The Financial Times major series of articles grandly entitled “The Future of Capitalism” should at least have a question mark after it, especially as the main contributors are, to say the least, struggling to come to terms with what’s actually happened, let alone what lies ahead.
Whilst the contributors admit that the post-1980s period of neo-liberal, unregulated financial markets is at an end, none can tell us anything about the reciprocal, causal relations between credit and the production of real value, or even between the bursting of the financial balloons and the freefall in global production.
Gillian Tett seems to be uncertain whether the financial system has collapsed or not. First she tells us hopefully, that “the pillars of faith on which this new financial capitalism were built have all but [emphasis added] collapsed”. But later in the piece, things get a lot worse: “Last September,” she says, “the final pillar of faith collapsed.”
According to Tett, two revolutions occurred in the 1970s. Banks abandoned centuries of safe lending practices. They started to sell their credit risk – the risk that the people they’d lent money to wouldn’t repay the loans – to third-party investors in the new capital markets. And they adopted complex computer-based systems for measuring credit risk. As a result everything got too complicated. Nobody could understand what was going on any more.
Why this happened, what started it, what the motive force was that drove the demand for increased credit she can’t and doesn’t say. It doesn’t even arise as a question. But there are plenty of places, human failings, to apportion blame: “Naked greed, lax regulation, excessively loose monetary policy, fraudulent borrowing and managerial failure.”
There’s no hint of a connection between the inner logic of capitalist production for profit that drives growth, pushes regulation aside, creates new forms of credit to finance consumption and production – and breeds the conditions for the crash, its inseparable opposite.
Martin Wolf at least acknowledges the existence of the real economy where goods and services are made by human labour. He even goes so far as to establish a connection between it and the world of finance.
“Today, with a huge global financial crisis and a synchronised slump in economic activity, the world is changing again,” he writes. “Synchronised”? That just means that things are occurring at the same time. “The combination of a financial collapse with a huge recession…will surely change the world.” A “combination”? Yes Martin, but what connects them? How do they affect each other?
Wolf is worried. He doesn’t know what will happen next. “It is impossible at such a turning point to know where we are going.” In support of his campaign for co-ordinated government action to stimulate demand, he asks us to remember what happened in the Great Depression of the 1930s:
“Unemployment rose to one-quarter of the labour force in important countries, including the US. This transformed capitalism and the role of government for half a century, even in the liberal democracies. It led to the collapse of liberal trade, fortified the credibility of socialism and communism …xenophobia and authoritarianism. Frightened people become tribal: dividing lines open within and between societies. In 1930, the Nazis won 18 per cent of the German vote; in 1932, at the height of the Depression, their share had risen to 37 per cent.”
But what about the Second World War, Martin, the destruction of property and lives? For capitalist recovery, the destruction of surplus productive capacity was essential to restarting the business of making profit. For Wolf, the FT’s most prestigious commentator, it never happened.
If we are to prevent a new, unimaginably greater orgy of destruction, unsustainable, broken capitalist society has to be consigned to history. We have to start planning for a world beyond the immediate crisis, one in which there is no “future of capitalism”, where there’s not even a copy of the Financial Times to be had!
Gerry Gold
Economics editor
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