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Crisis and Sequels: capitalism and the new economic turmoil since 2007

by Martin Thomas on August 25, 2017
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Afterword to Crisis and Sequels: capitalism and the new economic turmoil since 2007 by Martin Thomas (Brill, 2017)

Like every crisis, 2008’s surprised. Some of us failed to see how turmoil originating in finance, and apparently in a limited area of finance to do with the US housing market, could have such great impact on factories and offices which were not booming, but still jogging along with tidy profits. Others saw those tidy profits as artefacts of inaccurate accounting, or illusory gains created by an unsustainable pumping-up of debt used to cover up inability to resolve previous crises. My own view is that 2008 was genuinely new: the profits of the years before it were real, but so was the imbrication of the capitalist world into a network of financial relations so taut that an apparently-local crash could disrupt it worldwide.

We wondered what shape of capitalism would emerge from the crash. Frequently in the history of capitalism, economic crises have broken the inertia of bourgeois wisdom and triggered political shifts or conflicts. Some saw 2008 as having fatally wounded neoliberal policy: a new turn might be slow in coming, but it was inevitable, and the left could hope at least to inflect it. Others reasoned that the governments had sought only, albeit by temporary methods contradicting their previous orthodoxies, to patch up the hegemony of globally-fluid finance capital, and so neoliberalism would be resilient unless the left gained great new strength.

As of late 2016, facts seem to confirm both strands of argument in part. There have been political shifts. So far, the great winner has been right-wing nationalist and populist forces. They do not denounce neoliberalism as such. Some of them, such as Modi in India, rather advocate it. The Front National in France increasingly speaks against “ultraliberalism” but not against “liberalism” as such: the word “liberalism” is often used in France to mean what would elsewhere be called economic neoliberalism. Donald Trump, as John Weeks puts it, represents not so much a rejection of neoliberalism as a climax of its drive to remove restraints on the abuses of capital (Weeks 2016). Trump says he favours free trade, he objects only to poorly negotiated trade agreements, and that, if left free to swagger and threaten, he, with his “art of the deal”, can do better. But there is now a serious risk that this climax-from-within of neoliberal combativity could disrupt the whole world order of neoliberalism. At the same time, new left-wing mobilisations have developed: they have the potential to defeat the burgeoning right-wing backlash, but only if they can sharpen themselves politically.

The neoliberal capitalist regime since the 1980s emerged organically from the basic drives of capitalism and from the previous regime, but is inherently febrile. It generates a financial superstructure which is inherently febrile and crisis-prone, but organically and multifariously connected with the world of production. In 2008 the capitalist politicians who once shouted loudest in favour of “free markets” accepted hugely expanded state intervention in the economy. The government of George W Bush carried out the biggest nationalisations in history. Even before that, the notion of “free markets” was misleading. For a long time now, the giant enterprises which dominated the economy had, to a great extent, been “socialised” – organised on a vast, society-wide basis, with huge numbers of people working collectively and cooperatively, but under the control and in the interests of the capitalists, and dependent for their operation on public infrastructure.

The state intervention made a fundamental case for socialism – that the social economy, privately owned, needs to be socially owned and controlled. But it was “socialism for the rich”. The governments intervened, and effectively, to socialise the economy’s losses, so as better to continue to privatise its gains. The nationalised or part-nationalised banks did not stop paying their bosses huge salaries or repossessing the homes and ruining the lives of working-class people. The governments explicitly wanted the nationalised or part-nationalised banks to operate on a private-profit basis and to be re-privatised as soon as possible.

Since 2010 most governments have returned to undiluted versions of the neo-liberal course set since the 1980s: social cuts, marketisation, privatisation, stripping of labour-market protections. They have assumed that electorates will accept these measures as necessary or at least inevitable. The accompanying monetary policies (ultra-low interest rates, pumping-up of the monetary base, “quantitative easing”) are different from those pursued before 2008, but in line with orthodox economy theory, and not incompatible with neo-liberalism.

