By Chronis J Polychroniou
23 February 2009
CP: After twenty-five years of sporadic growth and extreme polarization of income and life conditions around the world, actually existing neoliberalism seems to be on the verge of collapse. Where do you situate the current crisis in the history of the development of global capitalism?
JBF: Neoliberalism has clearly collapsed. But as Fred Magdoff and I have argued in our book just published by Monthly Review Press entitled The Great Financial Crisis: Causes and Consequences, neoliberalism is best looked upon as merely the ideology of the system during more than three decades of deepening stagnation and financialization. The real answer to your question is therefore to be found more at the level of the underlying changes in accumulation that have occurred in this era, which we have termed "monopoly-finance capital."
It is assumed in orthodox economics that rapid growth is a natural tendency of the system, so that if there is a slowdown of growth, then it is due to outside interference with the accumulation process by the state, workers, etc., which push up costs and inhibit accumulation. There is another viewpoint, however, pioneered within the Marxist tradition, and especially by Harry Magdoff and Paul Sweezy over the three decades from the 1970s to the 1990s, that the normal tendency for a monopoly capitalist economy is stagnation, i.e. what Keynes called an underemployment (rather than full employment) equilibrium, characterized by sluggish growth, high unemployment/underemployment, rising excess capacity, etc. The underlying reason for this can be traced to high rate of exploitation/inequality. Capital is unable to find sufficient investment outlets, calibrated to obtain the prevailing rates of profit, given the sharp inequality and other distortions built into the economy. It is thus unable to absorb the enormous actual and potential economic surplus at its disposal.
The result is a tendency for the rate of growth to decline in the advanced capitalist economies, which we have seen over the last third of a century. To the extent that the stagnation tendency does not actually (or fully) manifest itself, in this view, it is due to external, countervailing factors that promote effective demand in the economy, most recently through such elements in the United States as high military spending and financialization (the shift in the center of gravity of the economy from production to finance). In other words, specific external stimuli are needed to propel the economy, which otherwise tends to sink into stagnation as a result of its own distortions and disproportionalities.
During what is often called the neoliberal era, which succeeded the "golden age" of the 1960s, a creeping stagnation in the "real economy"(as opposed to the financial-assets economy) has been clearly evident. What more and more served to spur the economy and counter stagnation during this period was a process of secular financialization — a series of financial bubbles that grew bigger and bigger. This constituted a speculative wave that in terms of its scope and duration was unlike anything that had ever been seen before. Fred Magdoff and I argued a number of years ago (in analyses included in The Great Financial Crisis), and Harry Magdoff and Paul Sweezy insisted in earlier decades, that this process would eventually come up against its limits represented by the underlying downward pull of stagnation tendencies (along with the tendency of any financial expansion to degrade — the quality of the debt declining as its quantity increased). The result would be an unprecedented financial meltdown that would bring deep stagnation back to the forefront. The longer that central banks managed to keep the secular financial expansion going through their lender-of-last-resort function the bigger the problem was likely to be in the end. This is exactly what has happened. We are now in a serious depression, the first since the 1930s, and when economic recovery comes in a few years, the expectation is that it will be what economists call an L-shaped recovery, with slow growth and all the problems of stagnation persisting in the foreseeable future.
CP: In terms of depth and scope (time will tell about duration), how does the current crisis rank with that of the 1930s?
JBF: I think there is no doubt that we are in another depression. In fact the IMF has just come out with a statement that the "advanced economies are already in depression," according to a February 7 report from Bloomberg.com. The decline in Japan is phenomenal, with its exports dropping by a third in December and its industrial production posting the worst performance on record. The United States is losing 500,000 jobs a month. U.S. unemployment by the most inclusive measure is around 15 percent. David Rosenberg, an economic analyst at Merrill Lynch says: "We are likely enduring a great depression today" that could last as long as seven years. British Prime Minister Gordon Brown is being publicly attacked for rationally referring to the current economic situation as a depression. The major banks in the United States and Britain are by established standards insolvent, despite the pouring of hundreds of billions of dollars into their coffers, and are facing some kind of nationalization. Deflation and balance sheet compression are everywhere.
