Friday, September 26, 2008

The end of capitalism, and other questions

“So, we should be really, really wary of this claim that we’re hearing that free market ideology is dead, that this marks the end of, you know, of capitalism. You know, I’m sorry, that is not the case. It may be going dormant for a little while to rationalize these massive bailouts, but it will come roaring back, and the crisis that is being deepened right now through these bailouts will be invoked for even more radical deregulation, privatization, tax cuts and so on. ” – Naomi Klein

As the Anglo-American banking system goes into meltdown, all sorts of unlikely people are beginning to ask, ‘is this the end of capitalism?’ A couple of weeks ago it would have been ideological treason to so much as think such a beastly thing. Now, with ancient financial institutions keeling over everywhere you look, the question is cropping up all over the corporate media.

So what’s the answer? Well the answer’s ‘no’. Or if you want me to flesh that out a bit, the answer’s ‘no, now get a grip’. But really, the problem lies with the question. There are other questions we should be asking, but I’ll come on to that later. For now, lets look at what’s wrong with asking ‘is this the end of capitalism?’

What do we mean, or what do most people understand, by the term ‘capitalism’? Practically every economy you can think of is one where commercial activity occurs, where there are goods and resources which are privately owned and that are bought and sold for profit. Alongside this private sector sits a public sector where, in democratic countries, resources are owned by the public as a whole and distributed according to decisions made by their elected government. Pure capitalism, and pure socialism, remain purely theoretical.

Across the world, what you invariably have are mixed public-private economies where the debate is about which sector of the economy is responsible for the distribution of which resources, and how those responsibilities will be discharged (e.g, to what extent the private sector should play a role in the provision of education and healthcare). That’s by no means an insignificant debate, but we should be clear on what that debate is about. It is not about whether or not we have the buying and selling of private property or whether or not we have capitalism. The debate is about what kind of capitalism we have in a democracy: which version of capitalism and what mixture of public and private economic activity will produce the end results valued and desired by a society organised on democratic principles.

Different countries strike the balance in different ways. As I’ve noted previously, the Nordic model has been far more successful than the Anglo-American neoliberal model in maximising the well-being of the population. The crisis of the last few weeks was born of the deregulated financial markets characteristic of neoliberal economies, wherein unrestrained greed drove debt to be managed in an increasingly reckless way – one which was proven conclusively to be unsustainable as the last of the pure investment banks on Wall St disappeared.

This is a serious malfunction of one version, not any and all versions, of capitalism. The collapse of institutions like Lehmann Brothers and the dangers of sub-prime mortgage lending don’t necessarily say very much about the forms of capitalism practiced in other countries. Neoliberals like to talk about their version of economics as though it is synonymous with capitalism itself, hence the talk of capitalism failing, but pretending there are no alternatives is just a neat way of sidestepping debates about what kind of capitalism societies should opt for.

Not only is the end of capitalism itself not occurring, it is not even being called for, at least not in any meaningful way. Only an infinitesimal minority on the left advocate the total abolition of all private property and commercial transactions. I hesitate to use the word ‘advocate’ because advocacy involves setting out serious proposals, and I’ve yet to see any serious proposal that explains how a non-capitalist society is going to be brought about. By that I mean a plan that describes in all the necessary fine detail how we get from here to there, dealing effectively with all the obstacles in the way. A plan that explains how we persuade the public to accept our proposed non-capitalist society, bring to power a government willing to effect the plan, and then enact the massive transformative program needed to entirely eradicate commercial activity and introduce a vast array of new social structures, habits and forms of interaction. Even if a workable plan of this kind, with a desirable end product, was formulated (I don’t completely rule that out) it would take many, many decades to implement. Such a plan does not exist, as far as I’m aware, even amongst those whose opposition to capitalism is the strongest.

No one, therefore, is proposing the end of capitalism itself in any serious way. For the most part, what’s called ‘socialism’ is just a take on how mixed public-private economies should be organised, rather than a total rejection of capitalism itself. Even the Venezuelan government, as it proclaims its mission to pioneer “21st Century Socialism”, allowed the private sector of the economy to grow relative to the public sector during its first decade in office.

Similarly, even the most swivel-eyed free-market extremists don’t advocate, in any serious way, the total abolition of the public sector and its replacement with pure capitalism. In fact, even in the neo-liberal citadels of Britain and America, the rigours of the free market are often quietly avoided and the state called upon for assistance. Think no-bid contracts for Halliburton in Iraq. Think of the UK arms industry's incestuous links with government, where ministers on overseas trips (including the Prime Minister) practically act as salesmen for the likes of British Aerospace. Think of how the US economy boomed in the post war era, in no small part due to government defence budgets socialising research costs for technologies that were subsequently turned over to the private sector for profit; like aeronautics, computers and even the internet. Those who say they advocate the free market have very little to say about the nanny state when its nursemaiding the rich. Only when it attends to the needs of the public are objections raised.

The debate that occurs between left and right on economics is not between absolute socialism or absolute capitalism but between democracy and private power. The left does not oppose globalisation, or even capitalism for the most part. What it takes issue with is a particular form of global economic integration that privileges the demands of private power and undermines the role of the democratic public sphere. The right does not object (aside from in rhetoric) to a role for the state within the economy, provided that role is to serve the needs of elites rather than those of the population.

So the real question, in the midst of the Anglo-American banking crisis of 2007-2008, is how our version of capitalism is now going to be reformed, and specifically where the power will lie. We need not expect, as Naomi Klein points out here, that neoliberalism will automatically be replaced by some benevolent form of social democracy. On the contrary, state-corporate elites are already moving to exploit the political conditions created by the crisis to extend the same neoliberal model that caused the financial collapse.

