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Crisis in Neoliberalism or Crisis of Neoliberalism?

The banks are fucked, we’re fucked, the country’s fucked.
Anonymous British cabinet minister1
This rather perceptive assessment of the implications of the current crisis
for the United Kingdom (and a good many other countries) is more
candid and insightful than the twaddle of many mainstream journalists,
economists and politicians, who proclaim the virtues of the ‘free market’
while blaming an unholy coalition of unhinged bankers, shifty borrowers
and incompetent regulators for the disaster.2 In order to save neoliberalism
from itself, the free marketeers have nationalized some of the largest financial
institutions in the world, socialized financial market risks and pumped huge
amounts of public money into the economy. The rhetorical gyrations
justifying this frenzy have been ideological in the worst possible sense: they
are deliberately misleading representations of reality, concocted to confuse
the audience and stultify the opposition. In contrast, Marxian assessments
of the crisis, being grounded upon the realities of accumulation and located
within systemic analyses of the class relations under neoliberalism, suggest
that this is not a crisis of (de)regulation but, instead, a systemic crisis in neoliberal
capitalism. It is not, yet, a crisis of neoliberalism.
Neoliberalism is the mode of existence of contemporary capitalism. This
system of accumulation emerged gradually, since the mid-1970s, in response
to the transformation of the conditions of accumulation accompanying the
disarticulation of the Keynesian-social democratic consensus, the paralysis
of developmentalism and the implosion of the Soviet bloc.3 In essence,
neoliberalism is based on the systematic use of state power, under the
ideological guise of ‘non-intervention’, to impose a hegemonic project of
recomposition of the rule of capital at five levels: domestic resource allocation,
international economic integration, the reproduction of the state, ideology,
and the reproduction of the working class. These are summarily described
below in order to locate the contradictions leading to the current crisis.
Under neoliberalism, state capacity to allocate resources intertemporally
(the balance between investment and consumption), intersectorally (the
composition of output and investment) and internationally (the articulation
of capitalist production and finance across borders) has been systematically
transferred to an increasingly globalized financial sector in which US
institutions play a dominant role.4 Resource control has given the financial
institutions a determining influence upon the level and composition of
investment, output and employment, the structure of demand, the financing
of the state, the exchange rate and the patterns of international specialization
in most countries. The extended influence and resourcing of finance has
supported the development of a whole array of new instruments, the rapid
expansion of purely speculative activities and, inevitably, the explosive
growth of rewards to high-ranking financiers.5
Financialization and the restructuring of production are underpinned by
the transnationalization of circuits of accumulation, which is commonly
described as ‘globalization’. These developments have recomposed the
previous ‘national’ systems of provision at a higher level of productivity at
firm level, created new global production chains, reshaped the country-level
integration of the world economy, and facilitated the introduction of new
technologies and labour processes, while compressing real wages.6 Finally,
financialization has also supported the reassertion of US imperialism.7
Financialization is not a distortion of a ‘pure capitalism’ or the outcome
of a financial sector ‘coup’ against productive capital. It is, rather, a structural
feature of accumulation and social reproduction under neoliberalism. In
this sense, ‘finance’ includes not only the banks and institutional investors
(pension funds, mutual funds, hedge funds, stockbrokers, insurance companies
and other firms dealing primarily with interest-bearing capital), but also the
financial arm of industrial capital, whose profitability increasingly depends
on financial engineering. The constitutive role of finance in the capital
relation under neoliberalism has allowed it to appropriate an increasing share
of the profits extracted by the non-financial corporate sector. This process
has played a major role in the polarization of incomes under neoliberalism.8
Even before the current crisis, the notion that finance mobilises and
allocates resources efficiently, drastically reduces systemic risks and brings
significant productivity gains for the economy as a whole was untenable.9
Not only did the expected acceleration of growth through financial and
capital account liberalization fail to materialise in most countries but, instead,
finance-induced crises have become more frequent.10 Conversely, the growth
accelerations in the age of neoliberalism have been largely unrelated either
to changes in financial sector regulations or capital account liberalization. An
alternative interpretation is more plausible: regardless of these limitations,
financialization plays a pivotal role in contemporary capitalism because it
supports the transnationalization of production, facilitates the concentration
of income and wealth and supports the political hegemony of neoliberalism
through continuing threats of capital flight. The power of finance has become
especially evident during the current crisis, when several governments were
compelled to rescue large institutions and, in some cases, entire financial
systems at huge cost to the public. Even more strikingly, these revived
institutions immediately started demanding budget cuts because of the
alleged ‘unsustainability’ of the fiscal position of states that, nominally, ‘own’
some of the largest banks in the land.11 Never in economic history has so
much trouble and expense been rewarded with such effrontery.
Neoliberal financialization has imposed specific modalities of social discipline
upon key social agents. These include the state (the need to enforce restrictive
welfare policies and contractionary monetary and fiscal policies under the
continuing threat of fiscal, exchange rate or balance of payments crisis),
industrial capital (global competition promoted by the state and facilitated by
finance), and the financial sector itself (competitive international integration
under a US-led regulatory umbrella). However, unquestionably the most
stringent forms of discipline have been imposed upon the working class.
