Some Notes on a Crisis

I left several books in the mountain house last week about the global crisis which I need to retrieve and get into eg

·         Austerity – the history of an idea by Mark Blyth - a Brit who is now a Prof In "Political Economy" (no less) at an American University and who actually writes clearly and powerfully! See this lecture of his.

·         European Spring – why our Economies and Politics are in a Mess – and how to put them right  by Philippe Legrain - who has a rather dubious CV as an adviser to Barroso and Think-tanker but whose book - if a bit repetitive - looks a useful narrative.... 

·         Crisis without End – the unravelling of western prosperity; Andrew Gamble - see below

·         17 Contradictions and the end of capitalism ; David Harvey - see below

·         Buying Time – the delayed crisis of democratic capitalism ; Wolfgang Streeck - also see below

·         Capitalismand its alternatives; by leftist Chris Rogers - a decent review of which I haven't yet been able to unearth

·         Utopia or Bust - a guide to the present crisis - a small book by American writer Ben Kunkel who has reviewed in excellent prose for the London Review of Books and who, like James Meek, looks at economic issues from a non-specialist point of view

·         The End of the Experiment?  by Andrew Bowan which has an accompanying blogsite- Manchester Capitalism -  which helpfully offers explanations of the key parts of the book

But a different sort of book distracted me this last couple of days - Together – the rituals, pleasures and politics of cooperation produced a couple of years ago by the famous sociologist Richard Sennett. For a good sense of both the man and the work, this interview in Brick Magazine is quite excellent.

Much as I appreciated the freshness and elegance of the discourse – and the references to Tonnies, Robert Owen, Saul Alinsky et al - I could have done with some recognition in the book of the role of cooperatives.

I wrote some years ago about the Mondragon Cooperative in the Basque country – which rarely gets proper credit for its amazing employment record (employing more than 80,000 people in that mountain area). I was sad to see that it hit a bad patch last year and had to close one of its affiliates.

But let me again raise the question I posed in my review last month of Phillip Mirowski’s Never Let a Serious Crisis Go to Waste – how neo-liberalism survived the financial meltdown;

Where, amongst the hundreds of books produced in the last few years about the global crisis, is the annotated bibliography to help us sift and classify them? 

Mirowski’s book has a 41 page list of books and posed these questions –

·       What were the key causes of the crisis?

·       Have economists of any stripe managed to produce a coherent and plausible narrative of the crisis, at least so far? And what role have heterodox economists played in the dispute?

·       What are the major political weaknesses of the contemporary neoliberal movement?

·       What lessons should the left learn from the neoliberals, and which should they abjure?

·       What would a counter-narrative to that of the neoliberals look like?

But the book only really touches (and briefly) on the second of these questions – the others he suggests “demand lavishly documented advocacy and lengthy disputations” and maybe an alternative left project. His book, he concludes with surprising modesty for such a pyrotechnic writer, simply “dispels some commonplace notions that have gotten in the way of such a project”. Neoliberals have triumphed in the global economic crisis, he suggests, because -

·                     Contrary evidence didn’t dent their world view

·                     They “redoubled their efforts to influence and capture the economics profession”

This conclusion, frankly, left me feeling a bit let down - after I had devoted a couple of days to wading through his verbiage……surely a guy with his experience and reading can do better??? What we need are comparisons and classifications of this reading…..

The titles of the books on my little list are significant – and three of them seem to promise a bit more –Wolfgang Streeck of Koln; David Harvey of New York; and Andrew Gamble of Sheffield – so let me just share some of the reviews before I actually get into them

You can get a sense of Wolfgang Streeck’s writing from this article from New Left Review. He writes in his latest book - Buying Time – the delayed crisis of democratic capitalism -

Previous crisis resolution instruments are not available anymore. The traditional toolbox containing inflation, increasing sovereign debt levels or making cheap credit available to private households and corporates has exhausted itself. At different junctures of post-World War II development these policy instruments served as short-term fixes – or capital injections – to support redistributional objectives. The original twist in Streeck’s line of argument is that such objectives and the means to achieve them chiefly served to benefit those market actors who needed them the least.

When focusing on Greece Streeck’s ire is not only reserved to the troika’s activities and misjudgements. He has a keen eye for the domestic origins of the fiscal crisis in Athens. Streeck emphasises that this crisis is primarily the result of a state that is forced to turn to sovereign indebtedness as a mechanism to replace taxes, which the authorities fail to collect from its better off citizens. Streeck highlights the extensive capital flight beginning in 2009 and the privileged tax status that shipowners, farmers, various liberal professions and the Orthodox Church continue to enjoy in Greece.

But the flight crew sitting in the ECB tower in Frankfurt fundamentally lacks the key ingredient of democratic legitimacy for their costly and risk-prone interventions. While these operations allows decision makers to again buy some time, Streeck does not consider this arrangement to be more than a short-term form of financial doping. And the cost for the ECB’s reputation is considerable as evidenced by various resignations of German members from its governing council during the past three years and the challenges it faces from the Federal Constitutional Court in Germany.

