The disquieting implications of Margaret Thatcher's distinctly ropey economic performance

Margaret Thatcher, said former trade minister David (Lord) Young, reversed a sixty year decline in the British economy. She bequeathed a “generation of growth” gushed the Confederation of British Industry. She “breathed life into free enterprise,” evinced the former boss of British Petroleum.

But for her, Britain, culturally and economically, would resemble Bucharest circa 1978, minus the exciting nightlife.

So goes the official interpretation of Margaret Thatcher. But reality, says the Left, paints a profoundly different picture. Economic growth was actually no better in the 1980s than the benighted 1970s – both record an unremarkable average of 2.2%.

Between 1990 and 2009, after Margaret Thatcher was deposed, but when her economic tenets were unquestionable, Britain had a growth rate of 1.7%. And that is obviously before the current stagnation.

Far from releasing the forces of enterprise, Margaret Thatcher released the forces of inertia.

Zzzzz

It might seem, on the surface, that this battle of GDP figures is about as fascinating as algebra. But it has significant implications. For if, say the Keynesians, the economic boasts of conservatives are hollow, then a kind of ‘Back to the Future’ logic is validated. The post-war era, with its strong trade unions, state ownership, much greater equality and regulation, suddenly appears, not only more appealing socially, but more economically persuasive as well.

But there is a fly in the Keynesian soup. Scroll down one Red Pepper Thatcher article and you’ll find a comment by “Geroge”, an unabashed (and hurried) fan of the blessed Margaret. But he makes an interesting point. You would expect, he says, growth figures in the 1950s, coming just after the huge destruction of World War Two, to be high. Emergent war economies have high growth. Thatcher’s performance three decades later, although comparatively rather shoddy, was not half bad in the circumstances.

All of Europe experienced an economic boom in the post-war decades. It was in the post-war years, writes Thomas Frank in Pity the Billionaire, that France, Italy, Belgium and Sweden, “embarked on their greatest boom periods in modern times”. You could add West Germany, Spain, Austria and, to some extent, Britain, to that list. This, despite frequent corruption and political favouritism; malaises the Right now dubs “crony capitalism”. These apparent impediments to growth made no discernable difference.

Outside Europe, the US, though physically virtually untouched by war, received a massive economic shot in the arm by other countries’ need to recover.

If that boom period was, in large measure, a result of post-war reconstruction, the implications are damning to both Keynesians and austerians/conservatives. The left-wing but anti-Keynesian economist Harry Shutt has argued that the much vaunted three decade long, post-World War Two boom, was due as much to pent up demand after the Great Depression and total war, as it was to wise economic policies.

Revolutionary Road

Seen in historical perspective, the 1950s and 1960s were the only time that capitalism worked for everyone. Growth was high, living standards rose and full employment was a reality. Unemployment in Britain, between 1950 and 1973, stood at an average 1.6%.

The disquieting insight is this – that the good times were dependent on the bad times that preceded them. The growth and economic contentment of the 1950s and ‘60s were a direct result of both the economic devastation of the Great Depression and the physical, near-apocalyptic destruction, of World War Two

In other words, capitalism is a system that relies on periodic bouts of mass destruction to prosper. If the prior destruction doesn’t happen, capitalism eventually stagnates.

Hence Thatcherism, which regards itself as the apogee of economic dynamism, turned out to be such a busted flush economically.

As Shutt has pointed out, government policies in Europe since the Second World War have been about preventing mass destruction from happening again – either economically through the business cycle, or physically, through war. Private businesses have been propped up and bailed-out, stock markets manipulated and consumers artificially created through the spreading of mass debt.

Bluntly put, because nobody, for obvious reasons, wants the initial orgy of destruction to happen, we can’t have the benefits of ensuing healthy economic growth and abundant jobs. So we have had fake, as opposed to organic, growth. And now the mask has slipped.

Thus we are locked into a cycle of diminishing returns, no matter what economic strategy, under capitalism, is pursued.

Don’t mistake this analysis as some kind of right-wing mea culpa. It matters a lot that the austerians are stopped in inflicting any more unnecessary suffering on people who had no part in causing the economic crisis. It matters a lot that the work capability scandal in Britain is exposed and stopped. It matters a lot that the sadistic economy-destroying, life-shredding experiment in Greece, Spain and Portugal, is ended.

But the obverse argument of many opponents of austerity (let’s call them Left Keynesians for short) that increased government spending will lead, in time, to the sunlit economic uplands, needs to be seen through. Because, frankly, it won’t. You can reverse austerity, you can re-balance the economy in favour of manufacturing, you can, theoretically, have a new ‘contract with labour’, as Stewart Lansley wants. And you won’t restore growth to anything like the levels of the mid-twentieth century.