Hundreds of millions of workers have been forcibly incorporated into
transnational circuits of accumulation during the last three decades, greatly
increasing competition between individual capitals and between (and
within) national working classes. The global restructuring of production,
accompanied by regressive legal, regulatory and political changes, have
transformed the patterns of employment in most countries and facilitated
the imposition of restrictions to the wages, subsidies, benefits, entitlements
systems and other non-market protections that had been introduced under
various interventionist regimes. These technological, economic, legal and
political shifts have drastically narrowed the scope for resistance against
neoliberal capitalism.
At another level, social discipline has been imposed through the
financialization of the reproduction of the working class, most remarkably
by means of the housing market boom and the expansion of personal credit
in the last two decades. These offered highly profitable lines of business for
many financial institutions and became an important mechanism of social
integration, especially in the US and UK. Under their chronically straitened
circumstances, partly because of the disappearance (or the export) of millions
of traditionally relatively well-paid skilled jobs and their replacement by
less well-paid service jobs and, partly, because of the retrenchment of the
welfare state, many workers were drawn into systematic borrowing while
their conditions of employment deteriorated. In these circumstances, it is
unsurprising that many households became either chronically indebted or
increasingly reliant on asset price inflation, or both, in order to meet their
reproduction needs.12 For example,
[T]here has been a 74 per cent increase in health insurance
premiums for the average US family with health care coverage,
which has led to 29 million American adults incurring unsecured
consumer loans to make up for the gap between medical coverage
and actual costs... [U]nsecured debt has also become an important
contributor in granting access to university education... [M]iddle-
income households are [also] using mortgage debt to supplement
the lack of funding for basic education as many families now opt
to pay a premium for purchasing houses within a good school
catchment area... In addition to medical bills and education... a large
portion of middle- and low-income households use unsecured debt
as a safety net or to fund daily living expenses... [M]iddle-income
households are incurring ever greater levels of debt to maintain
the historically constructed notion of the American middle-class
standard of living.13
Many households reacted to the neoliberal reforms by maxing out their
credit cards and turning their homes and retirement pensions into virtual cash
machines in order to bypass the stagnation of wages and the retrenchment
of public welfare provision.14 However, pressures for timely repayment
based on the threat of losing homes, cars and reputations helped to push
many debtors into financial difficulties, including the need for long working
hours in multiple jobs with precarious employment rights, rising stress levels
and, inevitably, a declining propensity to engage in political or industrial
Unsurprisingly, financialization has supported a significant rise in the rate
of exploitation foremost seen in a corresponding decline in the wage share
of national income in most countries. In the US, for example,
From 1979-2004 the [income] share of the top 5 percent of
households rose from 15.3 percent to 20.9 percent while that of
the poorest 20 percent fell from 5.5 percent to 4.0 percent …
[I]ncome growth has been particularly concentrated at the very
top. In 2000 and again in 2005 the richest hundredth of one
percent... of families in the United States received 5 percent of
total income, a level that had been not been reached previously
since 1929. During the 1950s and 1960s the share received by the
top 0.01 percent was between 1 percent and 1.5 percent of total
Similarly, in the UK,
[The] top 0.05 per cent of the population had seen its share of
national income decline from 1937 till the 1970s but by
2000 its share was higher than it had been in 1937. And the very
rich got richer faster than the merely wealthy. In the 1980s, every
group in the top tenth of taxpayers increased their share of national
income, but in the 1990s the increase in the share of the top tenth
was all accounted for by the top 0.1 per cent [T]he average
ratio of CEO-to-employee pay was 47 in 1999; ten years later it
was 128.16
Personal credit was also a key macroeconomic policy tool. Every time
the US and UK economies slowed down as, for example, in the late 1990s,
after the dotcom bubble and after 9-11, their central banks lowered interest
rates and encouraged remortgaging and the accumulation of unsecured debt
in order to prop up demand. These policies have been referred to as ‘asset
price Keynesianism’,17 because, to some extent, private deficits replaced the
role of public sector deficits in macroeconomic stabilization. This policy
was temporarily successful, and demand induced by home equity extractions
added approximately 1.5 per cent per year to the rate of growth of US GDP
between 2002 and 2007. Suggestively, this was just about the difference
between US and Eurozone growth rates during that period.18
The significance of personal debt for social reproduction under neo-
liberalism does not support the right-wing view that the current crisis was
caused by the profligacy of poor US and UK households. Nor does the left-
populist claim that the indebted workers were merely victims of structural
forces hold up. The analysis above does, however, imply that the crisis was the
outcome of an unsustainable process of neoliberal financialization, perverse
changes in labour market structures and regressive shifts in the provision of
the means of subsistence, underpinned by limited macroeconomic policy
tools and propped up by deeply ideological claims about ‘competition’ and
‘individual choice’. The crisis also shows that it is impossible to eliminate
poverty by lending to the poor: poverty has many causes, but insufficient
access to credit is not one of them.
It is also impossible to stabilise complex economies over long periods
through the manipulation of mass credit, above all because the material
limitations in their ability to repay eventually must restrict the working class’s
borrowing capacity. Consequently, in extremis, their debts may have to be
nationalized, inflated away or legislated out of existence. But this happens
only exceptionally: under normal circumstances, excess debt leads only to
individual penury and social degradation.
The neoliberal system of accumulation is structurally unstable at five levels.
