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Economics and the Left

CapitalismStumbling and Mumbling accuses myself and some of the authors I’ve been taking to task as regards this obsession with ‘new ideas’ as being unable or unwilling to get to grips with economic realities. This is apparently shown by our fight over “new ideas” – or in my own case, and my defence of Marxist analysis of capitalism, old ideas. Instead of debating concrete economic realities, we’re obsessed with viewing things in conceptual terms. At least that is what I think Stumbling and Mumbling is driving at.

I think this is a fundamental misunderstanding of precisely what has been driving the discussion about ideas. Unity and I, in the blog posts linked to by S&M, were discussing the lack of new ideas and how relevant this was for modern politics. More specifically, I was challenging the implicit basis for many of Unity’s assertions that new ideas were necessary on the basis of the lessons of history. I was dissatisfied that empirical argument was lacking in substantiating this link.

None of this was especially related to the panic currently soaring through Wall Street and the financial sphere across the world. Indeed, if global capitalism was performing as it had been during the late 1990’s, it is not impossible that the same discussion would have arisen. Thus I think it highly unfair to use it as evidence that the Left is somehow afraid of engaging with economic issues directly, rather than through the abstract ideas which cover economic truths with social and political argumentation.

Following on from this point, S&M lays out some of his thoughts as to possible long term solutions to the problems of free market capitalism gone-rampant-gone-bust. If I’m to take up the mantle of economics, my first point must necessarily be that in the post linked to and others dealing with the subject, S&M portrays a profoundly Western tendency to downplay what exactly the economic crisis means for people. I want to pull at this thread for a moment and see what it unravels.

To begin with, let’s have a look at some of the language I’m referring to:

And I suspect the immediate material effects of the current troubles – less availablity of credit and an economic slowdown – will now be cured by the passage of time. The longer-lasting, deeper effect of this crisis is that it’s undermined capitalist ideology.


Instead, I suspect the biggest crisis might be an ideological one, not a material one – because the stories themore dogmatic defenders of free markets tell no longer seem  so plausible

The crisis is very much a material one, through and through. In relative terms, capitalism is not seeing its ideology challenged at all. Socialism, the only alternative narrative and the very ideology which united millions against the exploitation of capitalism, both as it completed the first round of globalisation in 1890s and as it receded in the inter-war years, is still prostrate. Outside of the tranquil storm-haven represented by the West, the material problems thrown up by this crisis are self-evident.

First of all, even in the West entire communities have been suffering as the towns created and made economical on the back of low building costs and the cheap availability of credit implode. Outside the West, we’ve seen food riots in Italy, Yemen, Egypt, Morocco, India, Bangladesh, Indonesia, most of West Africa, Mozambique, Mexico, Haiti and, believe it or not, in one town in California where supermarket managers put a cap on the price of staple foods. As with energy prices and oil prices, these are related to the credit crunch.

With the beginnings of the collapse in the ill-considered lending and real-estate policies of the major credit institutions (fronted by the other banks they lent to), there began a trend to pull money out and invest it elsewhere. This has led to intense speculation in commodities futures, particularly food, energy and gold. Even the World Bank has published an estimate which reckons that 100 million people are on the verge of starvation.

It’s not likely to slow down yet either: with inflation well above the interest rates, pension funds, hedge funds and every investor and his mother will be jumping their investments from point to point, in search of ever higher returns. The rapidity of this process explains how the masssive price rises seemed to spring out of nowhere for anyone who hasn’t been watching the early unfolding of this in rising oil prices (as a hedge) and rather unconsidered (but economically justifiable) sub-prime lending policies.

Inevitably capitalism will recover over time; no crisis is insurmountable – but the price for this capital reorganisation are the lives of millions of people in the developing world, not to mention those on the bottom rung of Western society. So I’m not quite so willing as S&M to write the whole thing off as more ideological than material. State interventions, whether nationalisation, the intervention of the US Treasury to support the Fed – mirrored in Russia and elsewhere, or through Sovereign Wealth Funds, is not an ideological challenge to capitalism either.

It will ameliorate things: the US Congress is putting togetherr a plan that would see the worst risk assets bought out from the private market – in effect nationalising bad debts in an effort to refloat the credit market. Nevertheless, bearing in mind the colossal sums – seven hundred billion dollars in the US case – we’re referring to, this is in effect the last ditch effort of the central banks before a massive and lasting recession sets in (in the process massively hitting labour costs) and readjusts the whole market.

