The current crisis of the capitalist
world is commonly explained as resulting from "a lack of government
regulation of the financial sector", "insufficient supervision
allowing reckless lending by financial institutions", "the unbridled
greed of the financiers", in short a series of mistakes and aberrations.
These have contributed to a "systems failure" in the words of
Joseph Stiglitz, the distinguished economist and Nobel Laureate. This
entire line of reasoning however misses the point. The crisis is not a
"failure" of the system; it is central to the mode of functioning
of the system itself. It is not the result of some “mistakes” or "aberrations";
it is inherent to the logic of the system.
If indeed government regulation in the United States had prevented "reckless
lending" by the financial institutions, if indeed there had been
no "sub-prime lending", then the housing boom would have been
truncated much earlier. Mass unemployment would have reared its ugly head
much earlier, and even the entire world economy would have got into a
state of recession much earlier. The fact that these things did not happen,
the fact that the boom was kept going by sustaining the bubble in the
housing market through enlarging the disbursement of credit, is precisely
because the policy of the U.S. Federal Reserve was to make the financial
system accommodative. And this is now being called “irresponsible” and
"reckless". It is precisely this so-called "irresponsibility"
and "recklessness" that underlies booms in capitalism. Or, putting
it differently, growth in conditions of modern capitalism is caused by
financial, or more generally asset price, bubbles. And crises, such as
what the capitalist world is experiencing today, are the necessary sequel
of the bursting of such bubbles. What Stiglitz calls a "system failure"
is actually the “system” itself.
John Maynard Keynes, the English economist who had been perceptive enough
to realise this, had therefore suggested an alternative source of growth
itself, an alternative to the phenomenon of "bubbles-led growth".
This was through what he had called the "socialization of investment",
i.e. the capitalist State, as the representative of society at large (being
a Liberal he held this theory of the State) should always ensure enough
aggregate demand to keep the economy as close to full employment as possible.
A necessary condition for such activism on the part of the State according
to him was "the euthanasia of the rentier", i.e. the "mercy-killing"
of the financial interests, which, he knew, would always oppose such activism.
Keynes in other words did not just call for the regulation of capitalism,
but its transformation in a manner that would ensure near-full employment
and hence undermine a major argument for socialism.
Keynes’ ideas, though meant to defend capitalism, were repugnant to finance
capital and met with immediate rejection. The capitalist world came out
of the 1930s Depression not because of Keynesian measures, but because
of military spending in the run up to the Second World War. It is only
after the war that the increase in the political weight of the working
class, expressed through the rise to power of Social Democracy, and the
temporary setback suffered by finance capital, allowed the adoption of
Keynesian measures of “demand management” by the capitalist States, which
both kept employment rates consistently high and prevented financial crises
(as would have occurred if “bubbles” had been allowed to develop as the
means for stimulating growth). But the emergence of finance capital to
a position of hegemony all over the capitalist world, in the new garb
of “globalized finance”, which pushed for neo-liberal policies everywhere,
put an end to Keynesianism, and the resumption of the process of “bubbles-led
growth”. The Great Crash we are currently witnessing is the necessary
outcome of this process.
Three conclusions follow: first, as already mentioned, such Great Crashes
reflect not the failure of the system, but the system itself; secondly,
the system they reflect is the system of contemporary capitalism, which
is necessarily marked by the hegemony of finance capital, and sustained,
because of this hegemony, by a process of “bubbles-led growth”. And third,
the specific policy measures adopted in such crisis situations depend
not upon the “wisdom” of such measures, but upon the balance of class
forces or the state of class struggle. In short, what measures the capitalist
economies are going to adopt in the face of this crisis today depends
upon the extent to which the hegemony of finance capital can be confronted.
Two broad approaches have come to the fore among the governments in capitalist
countries for tackling the crisis: the first of these emphasizes fiscal
expansion by the capitalist States. But expansion by any single capitalist
State, if undertaken in isolation, will have its effects largely “leaking”
out of the economy (to a point where the benefits accruing to other countries
would be greater than to itself). Because of this, the expansion will
have to be a coordinated one among several capitalist States, or else
the fiscally-expanding economy will be tempted to put up protectionist
barriers which will exacerbate conflicts and compound the problem. But
any such coordinated fiscal expansion, or indeed any fiscal expansion
for that matter, will have to be based on control over cross-border financial
flows, i.e. on the mobility of globalized finance, since, otherwise, large-scale
and speculative shifts of finance from one country to another can easily
destabilize fiscal policy.
The second approach is to avoid doing anything positive, to avoid fiscal
expansion, merely to support the financial system, and to wait for the
next “bubble” to come along. This is the approach that Herbert Hoover
the American President before Franklin Roosevelt had adopted, which had
the effect of prolonging and worsening the crisis, and the approach that
George Bush has been inclined towards.
Not surprisingly, the first of these approaches is opposed by finance
capital while the second of these is favoured by it. And again, not surprisingly,
the first approach has been mooted by European Social Democracy in general
and by the British Labour government, while the second is the favoured
one among all Right-wing governments.
At one point of time it appeared that the capitalist world was veering
around towards a coordinated fiscal expansion, and even Bush started talking
about it. That was in the immediate aftermath of the collapse of investment
banking on the Wall Street, when the reputation of finance capital was
down in the dumps and an anti-finance capital sentiment was sweeping the
capitalist world. Since then however the Right (representing the interests
of finance capital) has managed to regroup itself. Germany has debunked
talk of fiscal expansion; and the British Tories, after initially supporting
it, have opposed Gordon Brown’s fiscal expansion plans. Fiscal expansion
prospects in other words have again receded to the background, and it
has become obvious once more that the world will remain steeped in crisis
(until some new “bubble” comes) unless the power of finance is broken.
But that in effect would mean going beyond contemporary capitalism to
a new and humane order.