I’ve seen the future and it doesn’t work

A week or so ago the Guardian ran an interesting article by the chief economist for HSBC. Once you have stopped laughing after reading someone working for HSBC telling you to “live within your means,” the article is worth pursuing. The author argues that neither Keynesianism nor austerity work as economic salvations and we had better get used to a low growth world.

The conclusion though, coming from someone who wants to preserve the current economic order, is necessarily weird. “Living within our means is hardly easy but the alternative is worse: false hope leads ultimately to financial crisis, political upheaval and social turmoil”.

Financial crisis, political upheaval and social turmoil are precisely what will happen. It is not the result of a choice. Capitalism does not do low growth well. Japan, which entered economic stagnation two decades before the US and Europe, illustrates the point. The country has suffered from dramatically declining living standards and a labour market barred to women and young people. Carbon emissions, meanwhile, which you might expect to fall in a low growth environment, have actually increased. 

Conscious de-growth is one thing, but capitalism and low growth is a poisonous cocktail.

The revelation that the conviction that high government debt kills off economic growth was actually based on a spreadsheet error, has convinced many that the Keynesian moment has come again. Actually, the post-capitalist moment has come, though few seem to have noticed.

For if capitalism no longer delivers the goods, and doesn’t do so on a long-term basis, the game is most definitely on again.

PS The second part of ‘In Praise of Idleness’  will appear shortly, hopefully

Can a stimulus from below work? Do we need social, not quantitative, easing?

According to reports, the Bank of England may sanction a new £25 billion bout of quantitative easing (QE) this week. QE is the automatic swelling of the balance sheets of banks, pension funds and insurance companies in the hopes that this money creation will be passed onto the rest of the economy. It is colloquially known as “pumping money into the economy”. But it seems to inhabit a strange circular logic all its own – the fact that it never seems to work only justifies trying ever more of it.

QE, which has amounted to £375 billion in Britain and $2.5 trillion in the US, is part of what can be called a stimulus from above. As with the initial bail-out (£1.5 trillion in the UK, $7.7 trillion in the US), the beneficiaries are the richest and most powerful elements in society. As the Bank of England itself admits, QE primarily benefits the richest 5% in Britain. And despite being advertised as ‘pumping money into the economy’, what’s distinctive about QE is that it’s a stimulus that’s not actually a stimulus. Billions and trillions of public money is spent and created with the result that the economy just flat-lines.

If this is a stimulus, it’s one that has been thoroughly decaffeinated. Three cups before bed and you sleep like a log.

In shadow of a looming triple dip recession in Britain, a credit down grade, and US growth turning negative, do we not need a new kind of stimulus, a stimulus from below? A social, not quantitative, easing.

I’m not talking about traditional Keynesian infrastructure projects, like building more roads or airports. The kind that Boris Johnson likes. I’m talking about a stimulus that financially benefits the middle and bottom of the social pyramid, as opposed to the top, and eases their plight.

When the levy takes

In January, the economist Stewart Lansley advocated an emergency revival levy on cash-rich corporations. A £10 billion one-off tax on corporations, he argued, would pay for a direct, no-strings redistribution of £2,000 to those on the lowest wages – people in receipt of tax credits. 5 million people would be better off as a result of this stimulus from below.

“This level of demand injection would help break the current economic deadlock,” he wrote. “By converting idle money into real spending, the dole queues would shorten, the public sector deficit would fall and the incentive to invest would actually rise.”

To Lansley’s demand bolstering plan, one might add a large increase in the minimum wage. Not only would the purchasing power of millions get an instant shot in the arm, but there would be ripple effect of wage increases for people on more than the minimum wage in order to maintain pay differentials.

The first obstacle, quite apart from its feasibility, is that current politics is incapable of appraising a stimulus from below on its merits. It just can’t happen, regardless of the likely effects. I believe one of the underlying reasons behind the Tories’ obsession with punishing benefit claimants, beside the fact that it plays well with their supporters, is that it lays the ideological groundwork for dismissing a stimulus from below out of hand. Giving away £71 a week in Jobseekers Allowance is bad enough, giving away £2,000 in free money to 5 million tax credit recipients would cause multiple cardiac arrests down at the local Tory club. (Giving away hundreds of billions in free money to banks and corporations and requiring benefit claimants to work for free is perfectly acceptable, however)

But let’s consider the broader question – would a stimulus from below actually work? It certainly has a degree of heft compared to the fly-away ideas of predistribution or, as the TUC so persuasively puts it, “encouraging companies to raise average pay”.

Keynesian Viagra

But its drawback, and the drawback of all Keynesian solutions in the face of the current Great Recession, is that it’s temporary. As one (maverick) Labour thinker, Maurice Glasman, put it last summer, a Keynesian stimulus is “the economic equivalent of Viagra, so to speak: what happens when the external stimulus wears off?”