In her recent book “The Shock Doctrine”, Klein describes how the neoliberalisation of economies (privatisation, deregulation, stripping away of public programmes etc) has often been rammed through the legislative process in times of crisis. This is because while the public often opposes these measures, crisis situations offer policymakers brief moments when democracy can be suspended or circumvented while people are disorientated by shock and briefly willing to acquiesce to “firm leadership”.

Klein points out that this is exactly what is happening now in the US, in respect of the emergency economic measures formulated by the Bush administration. What is being not so much proposed as demanded is a 0.7 trillion dollar buy-up, by the US taxpayer, of all the toxic and often worthless securities that have caused the current financial meltdown. It is demanded that no democratic, administrative or judicial oversight be applied to this process. It is demanded that legislators approach this in a “bipartisan” fashion and pass the measures quickly (that’s political language for not arguing and doing what the President tells you – now). The measures are being drawn up and will be enacted by people like Treasury Secretary Hank Paulson who, as head of Goldman Sachs, did so much to promote the reckless practices that caused the 'Nightmare on Wall St'. In summary, the same people who wrecked the US economy are now demanding that the traumatised and fearful taxpayer gives them 0.7 trillion dollars to clean up the mess they made and hold them harmless from the consequences of their actions, no arguments and no questions asked.

You could call it crawling to the nanny state and begging for a hand-out. Klein, with perhaps a little more accuracy, calls it a “stick-up”. Either way, its not the free market, but it is very neoliberal.

Klein also warns that this is just the first stage. The US is already deeply in debt, and this bailout will make matters much worse if passed in its proposed form. The usual corporate lobbyists, think tanks and Friedmanite academics will then take that opportunity to demand that the books be balanced. This might involve chipping away at unnecessary public programmes like healthcare, education, public housing etc etc, while the essentials, like Washington’s gargantuan military (which costs more than the rest of the planet’s military spending combined) go entirely untouched. It might involve tax cuts for corporations and the wealthy. It will certainly involve exploiting the situation to push measures that serve the interests of the most powerful sections of society which, rather than theoretical “free markets”, is what neoliberalism is really about.

The scenario in the UK is only slightly different. Social democratic instincts still flicker in some corners of the political class. But despite Gordon Brown’s recent rhetorical tilt towards the left, New Labour remains a classic party of neoliberalism, and the Conservative party likely to succeed them in government by 2010 is even more so. In spite of current events, neoliberals could well dominate the policy debate on how to deal with the economic crisis on this side of the Atlantic.

Klein quotes neoliberal don Milton Friedman describing in candid terms how his disciples should use the Shock Doctrine to push forward their policies. “Only a crisis, actual or perceived,” he says, ”produces real change. And when the crisis occurs, the change depends on the ideas that are lying around. That, I believe, is our basic function: to keep the ideas ready until the politically impossible becomes politically inevitable”. An example is Chile in the 1970s, where Friedman had to wait until after a military coup had taken place to find a government willing to enact his policy prescriptions, which had been overwhelmingly rejected in earlier democratic elections.

The collapse of Western financial markets - the devastating effects of which are only beginning to be felt - does not mark the end of capitalism, and may perversely only mark the acceleration of neoliberism out from the ashes of its own bonfire of the vanities into new and yet more dangerous territory. That depends entirely on who wins the current debate on what emergency measures should be taken and how the system should be reformed long-term. The neoliberals, led by Secretary Paulson, are keen to avoid that debate. Those who oppose them should note this, because it betrays the neoliberals’ fear, even expectation, that this is an argument they would lose. Our task is to ensure that the shock of the past few weeks is not exploited by its authors, but instead that its lessons are learnt and that failed economic models are replaced by something more just and sustainable. In formulating our own proposals, for the immediate and the longer term, we can begin by pointing to the more successful capitalist systems in place in other countries, and take things from there.

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Anonymous Anonymous said...

Your article on the economy is sounder than other things you have written.

That said, I would note that it is not quite a cogent analysis of United States politics. Consider that the proposal that came from Mr. Paulson was an outline of some concerns, put together in rush fashion and then, rather predictably, re-worked by Congress, most particularly by people like Barney Frank, who are neither fans of Wall Street nor loved by Wall Street. Presumably, Mr. Paulson knew, from the beginning that the proposal would be re-worked, which is why he proposal was not set in the form of legislation.

As matters stood last evening, it was Republicans who balked, saying that the proposal, whether by Mr. Paulson or as amended by the leadership of the Democrats, with some Republican support, failed to protect the interests of average people. Their counter-proposal, also a bare outline, eliminated the $700 billion dollar gift and provided a form of security guarantees which, they hoped, would result in the need for no payout by the government.

The GOP plan was met with dismay by Paulson and by some, but not all, Democrats, with Barney Frank making clear that both parties sign onto a deal or there would be no rescue.

Now, it is not at all clear what is really going on here. Are left leaning politicians like Barney Frank doing the bidding of Wall Street? Not likely. Are those right wingers who claim that bailing out Wall Street by buying bad debt is morally offensive doing the bidding of Wall Street? Not likely.

So, I question that portion of what you write.

I think the government panicked and is trying, whether or not by the correct means, to make things right. The proposal they made may prove to be terribly wrongheaded. But, the fact that people like Barney Frank - who is knowledgeable, to say the least, about economics and who is no pushover - and Harry Reid and Nancy Pelosi thought it something they could work with strongly suggests that the issue is a lot more complicate than your analysis suggests.

