The Economic Crisis and the Left

In the last part of our interview about the global economic crisis with economist Robin Hahnel, the discussion moves onto how the left has and should react to it. Part 1 can be found here and part 2 can be found here.


Are there any countries that responded to the crisis in a way that you find admirable?


Venezuela, Bolivia, Ecuador, Uruguay – the ALBA initiative in Latin America—has been a very positive response. The ALBA initiative preceded the crisis but, the countries behind ALBA have also been the countries who have responded to a crisis that was not of their making in the most constructive way.


While Europe was no better than the US at providing the fiscal stimulus needed, some European countries have dealt with their financial industries in a much better way than the Obama Administration has. Instead of ineffective bailouts without limits or conditions, many European governments have engaged in takeovers and restructuring, and forced banks to take necessary haircuts. Continental Europe has also come out strongly for meaningful international financial regulatory reform while the US and UK have done everything possible to thwart these regulatory efforts.


China, of course, has done a brilliant job of minimizing the impact of the crisis on its own economy and consequently maximizing its rise in economic stature relative to others. Just as China was largely immune to the East Asian crisis because its financial system was not integrated into the international financial system in 1997, its domestic credit system was still relatively insulated in 2008. The big challenge for China was how to replace the loss of export sales that the depression in Europe and the US generated. Resisting predictable pressure to allow the value of its currency to rise was part of the answer. But more importantly the Chinese government reacted quickly and forcefully with strong measures to stimulate internal demand with considerable success. In sum: no internal financial crisis, sticking to a beggar-thy-neighbor exchange rate policy, and a relatively effective domestic stimulus has served Chinese capitalism well. However, I would call this “smart” rather than “admirable.”


Are such crises inherent to capitalist economies?




I’m tempted to leave my answer at that for maximum shock value because I think this is an issue where the Left needs a slap in the face.  Collectively the Left likes to see itself as teaching great wisdom on this subject. In truth, the Left has often spewed a great deal of nonsense about capitalist crises that undermines our credibility with people who actually know something about this subject. However, the Left being the way it is, I hasten to clarify what I mean in what will surely be a pointless attempt to avoid misinterpretation.


The idea that capitalism contains internal contradictions which act as seeds for its own destruction is simply wrong and needs to be discarded once and for all. Many twentieth century progressives sustained themselves emotionally with false beliefs that capitalism’s dynamism and technological creativity would prove to be its undoing as well as its strength. In particular, two Marxist crisis theories influenced many on the Left during much of the twentieth century.


Marx hypothesized that when individual capitalists substitute machinery for labor to lower production costs they witlessly produce a long-run tendency for the rate of profit to fall because in the final analysis capitalist profits derive from exploiting labor. For over a hundred years Marxist economists predicted that such a crisis would eventually appear once all the counteracting tendencies played themselves out, and many anti-capitalist activists wondered if every crisis that came along was “the big one.” But thanks to work begun by Nobuo Okishio, modern political economists now know better. To make a long story short: labor-saving, capital-using technical change does nothing, in-and-of itself, to depress the rate of profit in capitalism and thereby generate a crisis of capitalism.


Marx also predicted crises due to under consumption as competition drives individual capitalists to reduce the wages of their employees and increase their accumulation out of profits, thereby increasing overall production at a pace he believed would eventually outstrip aggregate consumption demand. The question is if there is an inherent tendency within capitalism to generate an ever widening gap between all that can be produced and the demand necessary to purchase it, so the pressure to find new ways to buoy demand to ward off stagnation escalates as capitalism develops. To put it simply and bluntly, the answer is “no.” Macroeconomic models of growth and distribution pioneered by Don Harris, Stephen Marglin, and Lance Taylor have moved us considerably beyond under consumptionist crisis literature that was less rigorous and more conjectural. In its totality the new literature demonstrates conclusively that while aggregate demand should be carefully managed, and problems will arise if it is not, at a theoretical level, the relationship between aggregate demand and supply is no more, nor less problematic in the long run than it is in the short run. But if these “doomed to destruction by internal contradictions” theories were wrong, what is a more accurate understanding of capitalist development?


What is true about capitalism is that despite impressive technological advances that should dramatically improve our lives, free market capitalism will not satisfy today’s need for basic economic security for most of the third world and a growing underclass in the advanced economies. What is true is that despite the fact that scientists are capable of devising technologies that would allow us to protect the natural environment, unrestrained global capitalism will unleash unthinkable environmental catastrophes within the next hundred years. What is true is that the new era of global Robber Baron capitalism in which financial capital reigns virtually unconstrained will continue to cause financial crises that destroy the livelihoods of billions who live in developing economies, and increase the economic insecurity of the majority who live in developed economies. What is true about the present course of global capitalism is that it will doom most to struggle harder than their parents to meet their economic needs, while a tiny, privileged minority accumulate fabulous wealth at an accelerating rate.


What is also true is that not even when capitalism is tamed by a full panoply of social democratic reforms can it satisfy the desires for self-managed, meaningful work that an increasingly educated populace will demand in the century ahead, nor our longings for economic justice, dignity, and community. And while reforms within capitalism can slow the pace of environmental destruction, they will never make capitalism environmentally sustainable.


Nor, unfortunately, does capitalism nurture the seeds of its own replacement. It does not generate a homogeneous working class whose economic activities lead them to see the advantages of seizing and managing the means of production themselves. Instead capitalism pits workers against one another and teaches those it disenfranchises that they are incapable of making good decisions and should be thankful that their fortunes rest on the decisions of their betters. Capitalism does not teach people to embrace human values and develop cooperative patterns of behavior. Instead capitalism fosters commercial values and punishes socially responsible behavior. In other words, capitalism provides less help and creates more obstacles for those seeking to replace it with a system of equitable cooperation than our twentieth century forebears expected, and leaves more hard swimming against the current than they dared to believe.