Even the conservative Financial Times columnist Martin Wolf was moved by the 2008 fiasco to write: “Banks, as presently constituted and managed, cannot be trusted to perform any publicly important function, against the perceived interests of their staff [meaning their top bosses, not the ordinary workers]. Today’s banks represent the incarnation of profit-seeking behaviour taken to its logical limits, in which the only question asked by senior staff is not what is their duty or their responsibility, but what can they get away with” (Financial Times, 2 July 2012). Banks have faced more critical scrutiny. Thus, the series of scandals spilling since 2008: about mis-selling of mortgage-backed securities, of payment insurance, of credit schemes, etc.; about rigging interest and currency-exchange rates; about tax avoidance and evasion (and banks’ role in helping them), and tax havens. And thus, voluminous new regulations and legislation, like the USA’s 2319-page Dodd-Frank Act of July 2010.

But the new legislation and regulations change nothing decisive. Partly this is because financial capitalists remain a concentrated and powerful lobby. “The financial industry… is back on its feet now, punching its weight – or above – and showing precious little gratitude to the government that saved it… The industry has proved to be a formidable foe of financial reform…” (Blinder 2013, p.454). As of late 2015, 36% of the rules required in order to put the Dodd-Frank Act into effect had not yet been decided, and of the other 64% many had been softened by bankers’ lobbying. Republicans want to repeal Dodd-Frank altogether.

The system’s immediate recovery from the deep slump of 2009 was relatively quick. It has been followed by, not a rebound, but only faltering growth, and much slower growth of world trade than before 2008. Frantic competitive cost-cutting, gross uncertainty of long-term markets, governments’ focus on making their countries “safe to invest in”, corporations’ focus on quick cash returns and on remaining nimble-footed in a chaotic world by pumping up liquidity, all contribute to these trends. Financial assets are tickets to portions of future surplus-value. The 2008 crash was a warning that the expectations embodied in financial-asset prices then were false. Central banks and governments intervened to limit the crash in financial-asset prices. That intervention, to “stick”, must provide some back-up for the claims on future surplus-value signalled by the financial-asset prices. In the capitalist long-term, that means boosting real output. In the short and medium term, it can mean something different or even contrary: governments squeezing the population through taxes and social cuts, and corporations anxiously holding on to cash or near-cash, in order to be sure of keeping up payments.

I can see no absolute block to a recovery to the growth rates at least of the period before 2007. However, it is not happening now, and the plagues of the current “chaotic regulation” (Husson 2009) are unlikely to be cured soon. A new crash may well intervene before conditions can be assembled for a larger recovery. In that new crash, or maybe as a political move preceding and triggering it, the elaborate checks and balances of the US-keystone neoliberal world order may well be disrupted from the right.

The USA remained hegemonic in the world capitalist economy after the loss in the 1960s of its industrial dominance, the collapse in 1971 of the Bretton Woods structure set up after World War 2 to organise the hegemony, and the turmoil of the 1970s. “The United States’ structural power has, on balance, increased” (Strange 1987). The surge since 1989-91 of the global reach of organisations like the WTO, the IMF, and the G7, in which the USA is pivotal, confirms Strange’s view of what happened from the 1970s right up to 2008 and its immediate aftermath.

The USA still has the biggest markets; US corporations lead in high technology; and “America has the ability to control the supply and availability of credit denominated in dollars, and thus to exert predominant influence for good or ill over the creation of credit in the world’s monetary system” (Strange 1987. See also Panitch and Gindin 2013). The fiasco of the USA’s 2003 invasion of Iraq has surely weakened the military and diplomatic hegemony of the USA. The events of 2008, and the big losses sustained in the crash, were apt to weaken New York’s position as the centre of global finance. The IMF’s resources (about $380 billion in late 2015) were revealed to be too small to “bail out” governments hit by the crisis. Sovereign wealth funds like the UAE’s ($800 billion), China’s ($750 billion), and Saudi Arabia’s ($700 billion), are bigger. In 2014 China was able to launch the New Development Bank and the Asian Infrastructure Investment Bank, each with capital of $100 billion, both bypassing the USA.