6:26 PM  
Blogger David Wearing said...

Clearly Paulson and Bush have done everything possible to discourage criticism, scrutiny or oversight of these measures - be it during the drafting of the legislation or afterwards when the measures are being put into effect. This bears out Klein's point that neoliberals will exploit crisis situations to push through policies while aggressively discouraging dissent - basically attempting to circumvent democracy. Whether they are going to be or were ever likely to be successful is of course another matter.

I agree that Paulson and Bush may not get what they want. Which is why I said that the current crisis "may ...mark the acceleration of neoliberism" but that this "depends entirely on who wins the current debate on what emergency measures should be taken and how the system should be reformed long-term". That debate continues, and it will be interesting to see the results.

One good test of the final package will be whether it involves the taxpayers getting an equity stake in these banks equivalent to the amount of toxic debt being taken on. That's how the Swedish government protected its citizens interests during their own banking crisis in the early nineties. It'll be hard to get such a measure past the free-market dogmatists, but these are unusual times, so we'll see what happens.

11:43 AM  
Anonymous Anonymous said...

Mr. Wearing,

Neo-liberalism corresponds to the European way of writing and thinking, not the American way. Over here, the two points of view that anyone would remotely trust to be near power are labeled liberals and conservatives. Such labels do not translate easily into European terms and the effort to force such terminology onto viewpoints which, in fact, have different rationales than neo-liberalism creates an awkwardness which undermines any serious effort to understand politics in the United State.

Be that as it may, I do not think that anyone has done anything to preclude criticism - in fact, just the opposite. And, if such were the case, it certainly has not been successful because the President's own political party has balked on the proposal. Imagine Gordon Brown proposing a law only to have his own party vote it down - and in public!

In any event, the Democrats, which are a liberal - in the US sense of the word - party have supported the President's plan, but with some reservations, which they have made rather public. The President has not objected in any way to any of what the Democrats have proposed.

The most critical people, thus far, have been on the conservative side - using terms as they are in the US, not as you use such terms -, for whom the plan is an anathema. By contrast, criticism from Democrats has been about the details. So we have the party on the political left supporting the president and the party on the political right in opposition.

As for getting an equity share, the Bush administration has stated repeatedly that it supports that idea, as do the Democrats. So, presumably, that idea will be party of the mix.

3:37 PM  
Blogger David Wearing said...

re: liberalism/conservative vs neoliberalism - we're talking at cross purposes here. My fault perhaps for using a quasi political science term on a blog read by people outside of the field. I certainly don't want to lapse into jargon that excludes the lay reader, so I'm glad of the opportunity to clarify.

Yes, liberal and conservative are the labels that describe the ideological divide broadly represented by Democrats and Republicans in the US. They've not got much to do with neoliberalism, which is a distinct term referring to something else.

Neoliberalism is a term used freely in political/social science and some broader discourse on both sides of the Atlantic and beyond to refer to the basic set of ideas and principles that underpin the Anglo-American model of running an economy. The neoliberal nature of the British and American economies (and those of Australia and New Zealand) is what distiguishes them from the corporatist model in France and Germany and the welfare model in the Nordic countries.

Liberals and conservatives, Democrats and Republicans - or over here, Tories and New Labour - may differ on tactics, but on the broad fundamentals of neoliberalism, both sides have been in general agreement for 15-20 years, or more (aside from a few fringe dissenters). Reagan, Thatcher, Clinton, Blair, Bush, Brown are all classic neoliberals on economic questions, although they each had their own take on what neoliberalism should entail in the respective eras and conditions in which they operated.

Neoliberalism is quintessentially Anglo-American. Especially American. It is after all synonymous with the Chicago school and Ronald Reagan, and has sometimes been described as the "Washington consensus". There's very little European about it. Practically every western European country bar the UK rejects the neoliberal model.

Of course no US or UK politician talks about themselves as a neoliberal, and the term's rarely used on the TV news or even the broadsheet press. There's a few reasons for that:

1/ politicians want to stress the differences between themselves and their opponents.

2/ they want to avoid jargon and substitute feelgood words like markets, freedom, etc etc.

3/ mainstream political discourse is pretty superficial, concentrating on tactical differences and failing to take account of areas where strategic consensus exists across the political class. That can be because its in the nature of a consensus for people to buy into them to such an extent that they stop seeing them as debatable sets of ideas and start internalising them as an unquestionable truths.

So its natural that many people are unfamiliar with the term, but its a useful one to know as it can help clarify ones understanding of a lot of things.

(there's also another, seperate neoliberalism that refers to international relations theory, but lets not go there for the time being)

7:09 PM  
Anonymous Anonymous said...


I am well aware of neo-liberalism. However, it is not a very useful characterization. It is simply a label put on policies without examining their nuance and examining nuance is the difference between a nonsense discussion and a real investigation. And, neo-liberalism is not that even popular among American academics, only among radicals of the Left who label both the right and left as holding the same view, which is nonsense.

7:22 PM  
Blogger David Wearing said...

ok, well if that's your view you're entitled to it, of course

8:45 PM  
Anonymous Anonymous said...


The issue is that it is possible that the British imitated the policies of Clinton but Bush's policies were rather different from those of Clinton - and with very different results -. So labeling both by the same name tells us very little. Moreover, they both followed very different policies from those of your country's government, which makes the neo-liberal label pretty broad.