First, the sheer weight of finance in the economy, facilitated by technological
developments that reinforce financial innovations and speed financial
transactions, and by regulatory liberalization, determines that accumulation
under neoliberalism has often taken the form of financial (bubble-like) cycles
which eventually collapse with destructive implications and requiring a
state-sponsored bailout. These cycles include: the international debt crisis of
the early 1980s, the US savings & loan crisis of the 1980s, the stock market
crashes of the 1980s and 1990s, the Japanese crisis of the late 1980s, the crises
in several middle income countries at the end of the twentieth century,
and the dotcom, financial and housing bubbles of the 2000s, culminating
with the current global meltdown. It is also striking that the business model
of neoliberalism’s beacon enterprises is, often, based primarily on plunder
and fraud, across a spectrum ranging from Enron to Bernard L. Madoff
Investment Securities. Although these crises and a succession of large-
scale bankruptcies demonstrate the irrationalities of accumulation under
neoliberalism, the illusion of prosperity was supported by the Fed’s apparent
ability to coordinate the clean-up operations while sustaining growth in the
dynamic centre of the world economy.
Second, the latest cycle was predicated on a seemingly bottomless appetite
for credit by households and the state, which provided outlets for the
commodities and the fictitious capital produced by the global corporations.
However, growing household consumption was sustainable only while rising
house prices conjured up the equity which could be withdrawn through new
loans and remortgages.19 It would eventually become impossible to service
rising debts with stagnant household incomes – especially if interest rates had
to rise in order to prick asset bubbles or keep inflation low. Rising house prices
also depended on the flow of mortgage credit by the financial institutions,
which was, in turn, reliant on US and UK policies to promote speculative
capital inflows, buy-to-let swindles (in the UK) and predatory subprime
lending (in the US) allegedly in order to ‘expand home ownership’.20 These
loans were sliced up and traded repeatedly among the financial institutions,
generating staggering fortunes in the process.21 However, when swelling
losses threatened to overwhelm the financial sector, governments swiftly
collectivized risks, nationalized the imperilled institutions and plugged the
sector’s balance sheet with endless quantities of newly minted cash.
Third, the cycle required a continuing flow of financial resources to the
US and the UK to buy shares, T-bills, mortgage-based securities and real
estate. These funds were converted into tradable financial assets, allowing the
intermediaries to extend credit in the domestic economy. Evidently, these
transfers are ultimately unsustainable because the US and UK cannot expect
to be permanently subsidized by cheap goods and cheap finance supplied
by the rest of the world. Nevertheless, these resource flows temporarily
supported the claim that the finance-driven restructuring of capitalism had
been successful, and that the US and UK were consistently doing ‘better’
than the economies which embraced neoliberalism a little more reluctantly
(especially Japan and the Eurozone). These performance differences in the
years preceding the crisis helped to legitimize neoliberalism, and to disguise
the fact that the so-called ‘Great Moderation’ was largely founded on
unsustainable debt-led growth supported by misaligned exchange rates.22
Fourth, macroeconomic stability, predictable central bank policies,
hands-off financial regulation, the Basel II framework and ‘mark to market’
accounting rules increased the economy’s vulnerability to swings, shocks
and confidence crises. They created incentives for rising leverage and for
an increasing reliance by the financial institutions on short-term wholesale
funding rather than retail deposits. Leveraging and the creation of liquidity
through the transformation of debt into tradable papers boosted asset prices
which, in turn, encouraged further leveraging, in a kind of Ponzi process.
Conversely, when liquidity fell highly leveraged financial institutions had to
cut their balance sheets rapidly, contributing to the severity of the crisis.
Fifth, it was expected that securitization would increase the resilience of
accumulation by transferring risk to those better able to hold it. However,
in reality the financial institutions lost the incentive to evaluate risk because
their papers were being traded immediately, while the buyers relied on
meaningless credit ratings to disguise their ignorance.23 The ensuing flood of
securities silently destabilized global finance.24 In sum, although the trigger
for the crisis was the collapse of subprime mortgages in the US, there were
several weak links along the chain: the recycling of US and UK current
account deficits, the rate of accumulation of personal debt, the relationship
between consumption and interest rates, the fragility of the balance sheets of
the large financial institutions and their structured investment vehicles, the
need for low inflation and predictable changes in interest rates, and so on.
In this sense, the current crisis exposes the limitation of financialization
as the driver of global accumulation. The contradictions underlying the
crisis indicate that this is a systemic crisis in neoliberalism, but it is not a crisis of
neoliberalism because, although the reproduction of the system of accumulation
has been shaken, it is not currently threatened by a systemic alternative.