Yet up to 2016 US hegemony has continued. Foreign holdings of US securities increased from $10,000 billion in June 2008 to $16,500 billion in June 2014. The billions of cash US dollars held abroad have increased, too. “When global financial markets get nervous, US Treasuries remain the ultimate safe haven” (Blinder 2013, p.395). It will be a long time before gradual processes can decisively subvert US hegemony, and 2008 showed that some crises in US hegemony can actually end up reinforcing it. Any sudden sell-off of dollars or US Treasury securities will be countered not just by the US government, but by other governments and wealth-holders with large holdings of dollars and Treasuries. Yet that is not an absolute. The vast volume of holdings, and the vast size of the constant inflow of capital that the USA needs to balance its trade deficit on goods and services of over $500 billion a year, puts it within the range of possibilities that a sell-off could gather such momentum that some holders of US securities and cash, resisting the sell-off, would be overwhelmed, and others would opt for reducing their losses by trying to be among the first out of the door. Such an event would exceed the crash of 2008 in impact. It would collapse credit across the world.

Most notable in the left-wing responses to the 2008 crash have been the democratic and secular impulses in the Arab Spring of 2011; the rise of Syriza in Greece and Podemos in Spain; the Corbyn surge in Britain; the Sanders movement in the USA. So far, however, the temper and tone of that left-wing revival remains soft. It comes after a long period of capitalist triumphalism which has weighed down on the left, making “official” left parties conformist, and even activist left groupings unconfident. The leftish Tamarod movement in Egypt, which brought down Morsi’s Muslim Brotherhood regime in 2013, was unable to resist, or even form a cohesive opposition to, the subsequent organisation of a military-dominated authoritarian regime by Abdel Fattah el-Sisi. Syriza had already before its January 2015 election victory reduced its program to a list of alleviations to be won through negotiating with the European Union, and when the EU leaders stood stubborn, it capitulated. Podemos, having made big gains in Spain’s December 2015 elections, proposed a list of priorities for a new government which included nothing definitely anti-capitalist: adapting buildings for energy efficiency standards; banning ministers, MPs and their assistants from company boards in sectors which they have dealt with as politicians; an easing of VAT and social security burdens on small business; and a guaranteed minimum income of €600 a month. In Britain, Labour’s new left-wing Shadow Chancellor appointed in September 2015, John McDonnell, has tried to placate the media by claiming that the difference between him and the Labour Party’s previous milder-austerity policy is just one of speed: “Look, on domestic politics, there is virtually nothing between us, absolutely nothing, other than that some want to go faster than others” (McDonnell, 2015). Much of the avowedly-revolutionary activist left, most of the time, limits itself to advocating more militant tactics in pursuit of minimalist and defensive aims (“stop cuts”).

Support for mainstream consensus parties has been eroded by the crisis and depression. So far, the bigger gains have gone to nationalist, sectarian, or “identity politics” groupings, mostly more or less right wing. The advance of political Islamism after the Arab Spring, especially with Daesh in Syria and Iraq; the BJP victory in India; the results of the European elections of May 2014; the Brexit vote in the UK on 23 June 2016; and the successive right-wing mobilisations in the USA (Tea Party, Trump) show that. In Europe, the right gained most in the richer countries, less hard-hit by the economic crisis, and left-wing or leftish parties gained most in the poorer and harder-hit countries.

Many discontented people, looking for a grand narrative and hearing only a weak message from the left, are receptive to a scapegoating story from the right which appeals to feelings of identity and territory. The right proposes to blame and exclude worse-off, insecure people who have no entrenched power. To soured and demoralised people, that sounds like an easier way of “doing something” than battle against remote-seeming, intangible-seeming, ostentatiously-mighty global capital. The far-right groupings offer less social demagogy than their equivalents of the 1930s. They promise not to solve social ills, or even to challenge global neo-liberal policies, but only to penalise immigrants or infidels. Noise about restoring national or religious identity and culture, about “taking back America”, “restoring the caliphate”, or “taking control of our borders”, suggests that at least in that direction “something will be done”.

A fascist seizure of power, as in the 1930s, would mean the crushing of the labour movement and the suppression of all free speech and debate. That is not round the very next corner. None of the far-right parties, except on a small scale Golden Dawn in Greece and maybe Jobbik in Hungary, has the militant street-fighting base that the fascists of the 1920s and 30s had. The more electoralist far-right parties might well, if they enter coalition governments, gravitate towards mainstream conservatism on economic policy, and distinguish themselves mainly by even more brutal anti-migrant policies. Yet one such right-wing mobilisation has already won a majority for the exit of Britain from the European Union; others may be triggering further dislocations of the EU; or even start a serious spiral of protectionist measures to re-raise economic barriers between countries. And then conditions for a full-scale fascist seizure of power could quickly be generated.