Consider that Clinton's policies resulted in improvements in living standards for average Americans. Bush's policies, by contrast, had a very different impact which, by traditional measures, did not benefit average Americans at all. In fact, they seemingly did the opposite but, as is well known, both Bush and Clinton were re-elected and neither had support from more than a slight majority or, in Clinton's case, only a plurality.

By the above, I mean that Clinton's policies reversed the decline in living standards, as measured by income versus living expenses, that had been occurring since the time of Nixon. Bush's policies reversed Clinton's focus, sapping the living standards of average Americans, at least if counted by the noted traditional measures. Yet, Bush was re-elected.

Where Bush's policies seemingly worked - and this may come to a bad end, given current trends - is for middle class Americans who own homes. Such people, me included, saw humongous improvements in our portfolios because the value of our houses increased dramatically.

Consider: a person in my neighborhood who bought a home in, say, 1999 would have paid about $350,000. Today, even with the decrease in value from the housing slide, such a home is worth at least $650,000. And, such a person would likely only have invested about $85,000 and, at present, would likely owe about $130,000. Which is to say, such a person would have made a great deal of money - you can do the arithmetic -. That largely explains why Bush was reelected.

So, it is not all that clear that Bush's policies harmed average Americans although their income has not kept pace with the rise in costs - which it did during Clinton's time. And, all of this is because Clinton and Bush had very different policies based on different notions on how best to build wealth.

Now for people who could not afford a home or who could not afford to place money in retirement funds, Bush has been an unmitigated disaster. Such people live only according to traditional measures.

But, for the great bulk of the middle class (i.e. roughly nearly all who own homes, which is a very, very large percentage of Americans), the issue is not at all clear. There are benefits to both approaches. But, neither approach is similar to what you have in Britain which, by American standards, is hopeless socialistic.

Now, you would label Bush, Clinton and Blair's approaches as neo-liberal. But, in the US, there was no socialist past to compare the present with and the changes made by Clinton and Bush are significant but at the margins of policy - even if measured by the standards of LBJ's policies. In American, we have only had versions of liberalism, as in Reaganism, the policies of LBJ or those of Nixon, etc., etc. So, it is a very different thing than what you in Europe have. Which is to say, the neo-liberal label tells very little about what is occurring in the US.

9:24 PM  
Blogger hi0u91e9 said...


I wanted to reflect a little on Naomi Klein's call to arms (figuratively speaking of course) in order to resist the current crisis.

The traditional way of putting it (just to rehash what you were saying about the deficit between theory and reality)is that the left have sought other economic models--socialist/communist/anarchist what have you, while the right has advocated capitalism--and the latter won out.

This of course is historical revisionism in the extreme--as you point out--there is only one model on the table and that is a mixed economy (NB*For the purposes of clarity I will be referring to a mixed economy as capitalism for the remainder of this comment)

Now what I want to emphasise is that far from resisting "the left" or rather popular mobilisation, capitalism has very much prospered from it.

Let me, for a moment, return back to theory. The myth of the market is that if private holders of capital seek their own interests, then magically the interests of all will be satisfied. The market therefore needs no leaders. The invisible hand is the leader (the term 'Invisible Hand is actually misused but that is for another time).

The alternative reading from Marx is that capitalism is run by the ruling class. Far from being a leaderless herd, Marx said that there is very much a coherency in the way society is run.

One mechanism to achieve this coherency is the State--

Here is an extract from Hardt and Negri's Empire:
"Marx and Engels characterise the state as the executive board that manages the interests of capitalists; by this they mean that although the action of the states will at times contradict the immediate interests of individual capitalists, it will always be in the long term interest of the collective capitalist... Competition among capitalists, the reasoning goes, however free, does not guarantee the common good of the collective capitalist, for their immediate egoistic drive for profit is fundamentally myopic. The state is required for prudence to mediate the interests of individual capitalists, raising them up in the collective interest of capital. Capitalists will thus all combat the powers of the state even while the state is acting in their own collective interests. This conflict is really a happy, virtuous dialectic from the perspective of total social capital.

Since the second world war there has been a relative peaceful balance between these two factions (individual capitalists and the collective capitalists embodied by the state) in the West. Not least in the United States
"There's hardly an element of advanced-technology industry in the United States, that's not tied into the Pentagon system... In fact thats basically what the Pentagon's for, and thats also why its budget always stays pretty much the same... If you look back at the debates which went on in the late 1940s when the Pentagon system was first being set up, they're very revealing. You have to examine the whole development against the background of what had just happened. There was this huge depression in the 1930s... every one of the rich countries hit upon more or less the same method of getting out--namely state spending, what's called "Keynesian stimulation"--in the United States the form it took was the New Deal... but the New Deal was small, it didn't really have much effect--in 1939, the Depression was still approximately what it had been in 1932. Then came the Second World War, and at that point we became... a command economy... the US economy prospered, industrial production quadrupled, and we were finally out of the Depression... Then the war ended and everybody expected that we were going to go right back into the Depression... There was general agreement among business and elite planners in the United States that there would have to be massive government funneling of public funds into the economy... through the military."

What Chomsky doesn't mention here, but has done frequently on other occasions, is point out that the context for greater intervention by the state, was the threat of and fact of public mobilisation and organising that took place right through the 1920s and 30s. It was understood by elites that in order to maintain social cohesion and relative peace, the state would have to intervene in large measure.

In Europe this went a lot further, and the mode of state intervention basically centred around large welfare states.

The State continues to play an enormous role in the United States today--not least through defense spending and corporate bail outs.

