Dan Hind, 24 March 2009

What Next?

I have tried to give an outline account of the cause of the crisis. It is no doubt debatable in some of its details. I have said very little about the campaigns to break the power of labour in the 70s and 80s. There is much more to be said about the warnings that were made in the years before 2007. You are welcome to revise the text and forward it with changes if you feel so moved.

And if you’d rather have your economic analysis from someone with a little more in the way of a grounding in, well, in economics, here’s Joseph Stiglitz, Nobel laureate and former Chief Economist at the World Bank:

One of the reasons why our economy is weak is that we have growing inequality in our society. That means that people who would spend the money don’t have it. We sustained their consumption by lending but that lending was unsustainable and so unless we do something about the underlying inequalities both within our countries and across the world, it may be difficult to restore the global economy to the kind of prosperity that we would hope.

Whether you want to listen to me, or some Nobel Prize winner, it is impossible to deny that the problems we now face emerge from the deep structure of the global system. It follows that lasting recovery will only be possible if we reform that deep structure.  

There are a number of suggestions as to how we might do that. The New Economics Foundation has worked with others to put together a Green New Deal, which combines closer regulation of finance with moves to restart the economy through investment in environmentally desirable projects.  In the United States Paul Krugman has outlined what he thinks Obama needs to do to avert a 30s style slump.  But the work of constructing a more just, and therefore more stable, economic settlement is only just beginning. Given the record of the experts who were in charge I can’t see any convincing reason why you shouldn’t be part of that work.

It is certainly time for us to assert the public interest over the needs of private capital. Deregulated capital has failed and must now be returned to conditions of close supervision. This means, among other things, the end of the offshore system of unregulated tax havens, the imposition of controls on the international movement of capital, and a much greater emphasis on productive investment as against financial speculation and disordered and unsustainable consumption.

In Britain it seems that the financial sector is being taken over by the state. We are now, as citizens, facing incalculable risks. If we can find a way back to recovery, we must ensure that we are never again put in such danger by the actions of financiers and their servants the politicians.

Given that both the British and the American banking sectors are effectively insolvent, its seems that there is little that the ‘Anglo-Saxon’ tradition of liberalism in finance (more often than not a fifty dollar way of saying ‘predatory lending’) can say about a thorough reform of the structure of national, regional and global economic arrangements. Having insisted on sound money the banking interests are now angling for the inflating away of their reckless debts. Their ideas have no more credit and they have lost any right to be taken seriously.

The recent example of the mixed post-war economies shows that we need not listen to those who will call for authoritarian solutions to the turmoil that is to come. The question becomes – how do we reconstitute the system that restored global prosperity in the forties and fifties on a more stable basis?

To argue against unfettered finance is not to argue for state socialism, or any great expansion of state activity in the economy over the long term.
The choice is not simply between state control and private capitalism, whatever the empire-builders in the state and corporate bureaucracies would like to tell us. The structure of companies has an important, a crucial, bearing on the opportunities for financial speculation. Employee ownership reduces them to zero. A system revised at the level of transnational capital flows must also be reformed at the level of the enterprise. State bailouts should be followed by employee buyouts as a matter of course. There is absolutely no justification for returning them to a model of ownership and control that proved so utterly indifferent to the public good.

As Richard Wolff points out, employee ownership and control, with oversight of management being seen as normal part of working life, will make a reformed global financial system more durable, by giving knowledge and economic power to those with an interest in defending it. Financial engineering gives way to, well, to engineering, and other materially productive activities, since owners who are also workers and future pensioners will have little interest in accelerating the balance or selling assets and loading up on debt.

Employee ownership ensures a more even distribution of wealth within companies and in the wider society. And, by offering workers an alternative, it forces companies that remain privately held to pay their employees better.  Trade unions need to be given enhanced powers to ensure that workers are able to secure a greater share of the wealth that they, after all, create. They can also play an important role in balancing the inevitable asymmetries of information and expertise that exist between management and the bulk of the workforce.