Keynes spoke of the importance of effective demand. In times of recession, he famously advocated paying people to dig ditches and fill them in again – because that would get money in circulation and the economy  moving again. But the problem now is that the Keynesian demand war-horse is too damaged for one-off stimulants to work. “That's the real crisis in the neoliberal west: a crisis of consumption,” said Guardian columnist Deborah Orr in February. “Too many people are not rich enough for capitalism to function properly.” 

If many millions of relatively poor people in Britain received a £2,000 windfall, they would either spend it, as per the plan, or use to pay off debts. And then what? If this is a genuine stimulus, unlike QE, if it really ‘pumps money into the economy’ then the result could easily be inflation because more money is actually put into circulation and thus the initial wealth redistributing effects are negated. And unless you make a permanent, not ephemeral, change in how rich people are, you soon land on a snake and are back to square one. To extend Glasman’s metaphor, a capitalism on Viagra is not good enough. You need, let’s say, capitalism with a more durable potency.

The problem with a stimulus below is that to really stimulate demand you need to address how labour is rewarded. And to do that, you need a radically different form of enterprise organisation. As the mindset of current politics is a million miles from that kind of solution to flagging demand, you have stagnation and paralysis and a frustration that can never find satisfaction.

Then you come up against corporate debt. The UK has, after Japan, the highest ratio of debt to GDP, of any major economy. In October last year, Bank of England governor Mervyn King said the economy wouldn’t recover until banks owned up to yet more bad debt and were recapitalized – presumably through more gifts of taxpayer money. A stimulus from below, though it may lessen personal indebtedness to an extent, wouldn’t touch this problem.

There is no emergency

But the clincher that dooms a stimulus from below is that, to the top echelons of this society, the richest 5% and, the habitués of corporate board-rooms, there is no economic emergency. There was in 2007 and 2008, but since then QE has helped build up bank balance sheets and bolstered share values. We’ve had low or negative growth for five years and the roof hasn’t fallen in. There is growing recognition that zero growth could become the new normal.  High unemployment and under-employment means most people are just grateful to keep and get work. It may be true that “life is simply becoming unaffordable and unbearably insecure, and an economic slump that shows no sign of ending is making things immeasurably worse”. But if the result is piles of votes for UKIP, there is no problem and no emergency for the rulers of this society. And if there is no real emergency, you don’t need a real stimulus.

Wealth creation for dummies. A review of 'After Capitalism' by David Schweickart. Part One

What exactly is capitalism? That might appear a strange question to ask, fifty-plus posts into a blog about, erm, capitalism. But if you’ll forgive the tardiness, this is an inquiry that needs to be pressed.

While capitalism is a noun that attracts adjectives in abundance (crony capitalism, free-market capitalism, and now the oxymoronic humane capitalism), the noun itself remains largely uninterrogated, an unexamined presence. Everyone is supposed to understand what capitalism is – it’s all around them after all – but it’s remarkable that something so taken for granted is seldom defined. I’m convinced that many people who define themselves as anti-capitalist have only an intuitive sense of what they are against.

Perhaps you can be too close up to something to fully grasp it. Maybe you don’t really know the people you’re closest to.

David Schweickart is an American mathematician and philosopher who published a book in 2002 called After Capitalism. Aside from elucidating an alternative to capitalism, he attempted to define it and describe its consequences. After Capitalism isn’t a howl of outrage against “the system” but a rational effort to go beyond TINA (‘there is no alternative’)

Reviewing Schweickart’s book is therefore a good way to look at capitalism in the cold light of day: To examine what it is (which may be very different from how it is commonly perceived) to look at its faults, to say what’s good about it and what the alternatives to it are. There is, I believe, an unconscious and very prevalent fear, that interfering too deeply in the workings of the mysterious capitalist machine will lead either to the government controlling everything, with lethal consequences for freedom, or, alternatively, plunge us into a technological dark age and anarchistic chaos. Refusing to be awed or intimidated by what is, after all, an economic system that humanity has rejected for the vast majority of its history is a path to confronting those fears. The review will be in three parts.

Here is Schweickart speaking (with others):

Say cheese! The C-word in focus

Schweickart gives a three part definition of capitalism. Firstly, he says, the bulk of the means of production (offices, factories that produce goods and services) must be privately owned, either by corporations or individuals. This was traditionally called by the Left ‘private property’ which is unfortunate, Schweickart says, because it implies that homes, cars and toothbrushes will all be confiscated and “communalised” in any revolutionary change (think of John Lennon’s Imagine). These things were, to someone like Karl Marx, not ‘private property’ but ‘personal property’ and would not be seized by anyone.