The financial collapse delivered a stunning blow to the neoliberal consensus,
as was aptly illustrated by Alan Greenspan’s confession of ‘shocked disbelief’.25
The Economist was nothing less than apocalyptic:
[E]conomic liberty is under attack and capitalism … is at bay
but those who believe in it must fight for it … In the short term
defending capitalism means, paradoxically, state intervention. There
is a justifiable sense of outrage that $2.5 trillion of taxpayers’
money now has to be spent on a highly rewarded industry. But the
global bailout is pragmatic, not ideological If confidence and
credit continue to dry up, a near-certain recession will become a
depression, a calamity for everybody.26
For a few weeks in 2008 global capitalism seemed to bleed uncontrollably,
as losses reportedly climbed towards US$ 40 trillion or, alternatively, 45
per cent of the world’s wealth.27 Several states nationalized key financial
institutions, guaranteed deposits and financial investments, cut interest rates
and implemented expansionary fiscal policies and so-called ‘quantitative
easing’ to support finance, aggregate demand and employment. It is impossible
to calculate the cost of these initiatives. They included central bank purchases
of temporarily worthless financial assets, which may gain value as the global
economy stabilises, ‘Keynesian’ initiatives to protect employment, which
partly pay for themselves through additional tax revenues and reduced social
security transfers, and a significant amount of borrowing to fund regular
spending, which became necessary because of the crisis-driven decline in
taxation. These measures were unsurprising: they reflect, on the one hand,
the post-Great Depression consensus that aggressive expansionary policies
can avert a deflationary spiral, and, on the other, the neoliberal claim that
financial sector stability is paramount.
Heavy state spending and the socialization of losses and risks stemmed
the haemorrhage of bank capital and postponed the collapse of some large
manufacturing conglomerates, especially the old US automakers. However,
they did not revive bank credit, and their huge costs have triggered severe
fiscal problems especially in the US, UK, peripheral European economies
and fragile Gulf states. As Joseph Stiglitz put it,
[T]he very actions that saved the economies of the world have
presented a new problem for fiscal policy, as questions are being
raised about governments’ ability to finance their deficits. There
are speculative attacks against the weakest countries, which find
themselves caught between a rock and a hard place … The financial
markets that caused the crisis – which in turn caused the deficits –
went silent as money was being spent on the bailout; but now they
are telling governments they have to cut public spending. Wages
are to be cut, even if bank bonuses are to be kept.28
Despite their tactical proficiency, instantly coming up with trillions of
dollars to support the banks and shore up the global economy, the neoliberal
bourgeoisies and their paid economists have demonstrated a staggering
lack of strategic imagination. Even the most promising recovery scenarios
offers only slow growth, a decade of austerity and a wave of unemployment
which may last for an entire generation. The emerging consensus is that
the system of accumulation can be fixed with a little financial regulation,
marginal exchange rate adjustments, a rebalancing between exports and
domestic demand in Germany and East Asia, and austerity for wages and
public consumption in the UK and eventually in the US. These cosmetic
changes are unlikely to rebalance the global economy or make much of a
contribution to managing the ongoing restructuring of accumulation. Their
simplicity is symptomatic of the mainstream’s superficial understanding of the
crisis; they point to a slow and very bumpy recovery, with the emergence of
deep financial, fiscal, exchange rate and unemployment crises in one country
after another, and over a long period of time.
Most recovery plans bypass the need for an alternative mechanism of
social integration, fail to recognise that the manipulation of personal debt
will be insufficient to stabilise demand and employment, and ignore the
fact that the contraction of credit, wages and pensions and the need for
fiscal retrenchment will compromise long term demand growth. Although
state spending has plugged the gap during the crisis, this is unsustainable
without significant changes in taxation and the distribution of income, but
these are not currently on the cards.29 Recovery plans also presume that
contractionary fiscal policies are essential to protect state credit ratings in
the short-run and avoid inflation in the long-run, and envision that, after
the return of ‘normal’ conditions, the manipulation of interest rates should
become once again the most prominent macroeconomic policy tool. That
is, the neoliberal camp essentially expects the global system of accumulation
to get back to its pre-crisis state (plus or minus some marginal tinkering) after
a prolonged and rather costly period of instability.30
Even more alarmingly, although many proposals to address the crisis and
prevent a repeat have been aired, three years after the onset of the crisis and
two years after the collapse of Lehman Brothers very little of substance has
actually happened. The ideas on the table or being discussed in the world’s
legislatures include a devaluation of the dollar to help rebalance the US
economy, a coordinated set of higher inflation targets to erode public debts
while preventing explosive capital movements to low inflation countries,31
the taxation of bank assets and financial transactions, a review of supervisory
agency responsibilities, the prohibition of certain types of short-selling,
regulatory changes requiring the financial institutions to prepare ‘living
wills’ and/or buy insurance against possible failure, and rules to increase
capital requirements countercyclically, constrain leveraging and speculation,
ban proprietary trading, restrict the hedge funds and cap bonuses. Other
suggestions include stricter regulation of the credit rating agencies, increased
transparency in derivatives trading (for example, through the creation of
centralized exchanges), and stronger consumer protection against predatory
However, no significant macroeconomic adjustments have taken place
yet, and the financial institutions have been lobbying ferociously against any
attempt to curb their operations. They argue that the US and UK should
not deliberately maim a large industry in which they have a comparative
advantage, and that taxation or regulation would lead to the mass exodus
of banks, hedge funds and traders to Switzerland, Singapore or the Gulf.33
Their well-funded campaign is only part of the problem.
Macroeconomic adjustments have been hamstrung by a number of
major economic challenges that remain in place. A first is the conflicting
pressures on the dollar (it must fall to help correct the US current account
deficit, but it tends to rise whenever there is uncertainty elsewhere,
especially in the systemically important countries or the Eurozone); China’s
parallel unwillingness to let its currency appreciate is a second. Structural
contradictions within the Eurozone are a further difficulty: between surplus
and deficit countries; between entrenched monetary conservatism and the
need to deploy expansionary policies to address the crisis in the smaller
countries; and more fundamentally between monetary unification and
continuing fiscal fragmentation.
