We have another extract, this one is taken from the sixth edition of Marx’s ‘Capital’ by Ben Fine and Alfredo Saad-Filho, described by none other than David Harvey as the ‘expert guide to the political economy of Marx’s Capital’. The book highlights the continuing relevance of Marx’s ideas in light of contemporary capitalism, this section looks at the crash and crisis of the neoliberal financial system.
This chapter seeks to apply a Marxist political economy to the global crisis of capitalism at the time of writing, which presents itself as deriving from a major dysfunction within the financial system, with devastating repercussions across each and every aspect of economic and social reproduction. But, in light of issues of power and conflict around war, gender, race, poverty and development, for example, it is important to bear in mind that the current crisis is neither an acute break with the past, nor is it confined to narrowly defined economic issues. Indeed, crises tend to accentuate and, to that extent, reveal the nature and contradictions of the society in which we live; this is especially well illustrated by the fall from grace of the financial fraternity. However, the merciless light shone by the crisis obviously does not render contemporary capitalism an open book, to be easily read from cover to cover in large print. So, whilst neoliberalism temporarily suffered a crisis of legitimacy in addition to its economic crisis, the reasons for the latter as well as proposals for resolution remain disputed across the intellectual and political spectrums, and within Marxism itself.
The Crisis of Financialisation
Each crisis incorporates specific characteristics, whether by virtue of proximate causes, depth, breadth or incidence across the economy, ideology or political system, or through its differential impact within and between economic sectors or upon segments of the working class in each country, or for other reasons. But the current crisis – meltdown even – is remarkable across a number of separate dimensions as well as in their combination. First, the crisis was not initiated by a tulip bulb, South Sea Island or dot-com bubble, or even a stock market frenzy or commodity crash – although stock markets in different countries witnessed considerable speculative turmoil in the period leading up to the crisis as well as in its wake. The crisis spread from the US sub-prime market, a market that provided mortgage finance to the poorest households of the country. Of course, locating the origin of the crisis still leaves open the question of why it should have triggered such a worldwide blast.
Second, no one blames the poor for the speculative boom or the crash and its aftermath. Far from it; unlike in other instances of economic malfunction in recent times, ‘excessive’ wages and benefits have nowhere been targeted as causal, as has occurred in the past, according to neoclassical, Keynesian or even Marxian ‘profit squeeze’ views – helping to legitimise, more or less explicitly, the shift of the burden of adjustment onto working people and the poor. This time, finance and its excesses are obviously to blame, but (wait for it!) finance must be rescued in order to prevent an even worse impact upon the rest of us, whose hardening times for years to come are thereby legitimised. Not your fault, or anyone else’s for that matter (conveniently leaving aside the neoliberal incentives to finance and generalised promotion of the interests of the rich); but the milk is spilt, the pitcher is broken, and so we have to work together to fix it, with less to go around in the meantime.
Third, despite its severity, unprecedented since the 1930s, the current crisis both closed a 30-year period of relative slowdown in accumulation in the West, after the ‘Keynesian’post-war boom, and announced a ‘new normal’ of slower growth rates around the world lasting into the indefinite future. Whatever its immediate causes in the US housing market and elsewhere, the crash and its severity are not simply the result of some manic, overstretched phase of financialised accumulation, whose contradictions, tensions and conflicts have induced a corresponding reaction in the opposite direction and which may be expected to resolve itself through the spontaneous ‘purging’ of those excesses. Rather, the crisis is clearly nested within the neoliberal mode of accumulation which consolidated itself after the demise of post-war Keynesianism.
Fourth, the current crisis is one in a sequence of financial or balance-of-payments crashes that have affected mostly poor and middle-income countries on a regular basis since the late 1970s. These have generally been contained even when severe within particular regions, not least through multilateral state intervention engineered by the US Treasury Department and implemented by the World Bank, the International Monetary Fund and the institutions of the European Union. Today’s situation is different. For the transmission mechanisms of the current crisis have overwhelmed even the unprecedented degree of state intervention seeking to control and temper its worst effects and geographical spread. The limitations of macroeconomic policy and international co-operation, most notably signalled by the domino effects emanating from the sub-prime crisis itself, reflect the complexity of contemporary financial asset structures. This has led to significant difficulties in selecting what to target for rescue, by what criteria, to what end, how, for how long and at what cost, and what supplementary policies are necessary at the domestic and the interstate levels.
These factors are indicative of a broader crisis in neoliberalism, requiring an explanation
of some sophistication. At a superficial level, and only with minor exceptions, there seemed to be no neoliberals left in the wake of the crisis. The dramatic failure of the financial system induced a desperate search for remedies through a return to mild and finance-led Keynesianism and piecemeal and reactive state control, even public ownership of finance and industry, which would have been anathema only months before. The ideological acrobatics required to justify these policy choices, as well as the deficiencies in institutional mechanisms for formulating and implementing policy, were all too obvious. Even so, the extraordinarily expensive measures involved in ‘rescuing’ the economy were initiated by the ultra-neoliberal US president G.W. Bush in the twilight of his administration and were continued smoothly by his presumably very different successor, Barack Obama. The same fundamental continuity across distinct political actors was also observed in the United Kingdom, France, Italy, and many other countries. Invariably, the policies addressing the crisis were unmistakably neoliberal and they were meant to be reversed as soon as possible. To put into perspective the depth of the crisis of finance and the extent of state intervention, two facts are striking. One is that the resources offered to shore up the financial system far exceed the total revenue accrued from all privatisations ever. The other is that the rescue packages would have been sufficient to eliminate world poverty for the next 50 years, if not indefinitely.