Secondly, products are exchanged in a market. “Individual enterprises compete with one another in providing goods and services to consumers, each enterprise trying to make a profit,” says Schweickart. “This competition is the primary determinant of prices.” The state owning all enterprises and deciding that to produce by means of a plan, as in the old Soviet Union, is not capitalism. Neither is it capitalism when the local community owns most of the economy, as with social ecology.

But, says Schweickart, it is an “ideological distortion” to use “market economy” as a synonym for capitalism. They are not the same thing. Enterprises within a market economy can be organised differently. They can be controlled by their workforce. This is significant because, when it comes to imagining a “post-capitalist economy”, Schweickart says it will be populated by worker-controlled firms operating in a “decentralized market economy,” a system he calls “economic democracy”. This is contentious on several levels and I will critically examine Schweickart’s proposals in Part Three.

Lastly, he says, capitalism, to be capitalism, has to be based on wage labour. This means that most people, of working age, have to rent themselves out to others, who own the “means of production”, in order to gain the resources to survive and consume. “It is a crucial characteristic of the institution of wage labour that the goods or services produced do not belong to the workers who produce them,” says Schweickart, “but to those who supply the workers with the means of production.”

It is this reliance on wage labour, says Schweickart, that gives capitalism its susceptibility to crisis, its downturns and booms. Economic health, under capitalism, is based on what Keynes called “effective demand”: the purchasing power of the millions of wage labourers. But this demand is formed from wages or salaries, the consequence of what is negotiated from employers for whom wages are just another cost. If that happens, private investors can lose confidence and companies do not spend the profits they have amassed.

This, says Schweikart, is one of the “central contradictions” of capitalism. An in-built conflict, you might say. “Wages are both a cost of production and an essential source of effective demand,” says. “Capitalist firms are always interested in cutting costs, expanding markets and developing new products. But to the extent that the first of these goals, namely cost cutting, grows in importance relative to the other two, effective consumer demand will tend to be depressed – and hence also those “animal spirits” of investors. This can mean a stagnating economy and rising unemployment, perhaps on a global scale.”

So, if most assets are privately owned, economic exchange takes place in a market, and most people are wage labourers, a society is capitalist.

But, within these parameters there are different kinds of capitalism. The twentieth century had quite a varied palette of capitalisms. Post-war Japan and later, South Korea, were examples of one version where the state directed investment to certain favoured parts of the economy and had a bias towards exports (a type of capitalism the economist Ha-Joon Chang is enamoured by). After the Second World War, Western Europe and the US had for many years a form of managed capitalism, based on collective bargaining and the state ownership of some parts of the economy. West Germany went in less for state ownership and instead practiced ‘co-determination’ – workers were elected to company boards. After 1980, this changed, especially in the US and Britain, in that trade unions were “zapped” and much of what the state did was privatised.

This has morphed into a strange economic constellation where the rich and corporations are subsidised by the taxpayer while the rest of the population is subject to the discipline of free enterprise.

Perhaps this is just an extreme manifestation of a state of affairs that was there all along. “I watched with incredulity as businessmen ran to the government in every crisis, whining for handouts or protection from the very competition that has made this system productive,” wrote one William Sutton, Treasury secretary under US President Richard Nixon in the 1970s.

The point is that real-world capitalism can, and invariably does, radically depart from the textbook “free market” model, but it’s still capitalism.

Love me, I’m a wealth creator

We can see from this definition there is one conspicuous absentee – the “entrepreneur”. In conventional justifications of capitalism, the entrepreneur looms very large indeed, especially during economically tough times. In fact, in conventional explanations, the entrepreneur is capitalism. In the UK, Conservative business minister, Michael Fallon, says we should salute entrepreneurs as “Olympic Champions” who deserve adulation for creating wealth and jobs.

But conservatives are not alone in celebrating the entrepreneur. The left-wing economist Stewart Lansley, author of The Cost of Inequality, differentiates between the deserving and undeserving rich. One of his favourite examples is the industrial designer, James Dyson, who merits his wealth, says Lansley, in contrast to someone like Philip Green who makes money from taking over existing businesses. Dyson creates wealth, says Lansley, but Green merely transfers it to himself.

But Schweickart says both these understandings are ideological distortions. He does not deny that entrepreneurs exist or they merit a reward for their contribution, although frequently they merely copy what has gone before (new coffee shop anyone?) Any society needs people who invent new products or technologies. But what Schweickart does deny is that entrepreneurs are capitalists.

From Marx, Schweickart gets the insight that all wealth derives from labour. “As any economist will confirm,” he says, “unless labour costs are less than the value added by labour, there will be no profit.” So entrepreneurs create something and ethically are entitled to a reward. Workers literally produce goods and services. Managers supervise production. They all contribute something.