A fourth obstacle is the extraordinarily inflexible monetary policy appar-
atus that has remained in place to lock in low inflation.34 Its rigidities are
compounded by significant monetary policy differences between the US,
Japan, the UK and the Eurozone. For example, the first two do not have
legally binding inflation targets to raise, the UK cannot act in isolation,
and the ECB has been built to enforce low inflation, and its governance
structure makes it difficult to change course.35 Complications of a different
order would arise if inflation rose too fast in certain countries, because
governments would be compelled to limit their fiscal stimuli and raise
interest rates, potentially stalling the recovery.
Finally, another set of difficulties concerns reaching legislative agreement
about how to tax the financial sector, set capital requirements, dismantle
institutions that are too big to fail (and, therefore, that have in-built
incentives to behave recklessly), and unscramble players’ incentives (bonuses
are outrageously high in the good times, and absurd when the financial
sector refuses to lend even though it is being propped up by the state).
These difficulties are especially visible in the debates surrounding the
financial market reform bill in the US Congress. In conclusion, the largest
economic crisis since 1929 has demonstrated that transferring control of
capital to finance fosters speculation and systemic instability and does not
improve macroeconomic performance. Yet, the institutional imperatives of
reproduction of neoliberalism make it difficult for governments to introduce
a new economic policy framework.
Although the left has been severely weakened by the neoliberal onslaught,
it should seek to intervene in the current debates offering democratic
policy alternatives defending jobs, salaries, pensions and welfare standards,
improving the quality of investment, protecting the environment, and
seeking to turn the current crisis in neoliberalism into a crisis of neoliberalism.36
These proposals can be framed, initially, along two axes.
First, no concessions should be offered on jobs, pensions or welfare. Those
who benefitted disproportionately from the good times, and whose greed
caused the crisis, should pay for it. Besides, offering concessions to protect
individual employers or countries will only intensify the continuing race to
the bottom under neoliberalism.
Second, the left can demand the takeover of the financial system and its
transformation into a public utility. This can be justified at two levels. On
the one hand, the economic argument for profits is that they encourage
capitalists to invest wisely in order to multiply their capital and avoid losses.
However, if the financial sector is unproductive and if its losses must be
socialized, especially when they are large, there is no justification for profits
in this sector. On the other hand, governments have given huge sums of
money to the banks, but the banks are refusing to lend. The banks are not
interested in low-risk-low-return operations, and they have to rebuild their
reserves. This bottleneck is helping to perpetuate the crisis. Such a ‘catch-22’
is unavoidable given the institutional structure of the financial system, the
imperatives of competition, and the constraints imposed by the crisis.
Nationalization without (further) compensation will cut this Gordian
knot. Ideally, it should be supplemented by closing down the hedge funds
and other institutions trading only between themselves and performing no
productive service for the economy, pegging bankers’ compensation to
civil servants’ salaries, imposing capital controls and centralising currency
trading, abolishing the secondary markets for public securities, and creating
a democratically accountable management structure for the financial sector.
If the state runs the banks according to public policy goals, it will not have to
accommodate short-term profitability; the banks will no longer be involved
in socially destructive businesses, and society can be more certain that there
will be no financial crises or bailouts in the future. At a strategic level,
nationalization is important because the ownership of financial assets is at
the core of the reproduction of capitalism today. Paradoxically, this is also
the weakest social relation both economically and ideologically now, and a
mass campaign to nationalize finance could destabilise the class relations at
the core of neoliberalism.
It goes without saying that state ownership of finance does not signal the
abolition of capitalism. The state had full ownership or significant control of
finance in France and Iceland until a few years ago, and in Brazil and South
Korea under their respective military dictatorships. Legal ownership can help,
but what really matters are the objectives of government policy and which
class and other interests are served by the financial institutions. As opposed
to financial system-led systems, state-led co-ordination of economic activity
is potentially more advantageous for the working class because the state is the
only social institution that is at least potentially democratically accountable
and that can influence the pattern of employment, the production and
distribution of goods and services and the distribution of income and assets
at the level of society as a whole.
In addition to the financial reforms sketched above, a democratic
economic strategy can focus on the expansion of two complementary areas:
the sectors producing goods and services for the workers and the poor (and
where production is, often, relatively labour-intensive, as in construction
and non-durable consumer goods), and the sectors that can help to relax the
balance of payments constraint in deficit or vulnerable countries. They can
be prioritised through the adoption of policies enforcing capital controls,
maintaining exchange rates compatible with current account balance,
avoiding domestic and external debt, introducing accommodating fiscal and
monetary policies and rising tax ratios, and securing investment in public
and environmentally sustainable goods. All these goals are compatible with
a green investment strategy, which, especially in the large economies, has
become imperative in order to avoid global environmental collapse.
