Responding to the economic crisis: A way forward?
by Frank Stilwell
The onset of the current economic crisis in the last year has challenged complacency on many levels. It certainly should have done so. The neoliberal complacency deriving from orthodox economics now looks totally at odds with what needs to be done. Economists, whose theories purport to demonstrate how markets operate efficiently, have to fundamentally reconsider the applicability of their elegant theories in a more muddy world. While capitalist markets have some self-regulating characteristics, the system as a whole is clearly prone to more instability than the high priests of orthodox economics have been willing to concede.
Does the global financial crisis (GFC) change the situation fundamentally? It would be too much to expect neoliberals and orthodox economists to wholly recant their beliefs. There is certainly no reason to assume that more progressive economic views will automatically prevail. For people attracted to socialist principles this constitutes a particularly big challenge.
An alternative approach is clearly needed. This is reflected in the return to fashion of Keynesian economic ideas and policies. Keynesianism puts the spotlight on the role of government in regulating and stabilising national economies. Household ‘stimulus’ packages and longer-term infrastructure investments are the new orthodoxy in the context of the GFC. The global character of the crisis also has brought national governments together, through bodies such as the G20, to consider how best to coordinate those Keynesian policy responses. Political leaders such as Kevin Rudd have come out critically against neoliberalism, calling for a revival of social democratic politics to temper the excesses of ‘extreme capitalism’.
How much has fundamentally changed? A thoroughgoing economic transformation would require deep analysis of the nature of the problems and the widespread acceptance of a different political economic ideology, as well as policy changes. There are substantial reasons to doubt that the current responses are sufficiently deep-seated in these respects.
Analyses of the causes of the crisis have been many and varied. Here in Australia, Steve Keen has commanded much media attention for his emphasis on unsustainable household debt. Writing in the Journal of Australian Political Economy, Bill Lucarelli has also emphasised the problems arising from trade and investment imbalanced between the USA and People’s Republic of China. Other contributions suggest deep-seated structural problems, rather than merely the excesses of ‘irrational, exuberance’ of speculators in financial markets.
Is there something in the capitalist system itself that predisposes it towards instability and recession? Marxist political economists have consistently argued that there is. Attention shifts to the tendencies for over-production and a falling rate of profit in an economy without planning of the balance between production and consumption. Some political economists influenced by Marxian analysis have emphasised that the processes of financialisation in recent decades have compounded the tendency to economic instability. The pursuit of profit has gone hand-in-hand with changing patterns of investment focusing on wealth capture and redistribution to the rich rather than wealth creation for the society as a whole.
So what is to be done? Practical redress of the problems would involve a comprehensive program of radical reforms, both nationally and internationally. Tackling the sort of problems in this anatomy of economic crises would require creating a more equitable distribution of income, redirecting investment from speculative to productive purposes, and making banks serve broader economic and social interests.
This is a context in which socialist ideas have relevance. Socialism has always been about societal concerns that need to be addresses through collective action. The main concerns are with security, equality and the rational use of economic resources to meet social needs. Democratising the whole economy and society - rather than just having periodic elections for politicians – is a key principle for modern socialists. Capitalism has demonstrably failed to satisfy these concerns.
Neoliberalism, both as an ideology and a political practice, has taken us in the opposite direction. It has been underpinned by the orthodox neoclassical theory that dominates the curriculum in university economics departments. Neoclassical economics, though the dominant academic economic orthodoxy, has been recurrently contested by the dissident political economy movement. Centred in Australia at the University of Sydney, this has sought to establish an alternative understanding of the capitalist economy, drawing on Keynesian, post-Keynesian, Marxism, institutional and feminist currents of thought. Elsewhere there have been other challenges, usually with less success, in establishing an ongoing institutional presence for teaching and research of more critical and radical political economic views.
The practical challenge of wresting power over the economy out of the hands of neoliberal proponents is a yet bigger undertaking, of course. It requires confronting economic interests as well as economic ideas. Neoliberalism has been backed by an array of corporations, funding think-tanks that have disseminated ideologies about ‘free markets’. The changed material economic conditions make for more discomfort in such circles. However, they do not necessarily undermine these arrangements whereby existing economic interests provide themselves with self-serving legitimacy.
If there is to be a substantial change of political economic direction, one of the prerequisites is a clear vision of what can replace neoliberal ideologies and policy practices. The resurgence of Keynesian economics is helpful, not just in short-term economic management through stimulus packages but also in emphasising the central role of government in steering of long-term economic development. It opens up the possibility of a reemphasis on the ‘nation building’ comparable to that which existed after the Second World War. As US political economist Bill Lazonick has argued, successful economic outcomes usually depend more on building appropriate institutions than on market forces.
The government’s commitment to a major infrastructure building program may be interpreted in this context as a positive feature, although it leaves open questions about coordination and direction. Who should take the decisions about which infrastructure projects to prioritise? How should they be coordinated to produce new patterns of urban and regional development, transportation, energy use and sustainable development? These are key issues that the resurgence of Keynesianism helps to put on the policy agenda.
However, the Keynesian approach is only a first step in developing political economic alternatives. Marxian ideas, though out of favour in recent decades, warrant reconsideration in this context. Quite properly, they emphasise that it is the profit system, class inequality and the contradictory character of capital accumulation that are the fundamental problems. It would be difficult to envisage even a committed social democratic government working off such a song sheet. Yet unless these concerns are redressed, it is only a matter of time before structural contradictions create renewed economic crises.
The ecological dimension of the crisis also needs to be integral to a coherent political economic response. It is no good simply pumping up the economy through job-creation programs without addressing the need for restructuring the economy on more sustainable principles. An emphasis on creating ‘green jobs’ can provide a way out of this dilemma. Given sufficient government backing, it would be possible to marry job creation with economic restructuring for this purpose. The ‘Green Gold Rush’ report produced by the ACTU in conjunction with the Australian Conservation Foundation indicates an array of industries in which more than half a million new jobs could be created over the next two decades: renewable energy, energy efficiency, sustainable water systems, biomaterials, green buildings and waste recycling. Other fields needing attention include transportation – challenging and seeking to reverse the unsustainable use of private cars.
In addition to the ecological challenge, we also need to consider other more general concerns about the relationship between economy and society. The critique of economic growth as conventionally understood is relevant in this context. Is it useful to pump up the economic system again if what is being produced does not give us more fulfilled lives? There is a rapidly growing literature in the field of happiness research which suggests that consumerism is not producing more contented societies. The vast increases in material production in recent decades have led to no corresponding increases in well-being, as subjectively reported. True, rising incomes do make poor people happier, but beyond a certain point, the correlation falls away almost completely. Does the emergence from the current economic crisis simultaneously provide an opportunity to address this problem too?
Redressing economic inequalities would be an appropriate starting point. The happiness research literature reveals significant connections between inequality and discontent. Not surprisingly, people tend to be more dissatisfied in social contexts where others have higher material living standards, notwithstanding the adequacy of their own situation. Moreover, there is now substantial evidence of cross-country comparisons showing that inequality and poor health standards are closely linked.
This reasoning and evidence suggests the need for new policy priorities, focusing on the redistribution of income and wealth and the restructuring of industries, energy and transport to achieve sustainability. These are elements in a modern, practical socialist agenda. The key question is the capacity of our political institutions to embrace that reorientation. The economic crisis of the 1970s saw the ascendancy of neoliberalism. Now a new transformation of political economic ideology and policy practice beckons. It won’t be handed to the Australian people by the Rudd government: I has to be won by both ideological and practical struggles.
Source: Australian Options, Issue 58, Spring 2009, pp. 13-15.