The global financial crisis is starting to have an effect on the real economy. But it is also having an effect on the hearts and minds of the establishment the world over.
“What we are witnessing here, in virtually every corner of the globe, is the success and the spread of unbridled free market capitalism. It is a dynamic worldwide march toward lower tax rates, deregulation, and…the “interconnectedness” of global economies through free trade, the free flow of capital, and the robust exchanges of free information…Free market capitalism – it’s still the best path to prosperity” – US economics commentator Larry Kudlow July 17 2007 when the Dow Index went above 14,000.
The dramatic change in the world economy and the state rescue plans that governments are being forced to implement across the globe is a huge change from the neo-liberalism that even a few months ago seemed dominant.
Even Alan Greenspan, a key player in the emergence of neo-liberalism, was forced to admit at the end of October of his “shocked disbelief” and that there was a “flaw” in his belief in free market ideology.
Unbridled freedom to pursue profit would create the best, most efficient businesses and economies, or so we were told. Now after years of neo-liberal profiteering the world financial system and economy are facing ruin.
That the political establishment are ditching key parts of what was their long, universal and complete commitment to free market policies, is a real sign of the severity of the crisis. This is not a case of some mildly embarrassing U-turns. These are desperate, forced measures that Paul on the road to Damascus, would be proud of. They represent a huge setback for capitalist free market ideology, which will have practical implications for the ruling class.
The authority of governments to impose privatisations is weakened by what has happened. The authority of institutions like the IMF or the World Bank to lecture and force poorer countries to accept trade deals and privatisations is also weakened.
Crucially the bail-out of the bankers, a bit of ‘socialism for the rich’ which will be paid for by working class taxpayers, has significantly increased anger. These bail-outs will strengthen opposition to the plans of the bosses to off-load the cost of the economic crisis onto the working class. In the years ahead they face fierce resistance.
The measures of the Bush, Brown and Rudd Governments have not calmed the stock markets as they are not dealing with the real problems. They have tried to improve liquidity in the banking sector when the real issue is the insolvency of many banks. It is extremely difficult to inflate a declining market and that is particularly the case when markets have been artificially inflated by credit for many years.
It seems a paradox that governments are proposing to spend vast sums while at the same time there is huge crisis of indebtedness. Some of the proposed spending is not new, just existing plans brought forward. Even where the intention is to have new investment, governments will quickly find that resources may be scarce as their surpluses turn to deficits.
As the crisis in the ‘real’ economy gets worse, private and corporate indebtedness will also spread. Bail-outs and the declining economy will extend the indebtedness to government budgets the world over. Scarce resources and a lack of credit can mean that if spending plans are to actually happen, governments may be forced to print money to pay for them which would lead to a new crisis of inflation and currency instability.
In the medium term it is difficult to see any basis for a respite from economic decline. Even when there is a pick up, given the weak economic fundamentals, it is difficult to see how it would be significant and durable.
A rightwing economist and author, Ray Kinsella, has said that the bail-outs won’t work because they are reactive and are not part of a serious attempt to reform financial practices. He said that the problems won’t be resolved as long as the sector is “short-term shareholder value fixated”. “Giving shareholders overriding primacy is contrary to common sense as well as undermining the common good”. He went on to argue for a global finance regulator to enforce real reforms as the different central banks and governments have their own mandates.
This economist has unconsciously outlined the two fundamental limitations by which Marx identified capitalism as a system of inevitable economic crisis – the private ownership of the means of production and the suffocation of economic potential behind national capitalist interests and borders.
It is fitting that as capitalism declines sales of Marx’s books are rising and a new interest in socialist ideas is emerging. The events of the last months demonstrate the need and the potential to build the forces of genuine Marxism in a way not seen in generations.
Editorial comment from the November 2008 edition of ‘The Socialist’