Neoliberalism and Crisis
At a deeper level, neoliberalism is attached to a specific mix of ideology, scholarship and policy in practice. But this mix has gone through two phases: the first, shock phase was based on extensive state intervention to promote private capital as far as possible, with limited regard to the social, economic and political consequences – a Reagan/Thatcherism that was most notoriously imposed upon Eastern Europe under this very terminology of shock therapy. But the ‘just do it’ ethos of the first phase of neoliberalism (which talked about leaving things to the market, but used the state to promote private capital – not least in its oppressive relations with working people) neither originated with nor has been confined to transition economies. The second phase, Third Wayism or the ‘social market’, which continues to this day, has witnessed different modalities of state intervention, both to temper the worst effects of the first phase and, more importantly, to sustain what has become the defining characteristic of neoliberalism itself: financialisation. For the past 40 years, financialisation has prospered through, and under the guise of, the promotion of the market (i.e. private capital) in general. In practice, this means the subordination of social reproduction to financial market imperatives in everything from privatisation and deregulation to inflation targeting, the commercialisation of public services, and the diffusion of personal credit and private insurance as opposed to reliance on social welfare.
Inevitably then, the crisis brings the significance of finance to the fore. It is difficult to exaggerate the expansion of the financial system over the past 40 years. There has been a proliferation and growth of the financial markets themselves, in terms of derivatives, futures, foreign exchange, mortgages, government instruments, as well as stocks and shares, and the penetration of finance into areas of economic and social reproduction that had been removed from the direct control of private capital in the previous era of Keynesian welfarism and ‘modernisation’. This applies to health, education, energy, telecommunications, transport, housing finance, pensions, benefits, social care, and much more. In addition, industrial corporations have been thoroughly caught up in financialisation, with a drive for ‘shareholder value’ through financial dealings, restructuring, and changes in corporate governance dominating the sources of profitability, often at the expense of investment to expand and enhance capacity and increase productivity.
These economic considerations are embedded in a new pattern of imperialism (so-called ‘globalisation’), not least in the wake of the Cold War. Both the strengths and the weaknesses of the United States as hegemonic power have intensified and been exposed in recent years. In contrast, the collapse of Soviet-style socialism and the weakness of progressive movements, despite some green shoots, in Latin America for example, are striking. So is the rise of China, its conversion to capitalism, and its provision of wage labour to world capitalism numbering tens if not hundreds of millions of workers. Equally significant is China’s peculiar relationship with the United States, with regard to the major support it offers to recycling the US fiscal, trade and current account deficits. China is far from alone in this, even across the ‘developing’ world, and Germany and Japan have been at least as important in sustaining both the dollar and the US trade deficit for even longer. This reveals an extraordinary mix of US strength and weakness, with the dollar as world money commanding external support: at the time of writing, any moves to supplant its corresponding roles as reserve currency and means of payment are marginal at most. The result is that the value of the dollar has been volatile; but it has not crashed, despite its potential fragility and the widely recognised structural weaknesses of the US economy – weaknesses of the sort that would lead to collapse in the value of any other currency.
If this book sparked your interest, please check the Pluto Press website for other similar titles. If you need a gentle nudge in the right direction, we recommend:
Macroeconomics: A Critical Companion by Ben Fine and Ourania Dimakou
Macroeconomics provides a unique alternative to the multitude of standard textbooks by locating macroeconomic theory in its own history. It will be perfect for those studying macroeconomics, as well as for those looking for a new way to understand our increasingly complicated economic system.
Microeconomics: A Critical Companion by Ben Fine
Microeconomics: A Critical Companion offers students a clear and concise exposition of mainstream microeconomics from a heterodox perspective. Covering topics from consumer and producer theory to general equilibrium to perfect competition, it sets the emergence and evolution of microeconomics in both its historical and interdisciplinary context.
Marx and the Alternative to Capitalism by Kieran Allen
If we are serious about finding a different way to run the post-credit crunch society, we must start by introducing alternatives to undergraduates. Kieran Allen begins the task with an accessible and comprehensive look at the ideas of Karl Marx.
Neoliberalism: A Critical Reader edited by Alfredo Saad-Filho and Deborah Johnston
An introduction to neoliberalism that is ideal for anyone seeking a critical perspective. It explains the nature, history, strengths, weaknesses and implications of neoliberalism from the point of view of radical political economics.
Marx’s ‘Capital’ – Sixth Edition is available to buy here.
Ben Fine is Professor of Economics at SOAS, University of London. He is the author of the critical texts, Macroeconomics (with Ourania Dimakou) and Microeconomics (Pluto, 2016), co-author of co-author of Marx’s ‘Capital’ (Pluto, 2016) and co-editor of Beyond the Developmental State: Industrial Policy into the 21st Century (Pluto, 2013). He was awarded both the Deutscher and Myrdal Prizes in 2009.
Alfredo Saad-Filho is Professor of Political Economy at SOAS, University of London. He is the author of The Value of Marx: Political Economy for Contemporary Capitalism (Routledge, 2002), co-author of Marx’s ‘Capital’ (Pluto, 2016), Neoliberalism: A Critical Reader (Pluto, 2005) and the Elgar Companion to Marxist Economics (Elgar, 2012)