Left mobilisation along these lines will not be welcomed by the neoliberal
elite. The left should have no illusions that there is an ‘antagonistic’
relationship between production and finance under neoliberalism simply
because financial gains are, by definition, deductions from the surplus value
extracted by industrial capital. This principle is too abstract to support a
political alliance between the left and the industrial or the ‘national’
bourgeoisie. Industrial capital is materially committed to the reproduction
of neoliberalism, and the expectation that industrial capitalists will suddenly
decide to follow Keynesian, developmentalist or democratic economic
policies drastically misunderstands contemporary capitalism.37
This essay has argued that neoliberalism is a material form of social
reproduction and social rule encompassing the structure of accumulation,
international exchanges, the state, ideology and the reproduction of the
working class, and which is compatible with a wide variety of policies under
a supposedly ‘free-market’ umbrella. This totality has been destabilized by
the crisis, and the neoliberal consensus is attempting to restore the status
quo ante as much as possible. This goal is grounded in the realities of social
reproduction, and supported by the class alliances which structure, and
benefit from, neoliberalism.
In sharp contrast with these stabilizing goals, the destabilization of
neoliberalism is a project of the radical left, and the spectrum for alliances
at the top is very limited. Conversely, the scope for alliances at the bottom
of the world’s society is, potentially, unlimited. A left strategy to transcend
neoliberalism must be based on mass political movements transforming
the state and the processes of socio-economic reproduction and political
representation – that is, imposing a new system of accumulation, including a
new configuration of the economy and more equal distributions of income,
wealth and power.
If the global working class remains passive the crisis will be resolved through
an increase in the rate of exploitation. The default position in capitalism is
that the workers are not only penalised disproportionately by crises; they
must also compensate the capitalists for their losses.38 This is partly because
of the way in which capitalist economies absorb and process adverse shocks
and, partly, because the workers are, by definition, closer to the edge of
survival and have much greater difficulty turning changing circumstances to
their advantage. This makes it essential to reinforce the distributional aspect
of economic policy during the crisis by strengthening the links between
economic and social policies in order to protect the vulnerable when they
need it most (at a minimum, through the imposition of an extraordinary
‘crisis tax’ on the rich and on large corporations), while, at the same time,
imposing progressive structural changes in the current modality of economic
and social reproduction.
In sum, the alternative for the workers is to push the cost of the crisis
on to the capitalists through a campaign for the takeover of the financial
system and the democratization of finance, which would contribute to the
destabilization of neoliberalism. Large-scale mobilizations depend on the left’s
ability to imagine an alternative future including the values of democracy,
solidarity, satisfaction of basic needs and environmental sustainability. They
can draw inspiration from the historical struggles for the limitation of the
working day, for public health and education, for citizenship rights, and for
the extension of democracy, in which the tireless work of millions of left
activists has been essential to bring significant gains for the majority.
1 The Guardian, 19 January 2009.
2 For example, George Osborne and Jeffrey Sachs suggest that: ‘Blaming our
predicament on financial markets… ignores the awkward truth that governments
have enabled, if not enthusiastically promoted, recklessness, through chronic
deficits and lax financial regulation’. ‘A Frugal Budgetary Policy Is The Better
Solution’, Financial Times, 15 March 2010, p. 15; and also ‘Capitalism at Bay’,
The Economist, 16 October 2008.
3 See Alfredo Saad-Filho, ‘Introduction’, in Saad-Filho, ed., Anti-Capitalism:
A Marxist Introduction, London: Pluto Press, 2003; Alfredo Saad-Filho and
Deborah Johnston, eds., Neoliberalism: A Critical Reader, London: Pluto Press,
2005; and Alfredo Saad-Filho and Galip Yalman, eds., Neoliberalism in Middle
Income Countries: Policy Dilemmas, Economic Crises, Forms of Resistance, London:
Routledge, 2010.
4 See, for example, Leo Panitch and Sam Gindin, ‘Global Capitalism and
American Empire’, in Socialist Register 2004; Leo Panitch and Martijn Konings,
eds., American Empire and the Political Economy of Global Finance, London:
Palgrave, 2009; and Chris Rude, ‘The Role of Financial Discipline in Imperial
Strategy’, in Socialist Register 2005.
5 For a detailed analysis of financialization in the US, see Greta Krippner, ‘The
Financialization of the American Economy’, Socio-Economic Review, 3(2),
6 See David Kotz, ‘The Financial and Economic Crisis of 2008’, Review of Radical
Political Economics, 41(3), 2009; and Susan Watkins, ‘Shifting Sands’, New Left
Review, 61, 2010.
7 See the Socialist Register 2004 and 2005.
8 For example, and including only a subset of what has been defined as ‘finance’:
‘In 2002, the [narrow financial] sector generated an astonishing 41 per cent of
US domestic corporate profits… Average pay in the sector rose from close to
the average for all industries between 1948 and 1982 to 181 per cent of it in
2007’. Martin Wolf, ‘Cutting Back Financial Capitalism is America’s Big Test’,
15 April 2009, available from Also see: John Bellamy
Foster and Hannah Holleman, ‘The Financial Power Elite’, Monthly Review,
62(1), 2010 and Kotz, ‘Financial Crisis’.
