The seeds of destruction

9 03 2009

Martin Wolf has written a semi-apocalyptic analysis of the recession as part of a major series on the Future of Capitalism in the Financial Times. Read this in conjunction with this article by Roger Altman and it is clear that a recognition of the deep hole that capitalism is in is spreading amongst those who have been its biggest advocates. Wolf argues that

the assumptions that ruled policy and politics over three decades suddenly look as outdated as revolutionary socialism…the integration of the global economy on which almost everybody now depends might be reversed.’

Wolf’s fear is that history may repeat itself,

Remember what happened in the Great Depression of the 1930s. Unemployment rose to one quarter of the labour force.. in the US..It led to the collapse of liberal trade, fortified the credibility of socialism and communism…led to xenophobia and authoritarianism.

Wolf argues that the system of financialisation of the world economy carried ‘the seeds of its own destruction’.  We should also bear in mind that the future is contained within the seeds of the present. Whatever is to come is already present in nascent form. It may be as gruesome as Wolf suggests but history does not repeat itself in straightforward ways and we are able to affect its outcome simply because it is we who make history.

It is an extraordinarily remarkable thing that we have now reached a point in history where we have  global twin crises,of politics and economics, simultaneously,but that the only real critics of the system are those who come from the standpoint of wishing the system to implode.  The main opposition to globalisation has been inspired by those who have opposed it as unsustainable and environmentally damaging. These are people who campaign against flight while the numbers of flights are plunging, who oppose free trade while world trade is disappearing.

The main political parties are discredited because of their close association with the financialisation of the world economy over the past 20 years and the current collapse. The main opponents to this approach are opposed to growth altogether.  Yet without economic growth billions will be condemned to lives of poverty. We are at a crucial turning point in history and it is vital that we do not throw out the baby of growth with the bathwater of the free market. We desperately need an opposition which is pro-growth and also not tied to the failed policies of the past.

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7 responses

9 03 2009
CharlieMcMenamin

It’s simply not true that the main opponents of the collapsing neo-liberal regime are opposed to growth per se. That may be true for a few, a very few, ‘deep greens’, but it is not a typical response. Mainly, people opposed to current policies are concerned that the growth is ecologically sustainable and socially beneficial. A few are also interested in measuring the net effects of economic activity on scales other than the purely monetary – for instance in terms of health or educational improvements, or decreases in hours worked.

Nor is it true – at least not in any bald sense – that “without economic growth billions will be condemned to lives of poverty”. There is also the question of re-distribution to consider – and I would argue that Fair Trade initiatives are part of any internationalist redistributive approach.

10 03 2009
Mark Hendy

I’m afraid Charlie that I disagree with you. I don’t think there is any need to consider re-distribution and I certainly don’t believe in any kind of Fair Trade other than free trade. Take for instance two farmers, lets call them farmer A and farmer B Farmer A decides to borrow money and invest in state of the art crop thingumywhatsists taking commercial risk in return for efficiency. Farmer B decides to rely on manual labour. As a result farmer A offers his product to the market at £x and farmer B offers his same product to the market at £y. Because of the investment farmer A made he is seeing efficiency savings above the cost of investment and so thankful that he got his return on investment calculations right his price £x is lower than Farmer B’s price £y by 10%, allowing him to capture a good market share. Then along comes a hippy in sandals crying about unfairness. “Farmer A is exploiting Farmer B” he exclaims. “Lets twist the market and make people feel guilty about buying from Farmer A. We’ll badge it up and call it fair trade.”

Only it’s not Fair trade. Farmer A who took capital risk is being penalised and the world takes another step backwards.

You see, my view is that the only kind of fair trade is free trade.

10 03 2009
CharlieMcMenamin

‘The only kind of fair trade is free trade’ is a certain view of the world. I don’t agree for reasons I’d hazard a guess you’ve heard many time before ( no, I’m not a hippy, and I don’t wear sandals…). But I wasn’t trying to shift you from your basic beliefs so much as gently point out that your post went beyond this. It wasn’t simply advocating a particular view – it was asking for a certain kind of opposition to that view e.g.
“We desperately need an opposition which is pro-growth and also not tied to the failed policies of the past.”

This is a large claim: on the left we’d call it a search for hegemony in a Gramsican sense. That is where one’s own side set the terms of debate to the extent that even one’s opponents accept those terms.

For a while, during the ‘Great Moderation’ of the nineties and noughties, such a hegemony seemed possible for people who believe ‘free trade is fair trade’, or otherwise value markets above all other forms of human endeavor. It no longer does. That’s all I was saying.

