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Exit the dragon
Nobody knows how bad this disaster will prove to be, except that it is already very much worse than anybody, barring a few Marxists and other lonely radicals, predicted. But it is no longer merely a crisis of finance, or even of the functioning of the global market economy.
Let us consider the best-case scenario: that over the next few days, weeks or months, the combined action of the governments of the USA, the EU and the other developed countries, by throwing trillions of dollars, pounds and euros of taxpayers money into the hitherto privately-owned system of financial speculation; in contradiction of their deepest beliefs, re-regulating much of what was de-regulated; and even nationalising huge parts of that imploding system; that, by these draconian anti-market means, the state succeeds in rescuing the financial markets from complete meltdown, prevents the 'real economy' (ie, the production of material products and recognisably useful services) from a terminal crash, and thus avoids the likelihood that hundreds of millions, rather than scores of millions of people in the 'West', who have until now been living a relatively comfortable existence, are cast into unemployment and poverty.
Even in that scenario, in which the people of the developed world will suffer only from an economic crisis rather than an economic catastrophe, the damage inflicted on the ideas which underpin the support for the capitalist system will be catastrophic.
Writing on 12th September- after the seizure by the US authorities of the giant mortgage corporations Fannie Mae and Freddie Mac, but before the nationalisation of AIG and the subsequent '700 billion dollar bailout'- Anatole Kaletsky, the Principal Economic Commentator and Associate Editor of The Times, remarked wistfully:
Whatever happened to the triumph of global capitalism? Even more than “the end of history”, the idea that “we're all capitalists now” became an article of faith around the world from the early 1990s onwards...
Noting what he described as the "complete failure of the biggest, most dynamic, most innovative and competitive markets that have existed in the history of capitalism", Kaletsky wrote:
Their failure has been so obvious, that even the most capitalist administration ever, in the world's most capitalist country, had decided to wipe out the private owners of its biggest and most important financial companies and replace them with state-appointed bureaucrats.
The reasons for these failures - related, ironically, to the dogmatic belief among regulators, politicians and financiers that “the market is always right” - have been much discussed. Much less widely considered have been the consequences of this justifiable disillusionment with market forces.
Even more than the mind-boggling $5,500 billion size of the two US mortgage companies, it was the political significance of their nationalisation that marked it out as an historic turning point.
In his conclusion, the Associate Editor of The Times clarified what he meant by the political significance of the events:
If the US loses faith with free markets, compromises the protection of property rights and hobbles its financial markets - all of which it has dramatically done in the past seven days - then Europe will surely follow suit. Emerging economies such as China and India will become even more ambivalent about market economics. Instead of We Are All Capitalists Now, There Are No Capitalists Left may become the ideology of the next decade.
Changing my religion
As Kaletsky remarked, there has been much discussion on the reasons for the spectacular failure of the capitalist financial institutions; with many other commentators and politicians joining him in expressing their 'justifiable disillusionment with market forces'. On 8th October 2008, the prime minister of Britain justified his latest nationalisation and bailout plan, secured by negotiations which had concluded at 5am that morning:
"Our stability and restructuring programme is comprehensive, it is specific and it breaks new ground. This is not a time for conventional thinking or outdated dogma but for the fresh and innovative intervention that gets to the heart of the problem."
Gordon Brown has a proud record as an opponent of outdated dogma. It was in 2003, in his most explicit theoretical exposition, his lecture at the Social Market Foundation, that he declared:
For the left historically it has been a matter of dogma that to define the public interest – opportunity and security for all – as diminishing the sphere of markets [...]
Why? Because for the left markets are too often seen as leading to inequality, insecurity and injustice. In this view, enterprise is the enemy of fairness, and the interests of social justice are fundamentally opposed to the interests of a competitive economy. The left’s remedy has therefore been seen to lie in relegating the impact and scope of the market through greater public ownership, regulation and state intervention [...]
In opposing this doctrinaire remedy, he averred:
It is ever more important that markets are strengthened [...] Instead of being suspicious of enterprise and entrepreneurs, we should celebrate an entrepreneurial culture – encouraging, incentivising and
rewarding the dynamic, and enthusing more people from all backgrounds and all areas to start up businesses. Here again, enabling markets to work better and strengthening the private economy.
Instead of thinking the state must take over responsibility where markets deliver insufficient investment and short termism in innovation, skills and environmental protection, we must enable markets to work better and for the long term...
Thus the markets- especially the financial markets- were ever more strengthened, their entrepreneurs were no longer subjected to suspicion; instead, they were incentivised, celebrated, and given ever more scope. A proportion of the increasing proceeds accrued via taxation to the state, allowing the government to promote a degree of fairness and social justice- in distinction from the previous hard-hearted and purely neo-liberal Conservative regimes of Margaret Thatcher and John Major.
The gains to the people arose not only from the increased provision of state services and welfare payments; but also- through the exponential rise in property prices and the co-incidental industrialisation of China- the bountiful affordability of material goods to the majority of the population. A new paradigm had been created, the marriage of market freedom to social fairness, a match made in the evangelical but materialistic heaven of New Labour.
So the long boom was not merely economic, but ideological- and the bust was abrupt.
In the vengeful rhetoric of the right-wing populist press, the dynamic entrepreneurs went straight from 'go' to 'jail', without even passing through the due process of suspicion. On 30th September, the Daily Express published an editorial which denounced as 'greedy renegades' the senior bankers who it blamed for the crisis. The editorial was headlined 'Jail Rogue Fat Cats who Caused Financial Turmoil', but the text suggested a rather more drastic recourse than this modest proposal, hinting darkly: "In China they’d be executed."
