
especially the European Central Bank when it was founded, became
increasingly influenced by market fundamentalism.
Reagan declared that "government was not the solution, but the
problem". As head of the government he strove to make that true for the
working class. One of his first acts as President was to destroy the
air traffic controllers' union. When PATCO went on strike in August
1981 Reagan declared the strike illegal and sacked more than 11,000
strikers. Neoliberalism is a return to the economic liberalism of the
nineteenth century. Socially it is not liberal, but necessarily
authoritarian and repressive of the working class, as its central aim
is to restore the unfettered hegemony of capital.
Even more important than the election of Reagan was the appointment
of Paul Volcker as head of the Federal Reserve, the US central bank, in
1979. Volcker proceeded to 'deal with' inflation by yanking up interest
rates and allowing mass unemployment to develop. Since the USA was the
hegemonic capitalist power, this caused interest rates to rise
all over the world. Financial shenanigans from the previous decade came
back to haunt the world economy. In the two oil price crises of 1973
and 1979 the oil exporting countries had won a fistful of
'petrodollars' on the back of the oil price rises. They actually didn't
know what to do with all this money. The big western banks had been
congratulating themselves at how they had recycled the petrodollars.
They took this money and hurled it at less developed countries in the
form of third world debt, twisting the arms of finance ministers in
Latin America to take the cash. But the increase in interest rates in
the 1980s made these less developed countries unable to keep up the
payments.
Mexico was first to default in 1982. Throughout the decade the IMF
moved pitilessly through Latin America demanding their pound of flesh
on behalf of the imperialist powers. They demanded that the governments
of Latin America stop trying to improve the living standards of their
citizens and instead pump out natural resources to pay their debts.
This was called export led industrialisation, all part of the
neoliberal project.
The result was a catastrophe for Latin America, the 'lost decade.'
From 1980-89 output and living standards fell throughout the continent.
Latin America's share of world output fell from 6% to 3% over the
decade. Whereas output had gone up by 2.5% a year through the crisis
decade of 1973-80, from 1980-89 it fell by 0.4% a year. Imperialism got
its pound of flesh all right. As late as 2005 Latin America still had a
debt burden of $2.94trn, most of it inherited from the 1980s. This was
nearly two thirds of all 'emerging market' debt.
The scars still show. In 2003 a CEPR Briefing Paper (Another Lost
Decade? by Mark Weisbrot and David Rosnick) predicted miserable growth
of 0.2% from 2000-2004 - 1% for the whole period. They pointed out that
over the previous 20 years 1980-99 the region grew by just 11%, a worse
result than during the Great Depression. By contrast in 1960-79 Latin
America grew by 80%. These figures paint a picture of the poverty,
malnutrition and disease that are the achievements of neoliberalism.
Socialists and defenders of the common people are entitled to stuff
these ugly realities down the throats of the proponents of
neoliberalism and globalisation. The economic crisis is inevitably
producing a crisis in the ruling ideas – which, as Marx explained, are
the ideas of the ruling class.
All change
Now it's all change. Laisser faire is all very well when the profits
are rolling in and when it is only the poor and the working class who
call for state intervention to protect them from the cruelties of
market forces. It's a different matter when the hides of the capitalist
class are at risk. Then they behave like hapless victims who need all
the state assistance they can get. And, as far as they are concerned,
if ordinary working class people have to dip their hands into their
pockets that's the way it's got to be.
Ruth Sutherland agreed with the great and the good quoted earlier
(Observer 28.09.08), "In the US, hundreds of billions of dollars of
banking risk will be transferred to the federal government, adding to
America's huge burden of debt and increasing its reliance on foreign
investors…Policymakers face formidable challenges: fighting the fire,
then repairing the financial system while keeping a lid on inflation,
then putting in place effective new regulation. The worst is still to
come. The high drama over Hank Paulson's rescue plan has been so
riveting it has relegated everything else to a sideshow - even the
collapse of Washington Mutual, the biggest bank failure the US has ever
seen. But deeper questions lie beyond the wrangling over the bail-out,
as the Archbishops of Canterbury and York highlighted in their
interventions in the debate about the future of capitalism. If there is
a positive side to this terrible crisis, it is that it has given us a
once-in-a-generation opportunity to slay the myth of the omnipotent
market.
"People in the City have never particularly claimed moral
justification for their activities, but they were able to assume a
mantle of authority because of the sheer volume of money they made - or
appeared to make. Almost everybody - politicians, regulators,
journalists, voters, mortgage borrowers - accepted the City at its own
valuation; whether we approved or not, cowboy capitalism was considered
unassailable.
"Those who argued that enormous bonuses were bad for the fabric of
society, because they heightened inequality and undermined people's
perception of fairness, were looked upon as unspeakable lefties, or
just jealous. Those who argued for stronger regulation were dismissed
as meddlers, bureaucrats and stiflers of innovation. And those who were
uneasy about certain activities were lectured on how the trickle-down
of wealth would benefit everyone."
She concludes, "This crisis should prompt us to reappraise our
relationship with money and debt, and to think hard about how we can
create a fairer and more inclusive version of capitalism. There should
be no return to the market's false gods."
On a less idealistic, but still urgent, note Christopher Cox, chair
of the US Securities and Exchange Commission declared, "The last six
months have made it abundantly clear that voluntary regulation does not
work."
Even more forcefully, David Rothkopf, a senior Commerce department
official during the administration of President Bill Clinton, says the
world is at a turning point. "This is a watershed," he says. "This is
the end of 25 years of Reagan-Thatcherism, 'leave it to the market,
less government is better government'. That is over - period."
And Ben Bernanke, head of the Fed, sums up the new mood, "There are
no atheists in foxholes and no ideologues in financial crises."
President Sarkozy agrees with this sea change in consciousness.
"(The) idea of an all powerful market without any rules and any
political intervention is mad." So the unchallenged economic orthodoxy
of yesterday is now mad! He goes on, "Self regulation is finished.
Laisser faire is finished. The all-powerful market which is always
right is finished."
This is all trenchant criticism – unprecedented for a generation.
None of these critics, of course, suggest an alternative to the
capitalist system. They all sound as if they feel that they have been
bamboozled by the hocus-pocus of neoliberalism. Their outrage is
directed at financial 'geniuses' they now realise were simple
charlatans, who have been helping themselves to the good things in life
at our expense and landing us all in the mire in the process.
The New Deal
Their call is for regulation. Capitalism, we are told, would be a good
system if only it were adequately regulated. What is the real relation
between capitalism and regulation?
0 Have Your Say!:
Post a Comment