Is this really the end of neo-liberalism?

Paul Sutton reviews the book How Will Capitalism End? by Wolfgang Streeck, (Verso: London, 2016).

The 2008 financial crisis has generated a thriving book business as commentators from a number of viewpoints have sought to explain its causes and its consequences.  Much less popular but far more interesting are the few analyses which link 2008 to a failing capitalism and the prospect of its demise.

One of the first to appear was a collection of essays by five academics working within a radical critical tradition with the title Does Capitalism Have A Future? (2013). It reached no specific conclusion but did foresee a looming period of crisis for capitalism during which it would be difficult for capitalism to renew itself.

Wolfgang Streeck's book - How Will Capitalism End? develops this radical critical approach, but with a more pronounced Marxist interpretation, and reaches a conclusion that capitalism is in its final phase before its demise, which if not imminent is nevertheless inevitable.

The principal focus of the book is on the advanced capitalist countries of the European Union, including the United Kingdom, and the United States. The period with which it is most concerned is the neoliberal one, beginning in the mid-1970s and now coming to an end.

The Keynesian Interlude

Prior to this period, Streeck identifies a Keynesian period stretching for thirty years from the end of the Second World War.  In this period the working class made significant gains as a result of "a historical compromise between a then uniquely powerful working class and an equally uniquely weakened capitalist class that was as never before on the political and economic defensive" (p. 190). To survive the capitalist class had to "promise politically guaranteed full and stable employment, steadily rising prosperity, redistribution of income, wealth and life chances in favour of ordinary people, social protection in the workplace through strong trade unions and free collective bargaining, and beyond the workplace through a comprehensive welfare state" (p.190) all of which was "underwritten by governments making extensive use of the Keynesian economic toolkit" (p. 78).

Streeck believes this period was a unique configuration brought about not only by the mobilisation of labour in the Second World War but its operation after the War in "more or less closed national economies" (p. 21) that gave advantages to the working class and enabled a temporary alignment of capitalism and democracy, including social democracy. Redistribution was from the top to the bottom stimulating economic growth and allowing significant gains in standards of living for the working class, which in turn generated legitimacy for a capitalist market economy. It was brought to an end as economies became more internationalised and as economic growth began to falter.

The neoliberal model which followed turned all this upside down beginning a process of redistribution from the bottom to the top alongside a weakening of the political power of the working class through the de-alignment of capitalism and democracy. Streeck calls this period Hayekian after the founding theorist of neoliberal economics. Globalization increasingly became "the dominant political-economic formula for the legitimation of neoliberal capitalism" (p. 22) and states became located in markets, rather than markets in states. The superiority of the private over the public sector became the dominant motif and finance capital the leading economic sector, turning the financial sector "into an international private government disciplining national political communities and their public governments, without being in any way democratically accountable" (p.24). The 2008 financial crisis was the inevitable outcome.

Neoliberalism Dissected

The impetus driving the development of the neoliberal state came from four successive crises. The first was the global inflation of the 1970s which in both the USA and the UK saw the introduction of monetarist policies under Reagan and Thatcher including high interest rates, high unemployment rates and attacks on trade unionism, all to force a return to "sound money".

The second was the explosion of public debt in the 1980s and the third rapidly rising private debt in the 1990s, resulting in the creation of the debt state in the most advanced capitalist countries. The 1980s were marked by "the plundering of the public domain through underfunding and privatization" (p. 69), alongside policies of aggressive deregulation of financial institutions and other measures in favour of the private sector. For the working class it was marked by the onset of stagnant wages, rising economic inequality, declining trade union membership and falling participation in national elections.

This was followed by "privatized Keynesianism" in the 1990s which saw the replacement of public debt with private debt and the shift of aggregate demand caused by cuts in public spending into private consumption, feeding a booming private sector and creating super profits for finance capital. In Streeck's words: "Instead of the government borrowing money to fund equal access to decent housing, or the formation of marketable work skills, it was now individual citizens who, under a debt regime of extreme generosity, were allowed, and sometimes compelled, to take out loans at their own risk with which to pay for their education or their advancement to a less destitute urban neighbourhood" (p. 84). Sub-prime mortgages, the single greatest proximate cause of the 2008 financial crisis in the US, were a characteristic expression of this policy.

"Privatized Keynesianism" crashed in 2008 to be replaced by a fourth and final phase  - the consolidation (austerity) state. Streeck analyses this in depth for the EU though he makes it clear that it is also characteristic of the USA, albeit in a slightly different form.

The consolidation state has two key features. The first is to foster and maintain creditor confidence with the objective of making a state "attractive for financial investment by making it clear to the financial markets that the state is in a position to service its debt" (p. 122). The second is the imposition of austerity through cuts in public expenditure since any offsetting increases in state revenue (taxes) would be seen as market unfriendly. In this process "states become less like sovereigns and more like firms: instead of overriding markets, they are to be responsive to them. Whereas the politics of democratic society was to protect society from the vagaries of the market, the politics of the consolidation state protects financial markets from what are for them the vagaries of democratic politics" (p.134).