Those possibilities have been jolted closer by Donald Trump’s victory in the 8 November 2016 US presidential election. Trump will surely hack back migrants’, workers’, women’s, and civil rights; speed environmental destruction; and raise risks of war, especially with Iran. He may also disrupt the large trends which have allowed capitalist growth for 60 years.

A trade-liberalising, world-market-boosting trend, embedded in institutions keystoned by the USA, was launched in 1947 and has emerged from five major convulsions since then strengthened or intact. It survived the US dollar’s breaking of its link with gold, in 1971, and the crises of the 1970s: in fact, global financial flows zoomed in that decade. It was accelerated by the global shift to neoliberalism in the late 1970s and the 1980s. When most of the Stalinist states collapsed, and China and Vietnam shifted to “market Stalinism”, from 1989 onwards, the institutions set up to order the affairs of the “Western” side of the Cold War adapted smoothly to draw in new territories. Where the Kennedy Round of GATT in 1964-7 had included only 62 countries, the World Trade Organisation, GATT’s successor from 1995, had 128 countries subscribing to the 1994 Uruguay Round, and has 164 today. China joined in 2001. In 2008, the first G20 statement after the crash stressed above all avoiding protectionism; and on the whole that has held. Between 2008 and 2016 many new trade restrictions were introduced, but none huge, and almost as many trade liberalisations (WTO 2016).

Since 2008 world trade has grown slower than world output for the first extended period since World War 2, and global capital flows have slowed, too. Even that, however, does not necessarily signify a solid trend of “deglobalisation”. Global trade is mostly in raw materials and (increasingly) manufactured and semi-manufactured goods. In most economies “services” dominate output (about 80% in the USA), while in global trade they are an increasing part but still only 21% (UNCTAD 2015). In an era where manufacturing employment is declining not just in the old industrial countries, but in Brazil, South Korea, China, etc., the relative decline of manufacturing value-added can outstrip the relative increase in trading of services for a while without this signifying a general turn inwards and away from world markets. The world’s governments have been unable to reach comprehensive new global trade agreements since 1994. The “Doha round” of WTO negotiations has produced nothing but the relatively slight “Bali Package” of 2013. The US-European TTIP, and the US-Asian TPP, looked unlikely to get concluded even before Trump’s victory. And yet: further trade agreements would always be harder to reach once tariffs on most trade had been reduced to single-figure percentages (latest average applied tariffs on WTO figures: USA 3.5%, Japan 4.0%, EU 5.1%, China 9.9%: in 1931 the average applied tariff in the USA was 35%). About 80% of world trade is now transfers within the supply chains of multinational corporations: they show no wish to do other than keep those chains expanding. Long-entrenched, deeply-embedded interests sustain the world-market-oriented order, with all its inequities and instabilities and horrors and also with all its erratic dynamism.

And yet, and yet… Trump has been specific about imposing high tariffs on the USA’s main trade partners, Mexico and China; less specific, but threatening, about US withdrawal from the WTO. Even if more mainstream Republicans in Congress are horrified, he has much wider legal scope to impose tariffs and disrupt trade than presidents Obama and George W Bush had to push through tariff-reduction deals (Noland et al 2016). Possibly Trump’s administration could produce what has been called an “aborted trade war”, in which Trump’s first protectionist measures produce such backlash and disruption that he quickly retreats, something like an enlarged version of Reagan’s initial protectionist lurch. Possibly it could produce a still-largely-globalised world in which the USA is an exceptional rogue state, a counterpart to China, which, though the world’s largest exporter, still has large (mostly non-tariff) barriers to trade.

Those limited outcomes, however, presuppose a controlled reaction by other states, in other words by a world system of states in which the keystone for decades, the USA, has gone rogue. The EU’s difficulties in dealing expeditiously even with its own internal problems make it unlikely that it could become an alternative keystone. They presuppose that the Trump precedent does not snowball; yet his victory has given a boost to the Front National and Marine Le Pen in France. In April-May 2017 Le Pen will almost certainly enter the run-off vote for the French presidency, and current opinion polls are close enough that she could win. She promises a referendum to take France out of the EU, and in June 2016 polling showed 61% of the French (a greater percentage than of British: Pew Research 2016) had an “unfavourable” view of the EU. If France withdraws from the EU, nothing like the current EU’s level of capitalist integration can survive: only some loose trade area, and maybe a much-reduced tighter Eurozone. In other important EU countries (Italy, Netherlands, Austria…), too, political shifts which could disrupt the EU now look possible.