The post-war settlement collapsed because those who benefited from it were successfully estranged from it, in part by appeals by narrow self-interest, but in part because they felt unqualified to defend it. Industrial democracy has many benefits in its own terms. But by providing the means to understand the world of work more fully, it provides the means to expand and deepen political democracy. After all, active engagement in the management of an enterprise will make the citizenry less easily deceived by those who pretend to possess arcane knowledge of statecraft and high finance.  

The state needs to be more thoroughly democratised, in ways that may or may not require constitutional change. The assumption that professional civil servants and the national political classes are competent to manage the national and global economy has been shown to be unsafe. It is not a matter of leaving these same groups to decide on a new set of policies. Rather the public must inform them of the steps that are required.

Public institutions, like private companies, should be thoroughly reformed. The outsourcing, the public-private partnerships, the whole discredited flim-flam of ‘market discipline’ must be seen for what it was: a raid on tax-payers’ funds by operators who wanted nothing to do with the rigours of actual market activity and preferred the warm bath of government contracts. Everything that depends for its prestige on the supposed success of the private sector, from management and management consultancy to ‘social marketing’ must be re-examined. We must now surely entrust information technology projects in the public sector to people who understand the technology and who can be trusted to act in the public interest. More generally, our public sector should like more like that which fought and won the Second World War, and those who tried to transform it through the application of market solutions should be sent to seek their fortunes in the private sector.

The economic crisis has not only bankrupted large chunks of the financial sector. It has bankrupted an entire intellectual establishment. Voltaire once wrote that the aim of satire is to decapitate its victim without their becoming aware of it. Events have decapitated much of the Anglo-American commentariat in the last few months, though many of them continue to walk and talk, for all the world as if nothing untoward has happened. We have been in the past perhaps too trusting and too easily daunted. It is important now that we gently shake these apologists for the old, discredited order, until their heads fall off.

The free market right has now been thoroughly discredited. The story that they tell – of state failure to regulate – cannot obscure the fact that this is a crisis caused by the removal of controls on private capital. Having begged that the money interest to be released from its chains, the Fay Wrays of the Adam Smith Institute now gaze at the destruction and blame the politicians for listening to them.

And it is not only the free market right that has nothing further to say. There has been an astounding surrender by many of the Left to the claims of finance and its tame experts. So Nick Cohen can declare that socialism, ‘which provided the definition of what it meant to be on the Left from the 1880s to the 1980s’ has been ‘disgraced by the communists’ atrocities and floored by the success of market-based economies’. The Left is not defined in some simple way by socialism, nor has it been ‘disgraced’ by the crimes of Stalin and Mao.

Left-wing intellectuals who accepted that there was no alternative to a program of deregulation and privatization must surely now give up any claim to be taken seriously. For more than a decade they insisted that the Left must be responsible and work within the confines of a world where the organization of the economy was above and beyond the reach of democratic politics. Their maturity and responsibility have turned out to be childish and reckless credulity at best.

If we want to understand the scale of the intellectual collapse we will have to pay a sight more attention to our recent history, and to the remnants of the critical tradition in political economy. Dan Atkinson and Larry Elliott’s The Gods that Failed is a good place to start, if you are interested in how the postwar system was dismantled . I have also learnt a good deal from Ann Pettifor’s The Coming First World Debt Crisis, and Graham Turner’s The Credit Crunch. In general we should pay more attention to those who were concerned about income inequality and unsustainable lending, less to those who thought everything was fine.

As I write Barack Obama seems intent on hiring many of the financial masterminds who presided over the crisis. Jonathan Weil, the man who rumbled the long con at Enron, notes that ‘almost half the people on Obama's economic advisory board have held fiduciary positions at companies that, to one degree or another, either fried their financial statements, helped send the world into an economic tailspin, or both’ .

They will not jump, these people. They cannot easily accept that they are presiding over a system that must be replaced. They will not give way willingly to new ideas and a new reckoning with the economic and political crisis we now face.

I am not saying that we should push those responsible out of tall buildings to their deaths. I am not saying that. They will, if properly directed, do what is necessary to create another world.

But we do have to push them.



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