But what do capitalists do? The answer, says Schweickart, is very little. They have an entirely passive role. They watch their wealth compound by virtue of the fact that they have quite a lot in the first place. “In a capitalist society, enormous sums are paid to people who do not engage in any entrepreneurial activity or take any significant risk with their capital,” he writes.

As an example consider the National Express Group, which operates buses and trains in the UK. The major shareholders in, and therefore owners of, National Express are the Cosmen family, a Spanish family who “first entered the transport industry, in a horse-and-carriage operation, in 1728”, a hedge fund called Elliot Partners who very persistently pursue very high returns for the immensely rich people who invest in the hedge fund and an investment company called M&G. None of these investors are entrepreneurs.

We are now in the ideological belly of the beast. An entire economic system is justified by virtue of its vital role in creating wealth when it is primarily about the receiving of wealth by a small minority that other people create.

To be a capitalist, says Schweickart, you must own enough productive assets to be able to live comfortably on the income they generate. In the US, he says, and he wrote this in 2002, this comprises about one per cent of the population. Sound familiar?

The investment game

So why does putting money in the capitalist investment game, in normal times, yield results? Why do stock markets, bond markets, investment banks and currency markets produce positive returns? Most pensions are invested on the stock market and charitable foundations derive their income for grants from endowments in shares. “One gets something for nothing because someone else gets nothing for something,” explains Schweickart. “Investment income, the reward to those who have “risked” their money by channeling into financial institutions … is possible only because those who produce the goods and services of society are paid less than their productive contribution. If capitalist distribution were really in accord with the principle of contribution (as is often claimed), the investor would get nothing.”

Two things follow from this. One is that share dividends are, in Schweickart’s words, “a tax on enterprise” and should be abolished and replaced with a capital assets tax. The second is that the real problem is not the stupendous consumption of the very rich but what they do with the money they don’t consume, the money they invest. Control of investment should pass from the capitalist class to society as a whole. He calls it “social control of investment”. I will look at this in detail in part 3.

In the next part, I will examine Schweickart’s take on how far the problems of society, such as environmental degradation, a hollow democracy and poverty, can be laid at capitalism’s door. But I also want to look at the appeal of capitalism and why people are so scared of moving beyond it.

“Most workers, especially those in rich countries, have far more to lose now than just their chains.”

Just what kind of fix are we in? Two English economists on our economic paralysis

“The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear.” The words of the Italian Marxist Antonio Gramsci, written in the late 1920s, seem acutely relevant to our own time.

You would have to be basically insentient not to appreciate that there is something deeply awry with our economy. The description “financial crisis” is patently inadequate. We are in an economic crisis, whose roots stretch back decades.

But there is something immobile about our economic situation. Economic growth has flatlined and, in response, politics becomes incrementally nastier and more desperate. Change threatens - Syriza almost gets elected in Greece and the Socialist party in Holland - but it ultimately doesn’t break through the prevailing stasis.

Two English economists, Stewart Lansley and Harry Shutt, have characterised our situation as “economic paralysis”. Capitalism refuses to be restored to health, but there is not an alternative economic model that commands widespread allegiance or even understanding. The old is dying but the new cannot be born.

Both Lansley and Shutt say blaming reckless banks is inadequate. They may have provided the final spark, says Lansley, but the slow-burning fuse had been laid years earlier. Shutt says discussion of the crisis has been uniformly superficial and evades questioning how the economy became so dysfunctional.

Both claim that without sweeping transformation, we are doomed to repeat the past. Lansley says the economy is being steered towards another wave of destructive speculation. Shutt predicts an inevitable fresh financial crisis.

But, crucially, and despite definite similarities, Lansley and Shutt are advocating very different things. Lansley, who is closely associated with the Trades Union Congress in Britain, wants a new model of capitalism. Shutt, far more of a radical, believes capitalism itself is outmoded and to attempt to prolong its existence will irreparably damage society.

Stewart Lansley and the Cost of Inequality

Lansley’s fundamental idea is that the huge economic inequalities that have built up over the last 30 years - in FTSE 100 companies, the pay of the lowest earners is now one-third of one percent that of the highest – are lethal to capitalist economic health.

As with Richard Wolff in the US, Lansley describes this as a dual process. There is too much money at the top of society as well too little in society at large. The share of GDP going to wages in Britain has fallen just as the share going to profits has risen. Demand – essential for a healthy capitalist economy – would have collapsed long ago were it not for an exponential increase in consumer debt. This has been dubbed “privatised Keynesianism”.

Consumer debt is a relatively new phenomenon. Before the 1980s, when wages kept up with productivity, widespread consumer debt was not needed.

But while demand has stalled, this process of inequality has the opposite effect at the top of society. There incomes have risen spectacularly. The number of millionaires in Britain increased eight times in the decade to 2006.