Some others, whose views have remained consistent, have suddenly found an eager audience. The Conservative Party's intellectual magazine The Spectator has printed an article by the chief of one of Britain's few remaining nationalised industries outside the banking sector, Archbishop Rowan Williams of the Church of England. In its pages, the Right Honorable Most Reverend Doctor Williams, who was appointed to his post by Mr Tony Blair, espoused his analysis of the immorality and greed of the de-regulated capitalist market, which he denounced as a form of 'idolatry', a heresy against the true God.
This has always been the opinion of Dr Williams, but until recently nobody cared about it; of his ardent views, only those about homosexuals and Muslims were considered worthy of mention. In his Spectator article Rowan Williams, who is is an honorable man not merely in his official title but in his words and deeds, cited as his intellectual ally a certain Dr Karl Marx- though, as he conceded, Marx was only partly right.
We should have no problem with that. As the the doctrine of that very moderate body the Church of England also concedes, even Moses and Jesus were only partly right.
Exit the dragon
But back to reality. In his poignant remark that we may be entering a period in which 'There Are No Capitalists Left', Anatole Kaletsky suggests that the myth that economic decisions can safely be left to the market will no longer have any believers; hence the capitalist market will be restricted, subject to increased direction by the state, and its field of operation reduced by nationalisations.
That alone would be a huge change. But the defeat in practice of capitalist ideology, which will be combined with the material effects of the crisis on the population- a reduction in prosperity and an increase in misery in the leading capitalist countries- could have a further, and even more significant effect.
This present crisis is not merely the result of personal wrong-doing by the insatiably greedy characters who gained by the worship of the masses at the satanic- and now all of a sudden, discredited- shrine of capitalist individualism.
It is the bitter eventual fruit of the roll-back, over the last several decades, of the nationalisations, regulations, repression of financial speculation and other state economic interventions which were implemented following the experience of that previous catastrophic downturn, the Great Depression.
The reforms which were instituted in the wake of the terrible crisis of the 1930s- including the New Deal under Franklin D. Roosevelt in the USA and the radical measures of the post-1945 British Labour Government under Clement Atlee- by reducing the economic scope of capitalism, thereby made that fettered and limited capitalism more economically stable than its previous unrestricted form.
Those reforms also allowed a drastic improvement in the conditions of working class people, which had hitherto been miserable, even in the richest capitalist countries; connected with this, by means of progressive taxation and the increased scope for the trade unions, there was a reduction of the gap in living standards between the very rich and the majority.
As Doug Henwood, editor of the Left Business Observer, has noted: the yawning gap which has opened, since the 1970s, between the incomes of most of the people and those of the wealthy elite, was key among the major factors which have contributed to the current debacle.
Why was the decision taken that the restricted model of capitalism, social-democratic capitalism, could and should be rejected and replaced with an updated version- recently becoming a turbo-charged version- of the pre WW2, dangerously unstable, 'free-market' capitalism?
The various factors included not only the lust for unrestricted opportunities for individual enrichment through the market, but the perception that it was the workers, strengthened by nationalisation and their trade unions, who were becoming the greedy ones, avaricious for ever-larger slices of prosperity and power; in other words, millions of people were increasingly discovering that collective means could yield them a decent and improving quality of life.
But those workers were no longer motivated by desperation. In Britain, the country which would become the Western crucible of privatisation, de-regulation and the liberation of financial capitalism from its shackles, the chief ideologue of the return to the unbridled market was Sir Keith Joseph, a man whose personality did not suit him for the direct leadership of a nation; nevertheless, Sir Keith found an able and eager student in Margaret Thatcher.
In girding himself for intellectual battle against the social-democratically resticted version of capitalism- which had by the 1970s even banished its own name, 'capitalism', from the vocabulary, instead defining itself with some justification as 'the mixed economy'- Keith Joseph fought to banish an image from his own mind, a ghost which still frightened his less audacious colleagues. As he recalled:
Our post-war boom began under the shadow of the 1930s. We were haunted by the fear of long-term mass unemployment, the grim, hopeless dole queues and the towns which died. So we talked ourselves into believing that these gaunt, tight-lipped men in caps and mufflers were round the corner, and tailored our policies to match these imaginary conditions. For imaginary is what they were.
The spectre of the impoverished working class, with little to lose but their chains and many of them becoming drawn towards revolutionary means of salvation, was banished from the historical imagination of the ruling elite. Thus the dragon of the free market, for three decades imprisoned by the chains of nationalisation and regulation, could be released from its hiding place in the theories of a few anti-Marxists and other lonely radicals, and breathe fire again on the real world.
Keith Joseph, and his increasingly poweful proteges, were encouraged and empowered also by the decline, and then the fall, of the Soviet Union.
Like it did on a regular basis before it was institutionally moderated after the 1930s, the capitalist monster is again undermining the conditions for its own existence. It is bringing down the financial aristocracy which it created, and along with it the idolatrous religion of their admiring cheer-leaders.
And what will result? As history teaches, the proceeds may encompass the worst as well as the best. From the crisis of the 1930s, Hitler arose, backed by the desperate capitalists, and a World War which killed fifty million human beings.
But also, that terrible crisis resulted in the aggressive advance of socialism, from the isolated Soviet Union to Central Europe, China, and even eventually to a small island in the Caribbean.
Cuba's survival, against all odds since the 1990s, gave hope for the the masses in Latin America- who have revolted since the start of this Century against capitalism and for a better life.
The current crisis will inflict millions of casualties, almost all of them innocent. But among the collateral damage will be the invincibility of the capitalist system, even in its heartlands.