9 These conclusions are undeniable. For example, ‘[It] is hard to argue that
the new [financial] system has brought exceptional benefits to the economy
generally. Economic growth and productivity in the last 25 years has been
comparable to that of the 1950’s and 60’s, but in the earlier years the prosperity
was more widely shared’. Paul Volcker, ‘Remarks at the Economic Club of
New York’, Transcript available from
10 See Carmen Reinhard and Kenneth Rogoff, This Time is Different, Princeton:
Princeton University Press, 2010; and J. Stiglitz, Freefall: America, Free Markets,
and the Sinking of the World Economy, London: Allen Lane, 2010.
11 For a particularly egregious example, see ‘Moody’s Warns US Over Credit
Rating Fears’, Financial Times, 4 February 2010, p. 17.
12 Needless to say, millions of working- and middle-class households have profited
from financialization and asset inflation by refinancing their mortgages under
more advantageous conditions or purchasing goods and services that would
otherwise have remained beyond their reach. Although no generalisation
across the working class is possible, there is incontrovertible evidence that
large numbers of workers and members of the middle-class (however defined)
have become chronically financially distressed during the last twenty years (see
13 Johnna Montgomerie, ‘The Pursuit of (Past) Happiness? Middle-class
Indebtedness and American Financialisation’, New Political Economy, 14(1),
2009, pp. 16-18.
14 ‘In 2002… [the gross equity extracted from housing in the US] leaped up to
equal about 8 percent of disposable personal income, and from 2004-06 they
were in the range of 9-10 percent of disposable personal income. These huge
extractions from home equity, which would not have been possible in the
absence of the rapid runup in home prices, represented additional spendable
funds beyond households’ disposable income’. Kotz, ‘Financial Crisis’, p. 312.
15 Ibid., p. 310.
16 Stefan Collini, ‘Blahspeak’, London Review of Books, 8 April 2010, p. 31.
17 See, for example, Robert Brenner, ‘Interview on the Current Crisis’, 29
January 2009, available at; and Christian Marazzi, The
Violence of Financial Capitalism, Los Angeles: Semiotext(e), 2010, pp. 34-35.
18 Marazzi, Violence, p. 35.
19 ‘By the summer of 2007 housing prices had risen by 70 percent corrected
for inflation since 1995. At its peak in 2007, the housing bubble created an
estimated $8 trillion in inflated new housing wealth, out of total housing wealth
of $20 trillion, or 40 percent of housing wealth’. Kotz, ‘Financial Crisis’, p.
20 For a review of Alan Greenspan’s ideologically-driven support for the property
boom, see ‘Greenspan’s view’, Le Monde diplomatique - English Edition, January
2009, available from
21 For a detailed study of remunerations in the financial sector, see Lucian
Bebchuk, Alma Cohen and Holger Spamann, ‘The Wages of Failure: Executive
Compensation at Bear Stearns and Lehman 2000-2008’, Working Draft,
22 November 2009, available from
22 For a starry-eyed overview of the ‘Great Moderation’, see Ben Bernanke,
‘Remarks at the meetings of the Eastern Economic Association’, Washington,
20 February 2004, available from For a review
of the US experience, see Leo Panitch and Sam Gindin, ‘Finance and American
Empire’, in Panitch and Konings, eds., American Empire.
23 ‘The proposition that sophisticated modern finance was able to transfer risk to
those best able to manage it has failed. The paradigm is, instead, that risk has
been transferred to those least able to understand it’. Martin Wolf, ‘Seeds of Its
Own Destruction’, 9 March 2009, available from
24 For an engaging account of the transformations of finance during the last two
decades, see Gillian Tett, Fool’s Gold: How Unrestrained Greed Corrupted a Dream,
London: Little, Brown & Co., 2009.
25 ‘Testimony of Dr. Alan Greenspan to the Committee of Government Oversight
and Reform’, 23 October 2008, p. 2.
26 The Economist, ‘Capitalism at Bay’.
27 See Alan Greenspan, ‘Equities Show Us The Way to a Recovery’, Financial
Times, 30 March 2009, p. 13; Gillian Tett, ‘Lost Through Destructive Creation’,
Financial Times, 9 March 2010 and 10 March 2010, available from http://
28 Joseph Stiglitz, ‘The Non-Existent Hand’, London Review of Books, 22 April
2010, pp. 17-18.
29 ‘The current economic upheaval demonstrates that access to credit is no
replacement for real wage growth and adequate social protection. As such,
political interventions to stem the current financial crisis need to address the
chronic liquidity and impending solvency problems faced by the household
sector... [due to] the huge stock of unsecured debt that must be serviced at
the same time as asset prices are falling... Moreover, these households may no
longer be able to continue funding consumption through debt if consumer
credit dries up. What is more, undoubtedly households will be left footing
the bill for the US government’s multiple [bank] bail-out packages... Whether
through increased income taxes or further reductions in government services,
households are expected to face their own adversity while being relied on to
jump-start the economy’. Montgomerie, ‘The Pursuit of (Past) Happiness?’,
pp. 18-19.
30 For the IMF’s current views of the road to recovery, see: Dominique Strauss-
Kahn, ‘World Can Grow Faster With Right Policies’, IMF Survey Magazine:
In the News, 5 June 2010; and John Lipsky, ‘The Road Ahead for Central
Banks: Meeting New Challenges to Financial Stability’, Speech at a High-
Level International Conference on Central Banks and Development of the
World Economy: New Challenges and a Look Ahead, 18 June 2010, both
available from
31 See Tim Leunig, ‘Coordinated Inflation Could Bail Us All Out’, Financial
Times, 16 February 2009, p. 11.