11 03 2009
Rob Killick

I’m afraid, Charlie, we may have reached a ‘the point is to change it’ moment in history, so these arguments have to be had out and turned into policy. I recently read this article which gets near to my thoughts about why a continued focus on growth is important.
http://www.spiked-online.com/index.php?/site/article/6322/

11 03 2009
CharlieMcMenamin

Policy certainly matters. The ‘national business model’ (I’d call it ‘Thatcherism’ for short, a form of political economy barely changed in essence under New Labour) of the last 30 years has failed. Unrestricted neo-liberalism has led us to this impasse and we need a different kind of response. My point is that the Left is not anti-growth per se as you seem to think: we too want a bigger pie, as it were.

But both socialists and Greens generally think that any such new response must be include answers to three big themes, seemingly ignored by the article you link too

1.Only a minority of people decide who gets the big and small slices of the pie as we have no economic democracy and a massive mal-distribution of wealth and income; this is not conducive to the sort of shared effort necessary to revitalise the national and international economic progress both you & I seek.

2.Why are we making a pie and not, say, a salad?(the socially useful production argument); this argument has traditionally been aimed at, for example, arms companies, but it seems to fit the current situation pretty well . After all, Britain’s finance sector has been huge and has failed hugely. We’ll need to focus on different areas in the future- we’ll need a new ‘national business model’, a different balance of enterprise – and probably a different balance and style of ownership patterns.

3. Who cleans up the kitchen after all this pie making?(the ‘externalities argument’, which holds that markets can be rational for their participants but deeply irrational for and damaging to third parties).

11 03 2009
Mark Hendy

Charlie

Thanks for engaging in the debate. We obviously come from different ends of the spectrum so in the interests of democratic debate please indulge me in one further comment.

To quote you:

Only a minority of people decide who gets the big and small slices of the pie as we have no economic democracy and a massive mal-distribution of wealth and income; this is not conducive to the sort of shared effort necessary to revitalise the national and international economic progress both you & I seek.

I don’t understand your meaning of the use of words we have no economic democracy but I strongly disagree that we have a mal-distribution of wealth and income other than that caused by political interferance. In my world income and capital gains generally migrate to productive and/or hard working people or to people who take risk with their capital in search of greater gains. For me this is an example of capitalism working well. My only experience of redistribution of wealth, ignoring inheritance, is that of the heavy hand of the state taking from said hardworking productive people and giving to lazy unproductive people so they can have oodles of children and/or fags and booze at someone elses cost.

The fact is that today, capital gains made almost always from taking risk are punished by the state in the form of taxation. Income to a much worse extent is plundered to rates exceeding 50% (if you include NI) and as much as 63% for those poor small usually family owned businesses who fall foul of S60 Sch12 FA2000.

In summary, I agree that there is a mal-distribution of wealth/income but it is “mal” in the sense that it is being taken from productive hard working people and given to legions of State dependent loafers.

I’m sure you disagree, but at least we both have the opportunity to lay out our store in mediums like this blog and perhaps encourage further comments and contributions.

12 03 2009
CharlieMcMenamin

Mark,
Yes we do come from different places on the political spectrum and I have no doubt we will remain in our respective positions after our exchange: few internet debates convince anyone of anything. But I thank you for your polite tone and will attempt to answer.

Firstly, the question of distribution of rewards.Obviously there are a mass of statistics I – or you for that matter – could quote from to bolster my point, but let me select just one or two. As it happens I have in front of me a recently read paperback copy of the late Andrew Glyn’s ‘Capitalism Unleashed’ (2006). Table 7.1 shows the rate of Corporation Tax in the UK fell from 36% to 26% between 1982 and 2001, hardly consistent with your view that capital is overtaxed. Table 7.3 sets out the ratio of post-tax incomes at 10% from the top of the distribution to 10% at the bottom in various OECD countries. In the UK this ratio shifted from 3.5 to 4.6 between c1980 and c2000. In other words if one ignores the very rich and very poor then post tax income differentials have increased by about a third: again, this is not consistent with your view that too much is taken from the better off. & of course we know that the very rich’s position has shifted much more than this: witness the obscene salaries that the top bankers have routinely paid themselves.

Second, ‘welfare’ spending, considered broadly, is largely financed from the mass of wage and salary earners and – in effect it is a scheme of social insurance and represents far more redistribution within individual lifetimes than between classes.

So I recognise neither the rapacious State you seem so exercised by, nor your morally inflected descriptions of ‘hard-working productive people ‘ and ‘ lazy unproductive people’. What I see is a economic system which has, for over a generation, been constantly moving in a direction of inequality and has now run aground with dreadful consequences for all of us.

My point to Rob – whose purpose of thinking out what path the country should take after the recession is one that I am also very interested in – is simply that we can’t go back to this. A new ‘social settlement’ , a stakeholder economy of some sort, is required as a seedbed for the innovation he seeks.Just allowing the rich to rip off the rest of us has failed as a ‘national business plan’.

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