However in a lot of ways federal government since Reagan has reneged on its function to intervene for the sake of economic stability (this is what the turn to neoliberalism really signifies, because in the case of Reagan and Bush in particular, they have both run enormous deficits). Instead it has sought to maximise the wealth of super rich they represent.

If you don't believe me check this out

Furthermore, and as Klein points out in her book, the US state apparatus is literally being sold off to corporations. To set the trend for Bush's next 8 years, Rumsfeld(on September 10 2001 no less) announced the following:
"The topic today is an adversary that poses a threat, a serious threat, to the security of the United States of America. This adversary is one of the world's last bastions of central planning. It governs by dictating five-year plans. From a single capital, it attempts to impose its demands across time zones, continents, oceans and beyond. With brutal consistency, it stifles free thought and crushes new ideas. It disrupts the defense of the United States and places the lives of men and women in uniform at risk.Perhaps this adversary sounds like the former Soviet Union, but that enemy is gone: our foes are more subtle and implacable today. You may think I'm describing one of the last decrepit dictators of the world. But their day, too, is almost past, and they cannot match the strength and size of this adversary. The adversary's closer to home. It's the Pentagon bureaucracy."

The fact that the military industrial complex is a shell of its former self, is only an hors d'oeuvre. McCain is intent on carrying out reforms that Bush wanted to, but was unable to do, with the privatisation of social security.

What is happening seems to be that the American economy is running itself into a total self inflicted disaster. How might Marx (rendered by Hardt and Negri) interpret this? What seems to be happening is that the drive for profits of individual capitalists (one side of the dialectic mentioned at the beginning of the email) is dominating the other (the collective interest).

The question is why? Or atleast, why aren't the business classes concerned enough to shift gears?
Well of course I am sure many of them are concerned. However it is also true that leaders come last. Roosevelt wasn't pushed towards his New Deal by corporate advisors. It was off the back of massive public mobilisation.

However evidence shows that the current motley crew of financiers, corporate execs and their representatives in washington, are particularly complacent... and maybe for good reason

naomi klein has been talking for some time about the way disaster has now become profitable... to quote from Shock Doctrine
"Conventional wisdom was that generalized mayhem was a drain on the global economy... relative peace and stability were required for sustained economic growth... [by] 2007 political and corporate leaders were scratching their heads over a state of affairs that seemed to flout this conventional wisdom... that had led Lawrence Summers to [observe] a "near complete disconnect" between politics and markets as "something out of DIckens, you talk to inernational relations experts and its the worst of all times. Then you talk to potential investors and its one of the best of all times"... a puzzling trend observed through an economic indicator called "the guns-to-caviar index". The index tracks the sales of fighter jets (guns) and executive jets (caviar). For seventeen years it consistently found that when fighter jets were selling briskly, sales of luxury executive jets went down and vice versa... but the truism is no longer true."

For you guys that are interested, there is an even more interesting piece here from P Saineth on the stock market booms in the countries worst affected by the Tsunami

But nevertheless this is a mistake. The American economy simply cannot continue running up debts like this
If this wasn't bad enough, the US government is facing a deficit of truly epic proportions:

What needs to happen is a quite drastic change of course. Not, as you david point out, an overthrow of capitalism. But a different form of capitalism.

What will bring this about? Well, ironically the type of mobilisation "fanatics" of capitalism so fear and loathe, might be precisely and exactly the medicine capitalism needs. It might even already be underway:

To end it might be worth reflecting on the words of another Marxist (can you say Karl is a Marxist?). Now of course India is far from being a country without its problems. But in certain narrow measures like GDP, it has grown significantly in the last few years. Prabhat Patnaik made the following observation about this:
"The fact that India did not reform very rapidly [and maintained a large role for public sector planning and investment] is not because the reformers did not want to reform rapidly. It so happens that in India you had substantial opposition [which restrains] government. So in India what has happened is really through the opposition that the reformers have been slowed down. Many of those that assert the success of the reforms to their gradualism are not those in favor of gradualism to start with. It happens that they are making a virtue out of a necessity"

capitalism cannot survive without being exposed to the very forces it fears will destroy it

sorry for the length

12:48 AM  
Blogger David Wearing said...

anonymous - as I said "each [British PM or US President of recent years has] had their own take on what neoliberalism should entail in the respective eras and conditions in which they operated". However, no serious person disputes that - at a more fundamental level beneath these tactical choices - there is a distinctly Anglo-American model for running an economy. There's nothing to debate there.

Sam - thanks for that interesting discussion. You've probably got the basis for an article there.

Why has Anglo-American capitalism taken on these self destructive characteristics? Hard to say. No system - Communist, Nazi, whatever - willingly sets out to destroy itself. In this instance I'd highlight 3 factors, though there are almost certainly others.

1/ when a set of ideas becomes the prevailing consensus - the "free market" in this instance - it no longer has to justify itself and ends up morphing into dogma. That dogma has clearly been pursued down blind alleys of self destructive policy choices in recent years. The availability of alternative ideas in politics would have probably served elites quite well.

2/ with PLC capitalism and the increased accent on financial markets we've moved in to a much more short-termist era. That's bound to put a stress on the long term planning that a collaborative government is supposed to do in a state-capitalist economy.

3/ Incompetance and stupidity at the highest levels. This is probably a function of the prevalance of dogma actually. Its clear that under Bush people have got to the top by being true believers, rather than by being capable. This of course excludes smart people since truly smart people don't follow dogma. Hence the worst set of managers of the US imperialist/capitalist project in living memory (perhaps ever).