For the Left it is easy to make comparisons between Western governments bailing out their banks and failing to offer any commensurable assistance to the people who are being hit by this – and in so saying, we are absolutely correct. However are we going to reduce ourselves to calling for a new welfare state? That is not compatible with the current incarnation of capitalism, and it will not be delivered from on high. In fact to achieve it, the late 1970s and 1980s would have to be fought again – and we’d have to win.

Thus when S&M says such things as this…

If the state can spend billions bailing out banks, it can spend billions bailing out people too. If a big welfare state is good enough for capitalists, it’s good enough for workers. Standard arguments against welfare states – that they are expensive, dampen incentives and that people should stand on their own two feet – have been gravely undermined.

…I’m inclined to think that for all the accusations about a rudimentary grasp of economics on the part of the Left, perhaps Stumbling and Mumbling needs to concentrate a little more on political realities and the underpinning theories which explain those realities. I myself support the creation of a new welfare state – from the windfall tax on energy companies right the way up to full employment and free education. However this is not all that S&M is suggesting. We must apparently;

Recognize that markets have a role. The state cannot – and perhaps (pdf) should not – manage the economy to remove all fluctuations. What it should do is help protect people from the consequences of downturns.

Effectively this reduces the role of any working class movement to one of vigilance that the bourgeois state should remain forever the nurse maid of capitalism, picking up the toys it throws out the pram. Again, however, this is entirely Western-centric. There is never going to be a global economy which supports a global welfare state. Indeed the revenues of our governments are built upon (after a long chain) the surplus gained from the exploitation of the 2.8 billion people who work for $2 a day or less.

The overall effect of most of the rest of the proposed solutions smack of an unsustainable naivety in how things are more than likely to progress from this point. S&Ms view that the ostensible point of high salaries (to provide management skill) has been undermined ignores the reality that the CBI won’t care about the sophistic games of the Left in this respect. Nor does S&M actually manage to nail home his hoped-for point in respect of the many-figure bonuses of city bosses.

Without wishing to justify such salaries, for they are built on surpluses extracted via the systematic exploitation of labour, the point should be made that in the situation of these bosses, it’s entirely possible that no decision would have stopped what happened. Capitalism has an internal logic to it; after all not one but multiple fund managers made their jump from sub-prime lenders to commodities: it was for profit, and they fulfilled the purpose for which they were employed.

One of the core Marxist critiques of capitalism is that it is effectively an anarchic system of production – and no individual fund manager faced with such a decision would have decided differently. It is not necessary to postulate incompetence to arrive at the current economic imbroglio. There is also no evidence that, given a different ownership structure, when motivated by the same, inevitable goal – profit – a decision would have been made to stem the sub-prime lending or the jump into commodities which saw prices sky-rocket.

The only answer that I have ever been convinced by is that the entire underpinning motivation of the system needs to be completely eliminated. Industry needs to be put on a socialised footing and the democratisation of society needs to be pushed to its final conclusion. Profiteering does not result in the most efficient allocation of resources, it results in precisely the chaos we’ve seen unleashed on a systematic basis across the globe – chaos which has been well predicted years ago.

Tinkering with the system, whether it is dismissed as a short term (and S&M does the same as the Brown government in defining short-term as ‘bad’) solution or is a wider re-adjustment of the capitalism, will not be enough. Nor will it be sustained after the crisis is averted, because there will be no pressure to do so. Millions of people may be loosing money, but equally a very powerful few are gaining. Whether from golden handshakes or through whatever remunerative method, crisis is profitable.

Solutions internal to the capitalist system aren’t sufficient, and far from being said on a populist misunderstanding of economics, I say it though I read the Financial Times when I can. Perhaps when the bottom of the well of sovereign funds and bailouts are plumbed,  causing rapid reorganisation of state spending (i.e. cuts), more people will be liable to agree instead of dismissing the suffering of half the world’s population as more ‘ideological’ than ‘material’.

Categories: General Politics
  1. September 20, 2008 at 6:00 pm

    Where did you get your blog layout from? I’d like to get one like it for my blog.

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