32 See Olivier Blanchard, ‘The Crisis: Basic Mechanisms, and Appropriate
Policies’, IMF Working Paper 09/80, April 2009, and Martin Wolf, ‘Why
Cautious Reform Of Finance Is The Risky Option’, Financial Times, 28 April
2010, p. 13.
33 These threats of mass exit are hollow because the state, in these rival financial
centres, does not have the resources to support and, if necessary, bail out the
relatively aggressive institutions which might want to be based there.
34 See Alfredo Saad-Filho, ‘Monetary Policy in the Neoliberal Transition’, in
Robert Albritton, Bob Jessop and Richard Westra, eds., Political Economy and
Global Capitalism, London: Anthem Press, 2007.
35 See Thomas Palley, ‘Europe’s Debt Crisis and Keynes’ Green Cheese Solution’,
23 May 2010, available from
36 For an overview of left proposals, see Pro-
poor (democratic) economic policy alternatives to neoliberalism are reviewed
in Arthur MacEwan, Neo-liberalism or Democracy?, London: Zed Books, 1999,
and Alfredo Saad-Filho, ‘There is Life beyond the Washington Consensus:
An Introduction to Pro-Poor Macroeconomic Policies’, Review of Political
Economy, 19(4), 2007.
37 See the following defence of the City of London by the director-general of the
Confederation of British Industry (CBI): ‘The City is a vital part of the UK,
not a “bloated excrescence” that unbalances the economy, the CBI director-
general said yesterday… Richard Lambert said the City benefited the nation as
a whole… Mr Lambert said that in a free society “it is not the job of a politician
– or, for that matter, of a regulator – to argue that a particular form of activity
is or is not of social value”’. See: ‘CBI Chief Defends City as Vital to UK’,
Financial Times, 4 September 2009, p. 2.
38 ‘Over the past three quarters, America has seen national income rise by $200bn
but profits have increased by $280bn while wages have fallen by $90bn.
In Britain, where recovery has been slower, national income has grown by
£27bn since the middle of last year; higher profits have accounted for £24bn
of the rise. Wages have risen by £2bn’. See: Larry Elliott, ‘So Much For The
Spring of Discontent’, The Guardian, 29 March 2010, p. 26.
... En otras palabras, delegan la explotación del trabajo asalariado a terceros, pero sin renunciar a la producción de excedentes que serán apropiados en forma de renta. El resultado para la mayoría de los países es igual desde 1980: caída de la participación salarial en la renta nacional (Saad Filho, 2011). ...
... Se llega así al crecimiento permanente de una burbuja, cuyo lastre real es el aumento de los precios de las residencias y por ende de la riqueza inmobiliaria utilizada para movilizar nuevos préstamos (Saad Filho, 2011). De acuerdo con Kotz (2009), Desde 1995 y hasta el verano del 2007, los precios de las viviendas, ajustado por inflación, aumentaron un 70 por ciento. ...
... Como el precio y la riqueza inmobiliaria dependen de que el nivel de consumo de las familias aumente, pasaron gradualmente a ser cuestionados por la larga era neoliberal de estancamiento salarial y recortes en el gasto social, incluida la suba de las tasas de interés (Saad Filho, 2011). Al comenzar los primeros incumplimientos, el efecto contagio se hizo inevitable. ...
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Global Capitalism and American Empire', in Socialist Register
  • Leo See
  • Sam Panitch
  • Gindin
See, for example, Leo Panitch and Sam Gindin, 'Global Capitalism and American Empire', in Socialist Register 2004; Leo Panitch and Martijn Konings, eds., American Empire and the Political Economy of Global Finance, London: Palgrave, 2009; and Chris Rude, 'The Role of Financial Discipline in Imperial Strategy', in Socialist Register 2005.
For a detailed analysis of financialization in the US, see Greta Krippner
For a detailed analysis of financialization in the US, see Greta Krippner, 'The Financialization of the American Economy', Socio-Economic Review, 3(2), 2005.
kr; and Christian Marazzi, The Violence of Financial Capitalism
  • Robert See
  • Brenner
See, for example, Robert Brenner, 'Interview on the Current Crisis', 29 January 2009, available at; and Christian Marazzi, The Violence of Financial Capitalism, Los Angeles: Semiotext(e), 2010, pp. 34-35.
Alan Greenspan to the Committee of Government Oversight and Reform
  • Dr Testimony
Testimony of Dr. Alan Greenspan to the Committee of Government Oversight and Reform', 23 October 2008, p. 2. 26 The Economist, 'Capitalism at Bay'.
Equities Show Us The Way to a Recovery', Financial TimesLost Through Destructive Creation', Financial Times
  • Alan Greenspan
Alan Greenspan, 'Equities Show Us The Way to a Recovery', Financial Times, 30 March 2009, p. 13; Gillian Tett, 'Lost Through Destructive Creation', Financial Times, 9 March 2010 and 10 March 2010, available from http://
The Non-Existent Hand', London Review of Books
  • Joseph Stiglitz
Joseph Stiglitz, 'The Non-Existent Hand', London Review of Books, 22 April 2010, pp. 17-18.