What we are engaged in is an epic struggle between the economics of competition and greed and the economics of equitable cooperation. During the second half of the second millennium the political sphere of social life witnessed a struggle between tyranny and freedom—followed by a continuing struggle between elite political rule versus popular, democratic rule. I believe there has been a similar struggle going on in the economic sphere of social life. Besides the rapid technological changes that distinguish the capitalist era, people have struggled over how to organize divisions of labor that improve the efficacy of our economic sacrifices. On the one side we have seen institutions grow that seek to organize our increasingly specialized economic endeavors based on a system of competition and greed, along with ideologies that preach the necessity and advantages of doing so. On the other side we have seen resistance to this epic trend. We have seen struggles of different kinds and sizes against the ravages of competition and greed and the miseries, inequities, wastefulness, and inefficiencies it creates. We have also seen intellectual critiques of its destructive dynamics. And we have seen theories developed that insist there is another possibility—that the human species is not so socially feeble that we cannot organize a productive division of labor in a system of equitable cooperation.


If the notion that radical activists should seek to “heighten internal contradictions” to hasten the demise of capitalism was misconceived, what role should progressive activists play? I suggest we see ourselves as part of a struggle that is centuries old—a tug of war between those who would further refine and consolidate an economic system based on fear and greed that has been spreading its sway for almost five centuries, and those who oppose its spread, and fight to build a more equitable system of economic cooperation. Naturally those who pull for the economics of competition and greed are usually those who enjoy more of the benefits and less of the burdens it distributes, while those pulling for equitable cooperation are often victims of the system of competition and greed. Not surprisingly over the past four hundred years the rope has sometimes moved slowly in one direction and sometimes in the other, sometimes lurched quickly, and sometimes remained stuck for a time. Not surprisingly some strategies and tactics for pulling the rope have proven more critical and decisive than others. And we really should not be surprised to discover that every once in awhile when we thought we had achieved a significant lurch in the direction of equitable cooperation, we later discovered that we had grossly deceived ourselves.


The crisis has been such a blow to the image of neoliberal capitalism—how is it that the left remains so much on the defensive?


When our opponents do better it can be more difficult for us to make headway. However, if one is not organized and prepared historic opportunities can be squandered. I cannot speak for the Left elsewhere, but so far the Left here in the US has done a miserable job of taking advantage of the greatest historic opportunity we have had in many generations. It is increasingly difficult to blame circumstances or others for our inability to broaden our support and increase our influence, and increasingly more obvious that much of the fault lies within.


I cannot do justice to the subject of what we must do to improve in a short space. I now live in the Pacific Northwest which is arguably the most politically “advanced” region of the country. There are more progressive organizations, initiatives, campaigns, and activists here per capita than anywhere else in the country. Civil society and popular consciousness is more advanced here than elsewhere. And all of this is good. In the winter of 2008-2009 many of us here sensed that people were truly shocked by the severity of the economic crisis, no longer trusted traditional sources of information, and were thirsty for sensible explanations for what had gone wrong, who they should blame and hold accountable, and what kind of responses they should support. However, what impressed me most after twelve months of working full-time to help organize a conference on the economic and environmental crises here in the Northwest was how much we failed to achieve. The EcoNvergence was held in Portland Oregon in October 2009 and was considered a great success. Over four days, all told, over 5000 people attended 100 panels, a dozen plenaries, a half dozen cultural events, and a brilliant keynote address by Noam Chomsky. But what most struck me was how weak, disorganized, and non-strategic we often were, and how difficult it proved to be for us to move beyond preaching to the choir.


You describe yourself as a market abolitionist? What’s wrong with a mixed economy on the Scandinavian model?


A mixed economy along the lines of the Scandinavian model—whose hey-day was the mid 1970s—is a far, far better kind of capitalism than the free market, neoliberal capitalism that became increasingly dominant until it reached a crisis in 2008 from which it has yet to recover. What I call social democratic capitalism is much more stable, equitable, and efficient than its free market cousin. Personally, I would be more than pleased to live in a Scandinavian version of capitalism. And the world would be a far, far better place if all national economies were thoroughly social democratic, and if international economic relations were conducted along social democratic lines.


But Scandinavian social democratic capitalism is still capitalism. It is a capitalism where markets have been tamed somewhat, and where countervailing forces to corporate power have been erected. But it is still an economy driven primarily by market forces and dominated primarily by private corporations. It is still an economy which operates principally according to the logic of competition and greed rather than logic of equitable cooperation. It is still an economy where those fighting for more economic democracy, more economic justice, and more effective environmental protection must swim against the current. It is still an economy where we are always in danger of being swept downstream if our stroke weakens – as the Scandinavian economies themselves were in the 1980s and 1990s when “third wave” forces within their social democratic parties reacted to neoliberal global trends by dismantling much of the progress those countries had made over the previous fifty years. It is an economy where the doctors have settled for palliatives in lieu of a cure.


If social democratic capitalism were the best the human species is capable of, then it would have to be good enough. However, we are capable of far better. We are fully capable of organizing our own economic activities under rules and procedures that support and promote participatory economic democracy, real economic justice, and help us become wise stewards of the natural environment. I favor an economic alternative known as participatory economics and have been writing for more than thirty years about why I think it is both superior to social democratic capitalism and quite feasible. Millions of Bolivarian Revolutionaries in Venezuela and other ALBA countries strongly prefer social democratic to neoliberal capitalism, but like me, they are firmly convinced they can do far better and have no intention of stopping at social democratic reforms. They are right.



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