Therefore, it does not come as a surprise that Streeck’s book has unleashed a fierce debate, predominantly so far in Germany. His domestic critics, including the philosopher Jürgen Habermas, the former SPD Chancellor Helmut Schmidt and Joschka Fischer from the Greens, have either accused him of nostalgia for national currencies, being naïve about the merits of currency devaluations or lacking a workable alternative scenario outside the cornerstones of EU integration and euro area membership.

The polemical reactions of many of his critics only serve to confirm that Streeck appears to have hit a raw nerve among many in Germany. He emphatically rejects the national consensus demanded by the political and economic establishment in Germany and its prominent academics, who equate Europe with the EU and consider the single currency as a fait accompli of TINA politics, i.e. ‘There Is No Alternative’.

Indeed, the policy alternatives that Streeck offers are controversial. That is their purpose and they merit a thoughtful debate. He wants the euro to become an anchor currency parallel to the reintroduction of national denominations. Streeck is in favour of giving back to national governments the option to devalue their currency and thus creating leverage for discretionary policy intervention. A return to an orderly and flexible currency exchange system is equally part of his recommendations as are capital controls to stem recurring capital flight and tax dodging in the euro area.

But his underlying argument about policy alternatives is that contemporary capitalist societies in Europe urgently need an infusion of democratic oxygen, citizens’ involvement and a public willing to articulate different options. How this can be voiced is anybody’s guess, not least Streeck’s. Given that numerous democratic institutions have been reduced to mere bystanders in the course of the past crisis management years, Streeck formulates a rather pessimistic, but entirely reasonable alternative.

He pointedly asks why should only markets be allowed to panic and follow herd instincts? What happens when civil society threatens to do the same? Streeck argues that democratic mobilization and civic engagement should be the orders of the day. The protests may be desperate, loud, display a makeshift air and be highly disorganized but they are absolutely necessary. The ‘’αγανακτισμένοι’’ in Greece or the “indignados” in Spain are examples of a growing constituency across Europe who feel they are being treated with contempt and that their dignity has been hurt.

David Harvey, although a geographer, is the world’s best- known exponent of Marx. His Origins of Neo-Liberalism can be read online. His latest book is a small one which tries to compress his extensive work into 17 Contradictions and the end of capitalism

Drawing on his previous commentaries on Karl Marx’s Capital, David Harvey’s latest book is a brave attempt to translate that monumental work into the simplified language of the 21st century. It is beautifully written, persuasively argued and – in these dismal times – refreshingly optimistic about the socialist future awaiting us all.

The author begins by drawing “a clear distinction between capitalism and capital”. “This book”, Harvey explains, “focuses on capital and not on capitalism.” More accurately, the topic is the hidden engine that drives capitalism, not the rickety vehicle as it trundles along bumpy roads. Harvey is not only interested in finding out how the engine works and why it sometimes fails. “I also want to show”, he adds, “why this economic engine should be replaced and with what”. No shortage of ambition, then.

Although it might seem force, I can see why this distinction is necessary. To write a short book – or indeed to do any kind of science – you have to simplify, abstracting away from reality in all its complexity. “How does the engine work” is, I suppose, a different question from “Where are we going?” or “Will we ever arrive?”

Focusing simply on the engine, Harvey’s 17 contradictions are exclusively internal ones – tensions intrinsic to the hidden mechanisms driving the circulation and accumulation of capital. It’s a convenient strategy that allows him to set aside such “external” factors as, say, changing gender relations, epidemics or warfare. But I couldn’t quite understand the basis on which some topics were excluded and others discussed at length.

Harvey’s 16th contradiction – entitled “Capital’s Relation to Nature” – includes the looming prospect of catastrophic climate change. It’s an excellent, scientifically well-informed chapter and one of the highlights of the book. Harvey claims it as an “internal” contradiction on the basis that capital is a working and evolving ecological system embracing both nature and capital. I agree with that. But in accepting that point, aren’t we including the bumpy road as part of the engine? If climate change counts as “internal”, what justification is there for excluding race and gender? Harvey explains: “I exclude them because although they are omnipresent within capitalism they are not specific to…capitalism”. Well, no, but then neither is environmental degradation. The consequences might be more terrifying today, but humans have been triggering extinctions since the beginning of farming and probably before. Mammoths once roamed across Europe…

My other criticism is that while Marx wrote quite a lot about revolution, Harvey goes strangely silent on the topic. As a result, the book’s final pages remind me of going to the wishing well and asking for 17 nice things that ought to happen – solidarity everywhere, no alienating work, everyone creative and fulfilled. It’s an inspiring list. But it does little to help us think about how to get there or if it would really work. Marxists need to do more if we are to sound convincing.

But the book I am most looking forward to is Andrew Gamble’s Crisis without End – the unravelling of western prosperity

This is not a book on the financial crisis per se, but one that uses the crisis as a point of departure to consider how our world has been ordered over the past century, along the way displaying in-depth understanding of the events leading up to the crash and the actions taken to respond to it.