The interest from consumer debt adds to the glut of money. “The squeeze on wages, rising profitability, and soaring personal fortunes all meant the accumulation of big corporate and private cash reserves across the globe,” says Lansley. This money is employed to transfer existing wealth rather than create new wealth. Companies merge or are taken over, firms are bought out by private equity groups and loaded with debt, often destroying them at the same time as makng more money for their buyers. This is exactly how Mitt Romney made his fortune.

This “money economy” says Lansley is dominant, while the productive economy is starved of investment, partly because there is not enough demand to make high returns from “organic growth”.

“The result of this imbalance is economic paralysis,” says Lansley “While the workforce is denied spending power, the leaders of corporate Britain are allowing near record surpluses to stand mostly idle.” We wait for a probable new financial crisis, while the economy cannot throw off recession.

Harry Shutt and the growth delusion

Shutt too, has described our predicament as “economic paralysis”. Like Lansley, he says there is a “wall of money” at the top of society perpetually seeking new ways to make more money. This is manifested in the growth of private equity, mergers and acquisitions of companies, and speculation in property or “commodities” like food (speculation means buying assets in the hope their market value goes up and they can be sold for a profit).

This is what the author John Lancaster has dubbed “fake growth”. It is not investment in new products or innovations (organic growth) but the buying of assets in the expectation that their value will rise. Or what Lansley calls the transfer of existing wealth, not the creation of new wealth.

But at this point Shutt and Lansley diverge. Shutt does not locate this paralysis in the growth of inequality but in a long-term decline (since the 1980s) in the demand for capital investment. This sounds a forbidding and technical term so what does it mean?

Services are replacing manufacturing and they require less capital investment than the machines of the traditional factory. In areas like online newspapers, recorded music, telecommunications, and movies, traditional corporations are finding it harder and harder to stay in business, especially as the rate of return demanded by investors has been pushed higher.

Rapid technical advance means that it is increasingly seen as too risky to invest a lot of money in new technologies, which can quickly become outdated, while new start-up companies can be created with little capital investment, using the internet for example.

The result of these processes is to drive investment into financial speculation rather than “organic growth”. Property (sub-prime mortgages and asset-backed securities), mergers and acquisitions and public services (in the latter case high returns are guaranteed by the state), are all destinations for this investment.

Lansley blames the dominance of the money economy, its “supranormal” profits, on the “perverse incentives” of personal enrichment, which neglect the needs of the wider economy. Shutt, by contrast, believes the triumph of finance is simply a result of a rational calculation of where the highest financial returns can be made. If that is true, investment cannot be diverted to more beneficial and less lucrative opportunities, merely by exhortation. But speculation also does not lead, Shutt believes, to enduring and sustainable rates of economic growth.

Future upswings in the economy will, of necessity, be brief and will primarily be based on speculation. “There is not only no chance of reviving growth for the immediate future but very little prospect of ever returning to the relatively high growth rates of the past on a sustained basis,” he says.

Lansley, by contrast, is convinced growth can be revived if the imbalance between profit and wages is redressed, and workers receive a fairer share of soaring profit in wages.

Economic growth and its evasiveness continue to dominate political debate. Jobs and growth are at forefront of the American Presidential election campaign. The right-wing, in a kind of hair of the dog that bit you approach, claims growth can be achieved through tax cuts, deregulation and people working harder. A morbid symptom if ever there was one. Back on Planet Earth, the left of centre, wants to reign in finance, restore the bargaining power of labour and encourage manufacturing.

But what if neither approach will work? What happens if growth refuses to return to the black? What are the political consequences of an entire political culture failing to achieve its objective but refusing to see that the objective may be impossible?

The old may be dying but the new is barely visible on the horizon.

I’m a sharing kinda person and everything’s still f****** up. Or how I learned to start worrying and blame capitalism instead of greed

Review of Capitalist Hits the Fan: The Global Economic Meltdown and What to Do About it

By Richard Wolff

There is a word that recurs repeatedly throughout this collection of 60 or so essays by the American economist Richard Wolff:systemic. Wolff is a Marxist economist and the Monthly Review on whose website the essays first appeared, is a Marxist journal (founded in 1949 with help from Albert Einstein). Systemic, you might say, is a typical Marxist word.

But the book is not a journey into impenetrable forest of Marx-speak. Wolff’s language belies his background both as a Marxist and an economist. The book is lucid, readable and jargon-free.

Here is Wolff speaking:

Systemic sounds forbidding but its meaning is not complicated. It means that the economic crisis we are in the middle of, that began in the US but spread throughout the world, is not the result of human weakness. But of people rationally pursuing the aims of the organisations they work for.

You can discard greed, gullibility, recklessness and raging testosterone. What you can’t discard is capitalism.