It is difficult to see such a state in any other way than as a gigantic confidence trick on the vast majority (the 99%) of the population.

After the Financial Crisis

The 2008 debt crisis saw the state bail-out the bad debts generated by the unregulated private sector but it is now this very same finance driven private sector (the 1%) that is imposing conditions on the state! In the process "citizens lose out to investors, rights of citizenship are trumped by claims from commercial contracts, voters range below creditors, the results of elections are less important than those of bond auctions, public opinion matters less than interest rates and citizen loyalties less than investor confidence, and debt service crowds out public debt" (p.124).

In the end, there is nothing left to decide politically, so politics becomes distant and decayed, or rather is redefined as managerialism by the central banks: "Today, in Phase Four, with monetary expansion (quantitative easing) and fiscal austerity coinciding, the prosperity, relative and absolute of millions of citizens depends on central bank executives, international organisations, and councils of ministers of all sorts, acting in an arcane space remote from everyday experience and entirely impenetrable to outsiders, dealing with issues so complex that even insiders often cannot be sure what they are to do and are in fact doing" (p. 20).

The policy of quantitative easing is a case in point. This involves central banks "buying up financial assets of diverse kinds, handing out new cash, produced out of thin air, to private financial firms" (p. 19). The sums involved are equivalent to trillions of US dollars yet there is no guarantee of success: "Although quantitative easing has completely failed to counter deflationary pressures in an economy like Japan where it has been relied upon for a decade or more on a huge scale it is steadfastly pursued for lack of alternatives, and nobody knows what would happen if cash-production by debt-purchasing was ended" (p. 19).

In short, economic management by the seat of your pants, in a system increasingly out of control, and destined to fail. An example of the "death from a thousand cuts or multiplicity of infirmities" (p. 13) which Streeck now believes are beyond the capacity of capitalism to remedy, leading to its end "even if we cannot know when and exactly how capitalism will disappear and what will succeed it" (p. 58).

Capitalism collapses through the number and intensification of its own internal contradictions and not by the action of any organised opposition, and certainly not by that of the working class which has been individualised, marginalised and rendered powerless as neoliberal capitalism "disintegrates from within" (p. 35). The future is neither socialism nor barbarism/the mutual ruin of the contending classes but a void.

This is a sombre and bleak conclusion. Is he right?

End Game for Capitalism?

The conclusion rests on a reinterpretation of Polanyi, The Great Transformation (1944) to negate Polanyi's belief that capitalism will engender a resistance to it which will modify its worst effects. Neoliberalism does not allow this because it ruthlessly "commodifies everything", including labour, rendering resistance through a Polanyian "counter-movement" impossible and with it any chance for the reform of capitalism, let alone its overthrow. Since neoliberal capitalism cannot rectify itself it succumbs to its own success.

But is neoliberal capitalism so all-conquering? Signs have already emerged that at least some of the 99% are seeing through the confidence trick.  The vote for Brexit and the election of Donald Trump, whatever their merits and demerits, show rebellion against the 1% as do the emergence of populist movements on the Right and the Left. Admittedly this is as yet amorphous but it is not insignificant, even if Streeck believes that a successful resistance to neoliberalism through the restoration of democracy (as opposed to the current ruling oligarchies) and th"de-globalizing of capitalis" (both simple and difficult) will lead not to the end of capitalism but its "re-embedding" (p. 199). The "counter-movement" may yet come to life and force change with who knows what consequences, the creation of a new paradigm reinventing capitalism or better still its welcome demise.

What final assessment can be made of Streeck's original and insightful analysis? There are two major criticisms.

Streeck presents an invaluable study of the capitalist mode of production in its present form in the advanced capitalist countries, the core Organisation for Economic Co-operation and Development (OECD) countries. He does so through a discussion focused almost exclusively on the social relations of production. The technical forces of production are largely overlooked except for occasional references to technological displacement impacting the working class and increasingly the middle class through electronicization and robotization, leading to mass under/unemployment or employment which is precarious at best and immiserating at worst.

Such technical developments need to be more central to any fully worked-out Marxist or Marxist informed analysis, particularly since they are crucial to how the capitalist mode of production is transformed or ended.

Second, while Streeck has shown how all parts of the capitalist system are related to the whole he has not examined the whole but only a part of the whole, the OECD. One looks in vain for discussions of China, or Russia, or the so-called emergent capitalist or developing countries. To be fair, this is beyond any one person to attempt in any one book but it is essential to a full understanding of how the capitalist mode of production operates in the current world. Streeck's approach is an advance on even the best informed critical studies examining just one aspect of the current capitalist system, such as inequality or austerity, since he does relate the parts to the whole, but the whole is now global and the widest vision is needed to understand it.

Streeck makes a very good start but there is still a long way to go to see the full picture.