A global slump, and ugly, regressive politics almost everywhere, would ensue, and probably strengthen the protectionist trends. And suppose that weighty “globalist” interests do deter or limit Trump, and the EU resists disruption. Even then a new crisis (which is likely to come soon for other reasons, independent of Trump or Le Pen) would find a political establishment whose repertoire of anti-crisis measures has been exhausted and discredited, and thus vulnerable to new and more aggressive right-wing surges.

The USA has always been an exception within the capitalist world order it has promoted and keystoned. Because of the USA’s size, its relatively small (though increasing, from 10% in 1970 to 25% now) ratio of trade to GDP, and its status as home to so many multinationals, Alden remarks that: “The United States has not historically worried much about how to make itself an attractive location for investment geared towards exports” (in Card 2011, p.12), though most other governments have worried greatly and increasingly about that. Brexit sentiment in Britain has been mostly about immigration, not trade: most Brexit voters (according to surveys) and Brexit leaders (according to their statements) want the UK to stay very open to trade, only they dislike immigration more than they like trade. In the USA, it has been different. There is much anti-immigrant sentiment there, but it is not overwhelming nor even necessarily increasing: as of 2016, 61% supported a path to citizenship for illegal immigrants, and that percentage had been stable for some years (Jones et al 2016). Skepticism about trade has been on the rise since the 1990s, both in public opinion and in Congress. Both George W Bush and Obama had to battle and cajole Congress for trade deals. The “fast-track” authority of the presidency to do trade deals, in effect from 1975, lapsed in 1994, was restored from 2002 to 2007 and then lapsed again; was restored in June 2015, but to little effect. By September 2010, in a poll 53% said free trade agreements “hurt” the USA, and only 17% that they “helped”, where in 1999 there had been a majority for “helped” (Card et al 2011 p.28). The USA has simultaneously been the keystone of a relatively free-trade world-market system, and often the most reckless and narrow-minded about the necessary capitalist give-and-take. This contradiction could now become deadly.

Trump promises to “make America great again”, but very little specific to his plebeian voters. But for the left, the tactic of going for mild policies, advertised as capable of taming neoliberalism with consensus support, is not vigorous enough to undermine the populist right, and in any case will collapse unless those mild measures are subsumed into bolder policies, for a serious battle to create means of democratic control over economic life capable of countering the mechanisms which constantly re-establish the grip of capital: the wild and rapid gyrations of the global financial markets and the intensely competitive machinations of the “top one per cent” in the multinationals and the international banks. Even the relative successes of the Brazilian PT in modifying neoliberalism, 2002-10, are probably unavailable to piecemeal-reform policies in a country more fully tied into world markets than giant-sized Brazil, and in a period of general depression when even the PT in Brazil has floundered. Small-scale tinkering “in one country” is likely to bounce off resilient neoliberalism, and then probably collapse as abjectly as the economic policies of the once radical-left Syriza, or as the left-wing promises which French president Francois Hollande made before his election in 2012.

The economic question is not just, or even mainly, about techniques for promoting growth. It is about what sort of growth, for whom, controlled by whom, at the expense of whom. It is about whether collective and individual human endeavour serves “the economy” – in other words the given economic structures, or in other words again the constraints of profits; markets; enforced inequality, insecurity, alienation – or we build a realm of freedom by consciously reshaping economic life to serve human solidarity. As Lenin succinctly put it, the central question is “who, whom”. Activists should create space for that question to be discussed.

In other words: instil, in dialogue with the new left-wing movements, ideas which will make the left a real and formidable alternative, and transform the labour movements so that they can become an effective counter to the resurgent right, and create governments willing and able to take on entrenched capitalist power.

Martin Thomas

Martin Thomas is a long-time writer for the socialist publications Solidarity and Workers’ Liberty, based in London, and author of Gramsci in Context (2014). He will be discussing Crisis and Sequels with Dick Bryan at a seminar at Sydney University on Wednesday 30 August.

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