As Wolff says, the Right and the Centre in politics will blame human weakness because they cannot blame the economic system. If they did, they would cease to be right-wing or centrist. Their explanation is pre-determined by what they believe. You can’t blame something you want to preserve.

 The unique contribution of the Left could and should be to insist on systemic explanations and solutions. The Left could not and should not be hamstrung in its thinking by any commitment to preserve the economic system

 But blaming human weakness is like a magnet to which everyone is drawn. Even a critical group outside the UK political consensus, like UK Uncut, will attribute our plight to “reckless banks”.

This, to Wolff, is finger pointing. Because capitalism is not just big banks, or big business but a “system that ties together all streets, businesses, workers, householders and the government”.

The economic crisis is merely the symptom. The disease is capitalism.

Wolff’s explanation starts from the class conflict inevitable in capitalism. You don’t have to believe in this class conflict for it to exist. Employers, naturally, want to keep wages down as they do every type of cost. Employees, equally naturally, want wages and other benefits, to rise. That’s a conflict.

In the US this conflict has erupted sometimes into open struggle but a lid was kept on it by the fact that wage keeping rising for 150 years. However, after the mid-1970s, wages stopped rising. This momentous fact, says Wolff, is rarely appreciated.

The statistics are startling. From 1947 to 1972, average US wages rose by 75 per cent. After 1975 they stopped rising, actually dropping by 6.5 per cent if a shorter working week is taken into account. The average US consumer could buy less with their wages in 2005 than they could 40 years before.

While wages stopped rising, productivity – output per worker – went speeding on ahead.  It rose by 75 per cent between 1973 and 2005. US employers got 75 per cent more goods and services per worker, while the wage bill hardly rose at all.

Oscar Wilde said that the only thing worse than not getting what you want, is getting it.

Well, US employers got what they wanted, soaring profits. But there lies the roots of the current economic crisis.

US workers responded to the abrupt ceasing of rising wages but borrowing at a rate unprecedented in history. They ran up enormous credit cards bills and mortgages, often selling part of their houses back to lenders, to live on the proceeds, so-called reverse mortgages.

This process was positively encouraged by the US government, which cut interest rates to below inflation for three years after 2000, in order to avert a recession.

The soaring profits made by corporations were partly deposited in banks, which make money from loaning out their deposits. The banks, also profit-making corporations operating in a competitive market, invented new financial instruments to profit from these surpluses.

For the banks, profits were the carrot and markets, other competing banks, were the stick.

In this way, workers were squeezed twice. Once as their wages stagnated as productivity rose, and then by the interest on the loans that enabled their consumption.

Mortgage-backed securities, collaterized debt obligations (comprising mortgage, credit card, corporate, and student-loan debt) and credit default swaps were created. All kinds of organisations – including governments and charities – invested in these securities on the stock market because they offered high returns but were thought to be low risk.

“The financial profits depended on the rising surpluses that depended on the stagnant wages,” says Wolff. “Financial profits also depended on the flip side of stagnant wages, namely massive worker borrowing. Because rising consumption had become the measure of personal success in life, wage stagnation since the 1970s rendered most US workers extraordinarily vulnerable to new consumer credit offers. Enter the banks relentlessly pushing credit cards, home equity loans, student loans and so on. Workers undertook a record-breaking debt binge.”

Rising interest rates increased defaults on loans that caused the financial instruments, based on debt, to lose value in the market. And so began the bust that followed the boom. The “credit crunch” was spread all over the world by the organisations that had invested in the MBSs and CDOs.

Note that the only possible point at which greed enters the picture is in the behaviour of American consumers. They could have responded to stagnating wages by cutting back on consumption (which thereby would have precipitated a different kind of economic crisis). Perhaps they were “greedy” not to. But in Wolff words, consumption “had become the measure of personal success in life”. Consumption was the constant message of advertisers, of lifestyle coaches, of business ideologies, and even trade unions. If greed is to blame, there are an awful lot of people out there telling you to be greedy.

But if you reject the systemic explanation for the economic crisis, what are you left with? You are back to human weakness and recklessness, whether of bankers or misguided consumers. Then the answer is either to replace the bad, reckless people with good, sensible people or hope for a general cultural renaissance.

Either is conservative. And the definition of a conservative explanation is that economic problems are not caused by the economic system.

“The basic conservative message holds that the current explanation is NOT connected to the underlying economic system,” says Wolff. “The crisis does NOT emerge from the structure of the corporate system of production. It is NOT connected to the fact that corporate boards of directors, responsible to the minority that owns most of their shares, make all the key economic decisions while the enterprise’s employees and the vast majority of the citizenry have to live with the consequences. The very undemocratic nature of the capitalist system of production is NOT related to crisis in the conservative view”.