Quickly on India, yeah they have a lively political scene, certainly. But there's a recognisable ruling socio-economic class developing which is susceptible to a frightening level and kind of dogma i.e. those that have been voting for the BJP, many of whom are wealthy middle-class and high caste (Brahmin/Kshatriya). So it remains to be seen in what direction things will go there.

7:08 AM  
Anonymous JamieSW said...

I think Will Hutton's been reading your blog:

"This is not the end of capitalism, as some wildly claim; there is no intellectual, social or political challenge to a market system based on respect for private property rights, even by the Chinese Communist party. Rather, it is a crisis of a particular capitalism that has set aside respect for trust, integrity and fairness as fuddy-duddy obstacles to 'wealth generation'. What we are relearning is that without trust and fairness, capitalism risks its own sustainability, even while it unleashes forces that undermine those self-same values."

11:12 AM  
Blogger David Wearing said...

Plagarising bastard. I've told him before, "do your own analysis, Hutton".

That's a fairly decent article, I'd say. As we wait for the final US rescue package to be agreed, the following is the key package:

[Paulson] knows that unless the US government does something comprehensive, the entire financial system is at stake, but his original plan was designed to bail out the system intact. It made no demands that any financial executives sacrifice pay or bonuses despite having driven their firms and wider economy to the point of bankruptcy. He does not want the government to provide new bank capital to help recapitalise a bust banking system. Instead, he wants the government to buy their toxic debt and so leave the banks unreformed. On top he wanted complete discretion to act as he chose without any oversight.

American economists of every persuasion signed a joint letter complaining not at the aim of the bail out, which is plainly vital, but for its lack of fairness. Conservative papers and politicians echoed the complaint. Suddenly, Wall Street is coming back to earth. The transactions from which it skims such riches are built on the savings of ordinary Americans to whom it has obligations, as it has to other Wall Street firms. What we know now about the yet to be agreed compromise is that Paulson has accepted Congressional oversight, will offer direct help to distressed US homeowners as well as banks, and will accept some constraints on the worst excesses of executive pay.

But the core proposal remains. The government will buy toxic debt rather than inject government funds into the banks' capital base, in other words, reject even partially nationalising the entire US banking system as the Swedes had to in 1992. I don't know - nobody does - whether the Paulson plan would be sufficient or whether ultimately the Americans will have to go for nationalisation. What I do know is that unless there is a radical and government-led change in ownership, structure, regulation and incentives so that the principles of fairness are put at the heart of the Anglo American financial system - proportionality of reward and fair distribution of risk - there is no chance of the return of trust and integrity upon which long-term recovery depends.

So Hutton even copies my line that a good measure of the outcome will be whether or not there is some form of Swedish-style part-nationalisation. The man is utterly shameless.

2:03 PM  
Anonymous JamieSW said...

Legal action is clearly in order. What's somewhat surprising is the opposition to Paulson's initial proposals of so many Democrats and Republicans, as well as establishment commentators and economists. Did they really all oppose his plan because of its, quoting Hutton, "lack of fairness"? Since when was the Republican party (not to mention the rest of 'em) so fussed about "fairness"? It seems more plausible that their concern stems not from some principled concern for "fairness" but from a genuine fear that the system could collapse if its fundamentals are left unchanged.

4:52 PM  
Blogger David Wearing said...

yes, well, that and the huge pressure they're under from the public. Rarely is economic legislation subject to such levels of public scrutiny, and rarely does it have the potential to incite such levels of popular anger. And that's paid off to some extent. The final deal seems to include an element of buying up a stake in these banks, which wasn't in Paulson's original proposals. That's good news, subject to finer detail.

10:28 PM  
Blogger David Wearing said...

Some good analysis here on how Paulson's attempt to play the Shock Doctrine card met with a significant degree of resistance. Note that it was fear of voters reactions that spurred Democrats to reject the worst excesses of the White House's plan.

However, the bill hasn't passed yet, and this is only the initial legislative reaction in any case. Will it be followed by proper structural reform? That remains to be seen.

In my original post I also mentioned Klein's prediction that the crisis would be used by right-wingers to attack government spending on social programs, ostensibly in the interests of prudence, while maintaining the wildly profligate "defence" budget. In the event, this is more or less what John McCain proposed during his repulsive performance in the presidential debate last Friday night: a total freeze on all non-military spending bar basic entitlements.

Chalmers Johnson points out that US militarism has in fact helped to bankrupt the state.

Its not the first time this has happened, to the serious detriment of the world economy. Under the post WWII Bretton Woods system the US was supposed to balance its budget so the dollar could act as an anchor for the other world currencies. That helped lay the ground for what's been described as a "golden age" of global economic growth after the devastation of 1914-45. But the cost of the Vietman war was the main cause of the US abandoning that responsibility and allowing the dollar to float, so that it could cover the costs of bombing Indochina into the stone age. This destabilising measure had a far from productive effect on the troubled world economy of the 1970s.

Washington's choosing to maintain current levels of defence spending even as its economic policies send the world economy down the toilet would be another example of how US imperialism is a destabilising factor on the world stage.

12:53 PM  
Anonymous Anonymous said...

Again, David,

Your analysis will not be sound until it distinguishes the US market from any in Europe including Britain. The differences between how markets function in the US, with its reliance on entrepreneurial activity, is staggering. It may well be that the US model will function worse than any in Europe. It may be that the US will better weather the storm. But, lumping the two together is, frankly, foolish because the issues facing the US and the UK are very different.

5:31 PM  
Blogger David Wearing said...

yeah - thanks, anonynous. I heard you the first time

7:11 PM  
Anonymous Anonymous said...