Before analysing the consequences of the crisis for neoliberalism, Gamble lays out his notion of a neoliberal economic order and details how the current international economic system was set in place after the Second World War. This section is extremely valuable, as most scholars connected to post-structuralist or post-Marxist schools of thought are content to use neoliberalism as a kind of bogeyman-placeholder for all that is wrong with the predominant political and economic system in the West without ever defining the notion.

While one does not have to agree with the anti-neoliberalism rhetoric, Gamble’s introduction ably sets the pace for what follows by showing that while the crisis wounded the neoliberal order, five years on it seems remarkably unscathed. He then embarks on answering his main question: Why has the neoliberal order proved so resilient, and can it renew itself in the face of the challenges to its effectiveness, sustainability and legitimacy that the crisis revealed?

Gamble lays out three hypotheses – thesis, antithesis and synthesis – about why we haven’t seen much change in the aftermath of the recent global financial crisis.

1) The crisis was just a blip. Although it seemed serious, it has no long-term significance for the functioning of the present economic system because it is not structural.

2) The 2008 crash revealed not just a serious malfunctioning of the financial system but deeper underlying problems that need fixing before recovery is possible.

3) And most plausibly, in Gamble’s view: the crisis has revealed an impasse. The fundamentals governing the international economic order have changed, but since the immediate crisis was contained, incumbent policymakers could stave off radical change. However, the neoliberal order has become highly unstable and postponing change will lead to further breakdown or deadlock. Hence the “crisis without end”.

A compelling line of argument appears in Gamble’s second step, where he discusses the three fundamental conflicts underlying the functioning of the neoliberal economic order that the crisis has not only revealed but intensified. He compares the current crisis’ characteristics to those of the two major crises in the 20th century in light of the dilemmas that he sees as inherent in the international neoliberal order: governance, growth and fiscal trade-offs.

- The governance dilemma lies in the tension between a unified international market order and a fragmented state system, between international connectedness and national sovereignty, in which the emergence of new powers poses severe challenges to the existing order.

- The growth trade-off manifests itself in the tension between the incentives needed for maximising private gains and the social conditions necessary to facilitate private accumulation. The question of how sustainable growth can be achieved in the face of prolonged stagflation and environmental risks is at the heart of this dilemma.

- Finally, the fiscal dilemma concerns the legitimacy of markets, as uncontrolled competition undermines social cohesion and solidarity, especially with increasing debt and falling living standards.

Gamble paints his picture in broad strokes, and in arguably overly gloomy shades. The welfare state may be more resilient than he might admit, especially its continental and Scandinavian versions, because different primary mechanisms of redistribution were originally put into place. While the Anglo-Saxon variety relies mainly on redistribution through taxation, the continental version is contribution-based. Since the fiscal dilemma implies difficulties of raising revenues from taxes, inequality is more of a problem in the tax-based redistributive systems prevalent in liberal market economies.

The fundamental dilemmas underlying neoliberalism raise the question of what has to change before a new era of prosperity in the West can be established, and Gamble considers four scenarios.

The first is the default, where nothing much changes and rising internationalisation leads to further shocks and a perpetual crisis.

The other three scenarios move away from a unipolar economic order; in scenario 2, to a bipolar situation in which US-Chinese competition over resources and markets spurs protectionism and a decline in trade with renewed fiscal and monetary problems.

Scenarios 3 and 4 involve multipolar situations, with either multilateral cooperation including emerging powers leading to a more diversified new market order (scenario 3), or with conflictive and bloc-building tendencies bringing more fragmentation and decline in international flows (scenario 4).

Evidently, scenario 3 is most likely to restore confidence and build conditions for sustainable growth.

Alas, Gamble leaves the question of how to achieve scenario 3 unanswered, and concludes that the future is likely to include aspects of all four. Like me, the reader may be left wishing he had taken a few more risks in identifying conditions that make different outcomes more likely.

This is clearly not a book that crunches numbers and draws conclusions based on well-identified empirical evidence, but Gamble gives his own account of the general feeling that there is something wrong and lethargic about the way the West is dealing with the aftermath of the financial crash, and that only more radical change can lead us back to sustainable growth and prosperity.

Like Thomas Piketty in Capital in the Twenty-First Century, Gamble shows that the global financial crash and its effects are not just manifestations of the normal capitalist cycle, but extraordinary, and will affect the world and the international economy for decades to come. Although he analyses the crisis through the lens of a critique of neoliberalism, this does not distract from his insights into the challenges for economic and political systems at both transnational and domestic levels.

Where Piketty’s book convinces with myriad historical data and empirically derived evidence, Gamble’s gripping narrative persuades via insight and anecdotal evidence.

My personal quibble with Gamble’s approach is that we must have faith in his analytical brilliance and persuasive argumentation, because none of us knows the counterfactual – what type of social and/or economic system would generate better societal outcomes, and better from what perspective? Arguably, more rigorous empirical identification and quantitative evidence would have helped the momentum and credibility of some of his arguments.