Capitalism won't reform itself

Thomas Fazi 

Comrades, let’s not make the same mistake twice. Let’s not fool ourselves that change will come from above, if only we state our case in a sufficiently convincing manner.

In the wake of the 2008 financial crisis, with the system pulled back from the brink only thanks to massive – and completely orthodoxy-defying – deficit spending by governments, many of us on the Left believed that neoliberalism’s days were counted, so spectacularly had it failed.

As Paul Heideman wrote, ‘the feeling of the day was that the era of unfettered marketization was coming to a close. A new period of what was loosely referred to as Keynesianism would be the inevitable result of a crisis caused by markets run amok’. I was among those who, in a perversely naïve way, believed that the system would self-correct, giving way to a better, fairer, greener world – not unlike what had happened in the United States after the Great Depression, and in Europe after the Second World War.

As we all know, the exact opposite has happened. Not only has the neoliberal regime gone largely unchallenged all throughout the west – its ideological dogmas broken only insofar as it was necessary to keep the system alive (quantitative easing – i.e., printing money and giving it away to banks and the wealthy – being the most obvious example); in the case of Europe, the political-financial elites successfully exploited (and to some extent ‘engineered’) the crisis to lodge the most violent attack on democracy, labour and the welfare state in recent history, and to impose an even more extreme neoliberal order on the continent.

This has resulted in the greatest transfer of public resources from the public to the private sector, and from the lower and middle classes to the wealthy, in Europe’s modern history, in what can only be described as a classic case of economic shock doctrine. This attack is, of course, still under way – with the left still struggling to mount a resistance (though a small breach remains open in Greece, and the ground seems to be shifting in other countries as well).

Many explanations have been put forward to explain neoliberalism’s resilience and the left’s inability to exploit the crisis to its advantage; Philip Mirowski even wrote a 400-page book, Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown, entirely dedicated to this question.

Personally, I think one of the left’s greatest theoretical and strategic blunders was/is that of believing that there is a causal, mechanical relationship between economic crises and progressive change. If anything, history shows that the opposite is true, with crises usually leading to regressive, right-wing and authoritarian backlashes, especially if the balance of forces is heavily tilted towards capital vis-à-vis labour (as it clearly is today).

Progressive change, on the other hand, is usually the outcome of either systemic destruction – i.e., war, which usually leads to a huge destruction of capital/wealth as well – or struggle. In other words, there is no self-correcting mechanism embedded into capitalism. 

Thanks in part to the Greek crisis – where the sharpest drop in GDP ever recorded in peacetime in a developed country has failed to radicalise workers and citizens to the point of breaking away from the eurozone, despite the presence of a strong left-wing party, SYRIZA – this unpalatable truth seems to be finally dawning on the European left.

In typical leftist fashion, though, as one illusion – namely, that of automatic crisis-induced change – fades away, another one seems to be already in the making. Simply put, the argument is that the swelling ranks of mainstream economists, policy makers and commentators that are openly calling for more expansionary fiscal policies indicate that ‘there is a paradigm shift in the offing’ – away from austerity and towards Keynesianism.

Hearing people like former US Secretary of the Treasury Larry Summers or former Chairman of the UK Financial Services Authority Adair Turner talk of the need for ‘more debt… to finance fiscal expansion’ (the former) and for ‘debt write-downs or increased fiscal deficits financed by permanent monetization’ (the latter) is indeed quite extraordinary. But is it enough to talk of a paradigm shift in the making?

Such a conclusion seems to rest on a fundamental faith in the power of ideas to shape the world. Those who subscribe to this view largely attribute the neoliberal restructuring of society that has occurred from the late 1970s onwards to the increasingly hegemonic theories – variously dubbed ‘neoliberalism’, ‘neoclassical economics’, ‘neoconservatism’, ‘the Washington consensus’, etc. – developed by a group of academics (most notably those at the University of Chicago). If that is true, then it follows that, in order to overcome neoliberalism, all it takes is for enough members of the establishment to be swayed by an alternative – though not necessarily new – set of ideas.

All the Left needs to do is to incessantly keep hammering them out, just like the members of the Chicago school of economics did in the 1970s. As former US Secretary of Labour Robert Reich notes in his brilliant 2007 book Supercapitalism, ‘that these ideas emerged from academics based in universities may suggest why those who give them most credit for altering the world over the last thirty years are usually themselves academics who harbor a generous view of the impact of academic ideas’. But that is not really how the world works, says Reich.