But, David, you have not addressed the issue. All you have done is repeat that your views about neo-liberalism, as if the US ever rejected traditional liberalism. In other words, your analysis is ideologically, not fact, driven.

7:28 PM  
Blogger David Wearing said...

anonymous poster - I realise from your efforts over the past week or so, here and on other threads, that disagreeing with me is very, very important to you. And I hate to disappoint. But to be honest, I can live with the fact that you don't accept what you read here. This discussion has run its course.

8:38 PM  
Anonymous JamieSW said...


11:35 AM  
Blogger David Wearing said...

"Woo" is indeed the only sane and rational response, James.

Followed by "f*ck"

Nobel Laureate Joseph Stiglitz gives some good instant reaction, talking about where the Paulson bailout fell short and what a more sensible and fair plan would look like.

Stiglitz has been a powerful critic of neoliberalism for some time. See this recent article, and of course his book Globalisation and its Discontents, which is very much required reading.

12:20 PM  
Anonymous JamieSW said...

Thanks for the links - I saw Stiglitz speak last year and he made a lot of sense. I have two of his books (including the one you mention) on my shelf - now's the time to open them, clearly.

I just watched Bush's statement on the bill's defeat - it was quite extraordinary in terms of its contempt for democracy. He was really very disappointed that representatives voted in accord with the wishes of their constitutents as opposed to the dictates from the Republican and Democratic leadership. Only to be expected, of course, as was the equally dismissive Fox News coverage that followed.

1:04 PM  
Anonymous Anonymous said...


I object not to what you write but to your inability to defend your position. In other words, I think you are an empty suit. Were you to be able to defend your position, you would. So, I conclude that you are way out of your league.

2:24 PM  
Blogger David Wearing said...

In the second of his articles linked to above, Joeseph Stiglitz uses the term "neoliberalism" quite freely. Plenty of people do.

Stiglitz is a Nobel Prize winner, former Senior Vice President and Chief Economist of the World Bank, served as Chairman of the Council of Economic Advisers to President Clinton and is currently a Professor at Columbia University. He is also, by one measure
, the most cited economist in the world. Not really someone you can credibly describe as an "empty suit" who is "way out of his league".

Obviously I'm happy to discuss serious points in good faith, but whether or not neoliberalism exists is not really a serious point I'm afraid.

Perhaps I've misunderstood you. If you just want to use another word for the distinct, broad economic approach that is described as neoliberalism - if you'd prefer to call it laissez-faire, the "Washington Consensus", whatever - then ok. That's your choice to make. I won't insist that the word is used at all times. Its not something I'd get excited about.

But you seem to want to argue that this distinct approach itself (whatever name you want to put on it) actually doesn't exist at all. You seem to argue that we have all imagined what Stiglitz calls the "ideas, based on the notion that markets are self-correcting, allocate resources efficiently, and serve the public interest well, [that] underlay Thatcherism, Reaganomics, and the so-called "Washington Consensus" [and which promoted] privatization, liberalization, and independent central banks focusing single-mindedly on inflation"

If that's what you want to argue, then again, I'd have to excuse myself from the debate, because honestly, its not a serious proposition.

4:08 PM  
Anonymous Anonymous said...


My point was the US and Britain do not use a common approach, once you get past the BS level of analysis. Anyone who has spent time in both countries knows that the two economic models are very, very different. The US was always a liberal model. The UK is more liberal than it once was but, by American standards, it is not very liberal at all.

That there is some degree in overlap in ideology taken, if the ideology is described in the very broadest sense, there is no argument. That there is a similar implementation of that very broad ideology, the answer is that they are not even close to being the same.

I think there is a big ideological gap between the US model and the British model, even if both are, in one sense of the word, a - what you would call - neo-liberal model. My point is that noting that fact tells you very, very little so far as understanding the two countries. It is, as I see it, not very useful at all.

9:19 PM  
Blogger David Wearing said...

Jamie - apologies. To respond to your earlier comment....if we're thinking about the current economic crisis, the best Stiglitz book may well be "The Roaring Nineties", although I've not read it myself. It covers how the Clinton Democrats moved right to embrace neoliberal economics during that decade, and the problems that ensued. Obviously Stiglitz has a unique insight into that, given his personal involvement.

Another good book on that subject (apparently - its another that's been on my to-read list for years) is Paul Krugman's "The Great Unravelling". Both these critiques are from a mainstream-liberal perspective, but no less useful for that.

If you ever do economics at Uni its definitely worth investing in whichever of Stiglitz's many textbooks covers the particular area you're studying. My experience of them has always been pretty good. Unlike some others, they're quite accessible.

11:29 AM  
Blogger David Wearing said...

Anonymous poster - the economist's response would probably be to explain that your analysis needs to be able to recognise strategic commonalities as well as tactical differences, where each exist.

One reason for this is that tactical differences can take your analysis in contradictory directions. So in terms of health policy, the British National Health Service is clearly a different approach from the health insurance system in the US. The former is more on the social democrat side, the latter more on the neoliberal side. By contrast, in the financial/corporate sector, Britain is in some areas more liberal than the US. We have no equivalent of the Sarbanes-Oxley Act, for example.

So the picture's mixed, and we often need to step back to understand what's happening. Conducting your assessment at the level of policy choices in individual areas will only get you so far. You need to include a higher level analysis that, while noting the abovementioned differences, also recognises broader trends in macroeconomic policy between countries.

So while there are plainly differences between the British and American economies, the two countries have far more in common with each other than either of them have with countries in mainland Europe or Scandinavia.