So for conservatives the search is for an explanation that doesn’t blame what they hold most precious, namely corporations and markets. Step forward, human beings who have always been, it has to be said, a bit flaky.

The real reason for the economic crash, says British Conservative MP Jesse Norman, is that people and markets did not behave as economic textbooks said they should. Banks hyped 125 per cent mortgages on a credulous public. Politicians, regulators and bankers were not aware of how hard how “humans” find it to assess risk and their well-known (though apparently not well-known enough) tendency to prefer a biscuit now and not think about how their tooth will ache in the future.

Consumerism – the drive to excessively buy goods in the here and now – is what Norman is lamenting. But it is a little late for regrets. Consumerism has been the reason for working for decades. Rising wages that make possible more consumption is the reward for tolerating the work discipline of capitalism and its profoundly undemocratic method of production. It made taking orders and serving purposes that are not your own, bearable.

Consumerism, as Wolff says, is not some strange quirk or fatal flaw in the human race. It was the glue that held together capitalism in the US and in other countries. In economic terms, labour was the burden for which consumption enabled by wages was the compensation. Almost everybody, the media, economists and trade unions accepted, and trumpeted, this deal.  Rising house prices in the US and UK were just another form the glue took.

But the economic crisis has exposed how this glue has lost its stickiness. US employers haven’t needed the deal for three decades and now US workers have exhausted ways – such as borrowing - to postpone the results of its dissolution.

In a strange twist of history, what is becoming more apparent is something that was supposed to have been banished when Marxism was practically and intellectually defeated: exploitation. Back in the 1970s, when neoliberalism was becoming predominant, first in Britain, the idea gained currency that the basic problem was that trade unions were too powerful. That power, or interference, meant that workers automatically got pay increases even when productivity went down. What they were paid was arbitrary.

One of Margaret Thatcher’s key advisers was on trade union law was a union negotiator called Leonard Neal who had pioneered the practice, in the oil industry, of making pay increases dependent on productivity increases.

Thatcher (and Reagan) won. Unions were vanquished. Theoretically, the result should have been that, without trade unions interfering in the market, pay was inextricably linked to productivity. But that wasn’t what happened.

Here is Wolff talking about the fact that hourly wages in the US fell between 2005 and 2006 at the same time as productivity rose. “Workers were not only denied any of the extra output they produced, but their reward for increased productivity was to get even less than they did before they became more productive.”

Britain follows a similar pattern to the US. A 2009 Trades Union Congress Report, found that Britain was suffering from a “wage squeeze”, in contrast the “profits squeeze” of the 1970s. As in the US, the share of national income going to profits has shot up, while personal debt has exploded. Average personal debt was 45 per cent of income in 1980. In 2007, it was 157 per cent. And after 2000, wages in Britain have risen by 0.9 per cent while productivity has averaged 1.6 per cent.

There’s a word for the gap between the value of what workers produce and what they get paid. It is exploitation. And, as Wolff says, it is getting worse.

The problem is not just that some people get millions of pounds for “socially useless” activities. More than that, people are not even paid according to their contribution to profit, their productivity. In economic jargon, their “marginal revenue product”.

The fact that the average pay of FTSE 100 chief executives went up by 13 per cent in 2004/5, 28 per cent in 2005/6 and 37 per cent in 2006/7 says nothing about the profitability of their companies, or their own productivity.

What it reflects, as the International Labour Organization concluded in 2008, is their “dominant bargaining position”

The book Rich Britain, shows what that bargaining position is. Theoretically independent remuneration committees that set chief executive salaries are stuffed full of former chief executives of the same company or current chief executives of other companies. “How about a 35 per cent pay increase? Oh, go on then”. Adam Smith’s invisible hand is nowhere to seen, unless it’s scratching backs. Their pay is as “arbitrary” as any Sheffield steel worker in 1978. Only it’s a lot more

This is not “market failure”. It is not, as the Korean economist Ha-Joon Chang claims, due to market manipulation. It is not a product of what Jesse Norman’s desperate imagination calls, “rigor mortis economics”. It is simpler. Markets don’t determine wages, power does.

The lesson for ordinary people should surely be ‘get what you can’ because you aren’t going to get what you deserve. But, in practice, the bargaining position, or power, of organized labour that enabled the relative equality of the post-war era up to mid-70s to happen, is not likely to return. That’s why Wolff’s answer to the fact that the inevitable class conflict of capitalism is seemingly permanently tilted in the employer’s favour, is to radically change the rules of the game.

He wants to make workers their own bosses. We will consider this solution is the second part of this review. But saying what’s wrong with capitalism is far easier than putting a workable alternative in its stead. As the placard said, “Abolish capitalism, and replace it with something nice".