It is true that policy makers occasionally pay attention to those in the academy. ‘Madmen in authority, who hear voices in the air’, wrote the economist John Maynard Keynes, ‘are distilling their frenzy from some academic scribbler of a few years back’. But the particular academic scribblings that began to take hold in the 1970s had been around in much the same form since the eighteenth century, notes Reich.

The most likely reason that they suddenly gained prominence in the last decades of the twentieth century, in the United States and elsewhere, was that they offered a convenient justification for the shift already under way. ‘They did not cause the shift; at most, they legitimized it’, Reich writes. In other words, neoliberalism took hold primarily because it promoted and sustained the interests of the dominant political-economic establishment of the time, not because it proved more convincing than other economic theories.

This implies that for the establishment to spontaneously – i.e., in the absence of a popular struggle or a threat to its existence – adopt a new economic paradigm – one, for example, based on debt write-downs and expansionary fiscal policies –, that new paradigm would have to serve the interests of today’s dominant political-economic elites. Why else would they adopt it? Thus we have to ask ourselves: is that the case today? Some seem to think it is.

The argument is that neoliberal policies (fiscal austerity, wage deflation, etc.) have set advanced nations on a ‘secular stagnation’ trajectory – one characterised by long-term economic stagnation, elevated levels of unemployment and chronically deficient demand – that is bound to cause the profit rate to decline, and that it is thus in the interest of capital as well to boost aggregate demand through fiscal expansion. This is true to a certain extent, but we have to define what we talk about when we talk about ‘capital’ – and which form of capital pulls the strings in today’s economy.

In recent decades we have gone from a blend of capitalism primarily centred around real production processes (the ‘real economy’) and based on real capital accumulation (first in its Fordist-Keynesian version, based on a class compromise with organised labour and the ascendant middle classes; subsequently in its neoliberal version, based on a compromise with the asset-owning middle classes in the context of globalisation and relocating production), to a highly speculative and hyper-financialised blend of predatory, oligarchic capitalism primarily based on money-dealing and interest-bearing speculative capital – the former profiting from short- or medium-term fluctuations in the market value of a tradable good (such as a financial instrument), the latter focused on rent-seeking through the holding of large shares of public and private debt instruments – and for this reason increasingly freed from the class compromises dictated by the requirements of long-term investment, as argued by Kees van der Pijl and others.

The primary activity of speculative capital – the dominant form of capital today – could be defined as that of ‘making money from money’. In other words, it is an industry that has detached itself from the ‘real economy’ – except when it is extracting wealth from it – and mostly trades with itself. For this reason, it is relatively unhindered by the problems posed by secular stagnation – or, more in general, by what goes on in the rest of society – and to a certain extent actually benefits from it, since deflation causes a transfer of wealth from borrowers and debtors to investors and asset holders. Considering the increasingly oligarchic nature of our societies and political systems – the New York Times recently reported that 158 families have contributed almost half of the 2016 US elections funding – it is therefore extremely naïve to expect any challenge to the current system to come from above, despite its internal contradictions.

Moreover, when talking about the ‘interests’ of capital – industrial capital as much as financial capital – one has to always keep in mind what Polish economist Michal Kalecky wrote more than 40 years ago about the apparent irrationality of business and political leaders:

Indeed, under a regime of permanent full employment, the ‘sack’ would cease to play its role as a disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire… But ‘discipline in the factories’ and ‘political stability’ are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the ‘normal’ capitalist system.

A variation on the secular stagnation argument is that say that a renewed financial and economic crisis is more or less inevitable – which is indeed very likely – and that this will provide the final push away from neoliberalism. Personally, I find that hard to believe. It is more likely that a new crisis will lead to one of the following two scenarios: a major downturn that creates some significant disruption but doesn’t threaten the overall stability of the system, in which case, in the absence of mass mobilisation, we will see a similar response to the one witnessed post-2008 (short-lived Keynesianism followed by a return to business as usual); or a full-blown implosion of the system, in which case we will have much more to worry about than austerity, and we will probably have to face a fair amount of destruction before returning to a ‘new normal’ – if ever. 

Comrades, let’s not make the same mistake twice. Let’s not fool ourselves that change will come from above, if only we state our case in a sufficiently convincing manner. That the system will reform itself for the better in order to survive. Progressive change will only come about as the result of concrete political struggle. The alternative, as always, is barbarism.