As Jeffrey Sachs describes it here, "Australia, Canada, Ireland, New Zealand, the U.K. and the U.S." all maintain "relatively free-market economies that have low to moderate rates of taxation and social outlays", while "Denmark, Finland, Norway and Sweden...have high rates of taxation and social outlays". We can then talk about what this means in practice.

As Sachs notes, "Budgetary outlays for social purposes average around 27 percent of gross domestic product (GDP) in the Nordic countries and just 17 percent of GDP in the English-speaking countries. On average, the Nordic countries outperform the Anglo-Saxon ones on most measures of economic performance. Poverty rates are much lower there, and national income per working-age population is on average higher. Unemployment rates are roughly the same in both groups, just slightly higher in the Nordic countries. The budget situation is stronger in the Nordic group, with larger surpluses as a share of GDP.".

So the importance of identifying these broad catagories, in terms of comparing and understanding the economic models used by different countries, is far from trivial. And that's especially true when policymakers choose the broad economic strategy they want to pursue (individual tactical choices, made in service of that broad strategy, come later). You may see placing the UK and the US in the same broad catagory as a "BS level of analysis" , but its importance and relevance is pretty well understood - to the point where denying it can appear pretty bizarre.

12:05 PM  
Anonymous Anonymous said...


Your argument, this time, involves quoting people either out of context or quoting people who have made substantial errors.

Take Mr. Sach's comparison of outlays. If he is limiting outlays to certain outlays by the US government, then 17% is correct. However, that is very misleading because his figure does not account for all US government outlays and, on top of that, his comparison excludes state and local outlays, which for certain governmental functions, are very substantial.

In fact, Federal outlays are closer to 25%. However, the real question is what the money is being spent on and, in the US, it is spent differently than in the UK.

His figure also does not include state expenditures such as a substantial portion of the money spent on the medicaid program, which insures 47 million Americans. Up to 50% of the funding is paid by the states. So, we have governmental functions in the US which (in your country, are run and paid for by the national government) are paid for in considerable part by the states. And, such is not limited to medicaid.

In the US, money for schools is raised either or both, depending on the state, primarily by local town/city property taxes and/or state taxes/property taxes. That is not included in any figures on total government spending in the US, where the Federal government plays only a tiny role. Nor is the spending on state roads, which, so far as I know, is paid for with local money, not Federal expenditures. Nor is the spending on state and city/town police, which is paid by states and/or towns.

Again, the issue is to avoid BS assertions based on misleading quotes. And, Mr. Sachs chose his figures for a reason, not to indicate total government outlays

2:21 PM  
Blogger David Wearing said...

anonymous poster - the 17 per cent figure isn't US-specific. Its the average of the neoliberal catagory of nations.

It is of course in the nature of averages that the US figure could be higher or lower. You could inflate the number by including expenditure on police and road building, but those aren't social programs.

Expenditure on social programs breaks down between local and national levels in the UK too, and indeed in most countries (in different ways, of course). But clearly that doesn't mean that we can't talk about the total expenditure on social programs in the country and the percentage that forms of GDP, and its fairly elementary work for an economist to calculate those numbers since this sort of data is freely available.

If you want to dispute Prof Sachs' calculations I'm sure you could email him at Columbia University. He may be willing to explain to you how he conducted his analysis and arrived at his numbers.

3:16 PM  
Blogger David Wearing said...

The OECD gives a helpful and detailed description of what is meant by social expenditure in this document [pdf]. Also included are some good stats/graphs showing the differences between contries (e.g. pgs 83-84) which seem broadly consistent with Sachs figures.

Governments rely on OECD stats and methodology, so you can feel pretty confident using their output. I wouldn't be surprised if Sachs used a version of this same dataset.

3:54 PM  
Anonymous Anonymous said...

Mr. Sachs was giving figures for the Federal government. And, they are based on his view of what spending on social programs is.

But, anyone who knows anything about the US knows that the US works very differently than Europe, with schools and roads and police and health care being paid for very differently.

I was not saying Mr. Sachs was wrong. I am saying that he was making a specific comparison for a specific reason. You are using what he wrote out of context.

Again, think about schooling. It is paid for dramatically differently in the US, a way that is not captured by Mr. Sach's figures, on which you rely. That is a fact. Yet, it is a substantial part of social spending. The same for Medicaid, which is also not included in full in his figures.

I have seen the 17% figure before. I know what it includes. And, your use entirely out of context to make a point that the evidence does not show.

4:08 PM  
Blogger David Wearing said...

ok, anonymous poster, some of this is getting a little silly now, I'm afraid to say. I'm content at this point for anyone reading this thread to look at what we've both said, look into what we've backed it up with, and come to their own views

7:12 PM  
Anonymous Anonymous said...


It would not hurt you to note that you, like the rest of us, are not perfect. As I said before, your article is not a bad one. But, it has flaws.

In this case, your view is based, in part, on an error in fact, which ignores how the government money is collected and distributed in the US. Which is to say, the US system is not really so comparable to the UK system; the money distributed for social programs is not as much a product of the Federal government as your theory asserts. Regulation works differently here than in Europe. So, the comparison with the US, which is premised on a perceived identity with the UK system, has less merit than you claim.

That is not to claim that there is no merit to your point. It is only to claim that it is not nearly as strong a point as you believe it to be.

What amazes me is your inability to defend your position. Were this to be your PhD thesis, with you defending your arguments as you have done here, you would have serious difficulties.

7:40 PM  
Blogger David Wearing said...

ok, anonymous poster. Thanks for your input.

8:33 PM  

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