This is in many ways an unprecedented situation, so we don’t know how far the economy is going to fall. A few months ago it was clear that we were in the worst crisis since the Great Depression. Now the question is: Will the Great Financial Crisis of today, which has already generated a new depression, lead to a situation as bad as the Great Depression or even worse? No one knows the answer yet. But the fact that the issue is commonly being posed in this way is significant. The one thing that is fairly clear is that, when the devalorization of capital has taken its course and recovery begins, it is unlikely to turn into a full recovery. That is, the conditions of deep economic stagnation are likely to set in, since there is nothing to propel the economy now that financializaiton has weakened. This was the main economic problem of the 1930s: the persistence of stagnation, until the coming of the Second World War which finally lifted the economy out of depression.
CP: Notwithstanding disagreements about the effectiveness or ineffectiveness of Keynesian countercyclical policies in getting the US economy out of the Great Depression, do you think that Keynesian economics can work in a world of global economic interdependence without restructuring fundamental aspects of the operation of capitalism?
JBF: Keynesian economics had no real effect on the New Deal administration in the United States until November 1938, when a book was published entitled An Economic Program for American Democracy, which Paul Sweezy coauthored with a lot of other young Harvard and Tufts economists. An Economic Program was quickly adopted after the fact by the administration to legitimate its stimulus policy, which had been introduced as an ad hoc response to the deep recession of 1937. Keynesianism therefore did not itself induce any changes in economic policy during the Depression years. Moreover, the government stimulus at the time was too little to have much of an effect on the level of economic activity. The U.S. economy did not really recover from the Great Depression; it simply merged into the Second World War, which lifted up production as the war orders started rolling in.
Right now we are witnessing the massive recourse to Keynesian-style stimulus programs. But they are unlikely to have much effect in arresting the crisis. I don’t think it is a question of global interdependence limiting the effectiveness of such policies. After all, the entire capitalist world is attempting to reflate the economy in tandem. This is not like Mitterand’s France going it alone. The problem is with Keynesianism itself. At best, what is now conceived of as Keynesianism is what Joan Robinson, Keynes’s younger colleague and follower, called "bastard Keynesianism." In the dominant post-Second World War "neoclassical synthesis" in economics, Keynes became relegated to a "special case" of "depression economics." This meant that in the exceptional or "special case" circumstances in which a liquidity trap emerged, deflation threatened, and monetary policy had shot its bolt, the treasury departments of the various countries could step in with a Keynesian fiscal stimulus. Otherwise Keynesianism was best dead and buried. Even then Keynesianism was said to be irrelevant, because in the bubble era it was believed, by figures such as the present Federal Reserve Chairman Ben Bernanke and even Paul Krugman, that monetary policy since Milton Friedman had essentially defeated the business cycle. But what is important to understand is that even prominent so-called "Keynesians," such as Krugman, claim that Keynes was wrong in his deeper assessment that the capitalist economy had certain "outstanding faults" associated with tendencies toward high unemployment, high inequality, secular stagnation, and financial excess. They are not Keynesians in that sense, or at least not yet. A genuine Keynesianism, associated with Keynes himself, would point toward the need for structural change (though Keynes himself was always concerned primarily with defending the system).
At present we are in the situation that Schumpeter once called "capitalism in the oxygen tent" (his term for capitalism with heavy state intervention as a result of a crisis). The question is do we try to preserve the system as is or do we pull the plug? I think that the deeper criticisms of capitalism raised by Marx need to be looked at. It is only here that we will find a general theory of crisis. This is in many ways a failed system. What we need is a whole different kind of economy and society, a socialism for the twenty-first century.
CP: Essentially, a stable accumulation regime has been absent from the operation of global capitalism since the last major crisis, the economic slump of 1974-75. The neoliberal economic order constructed in the late ’70s relied for economic growth on unfettered markets and on the further expansion of financial and speculative capital and was politically based on an unremitting assault on society and the environment. In this context, I would argue that neoliberalism rode on the back of a crisis of legitimation (in spite of the ideological fusion of Democrats and Republicans in the U.S., conservatives and social democrats in Europe, and the complete surrender of the intellectual class to the logic of market fundamentalism) but also lacked an original project for the new global order, which in the long run enhanced significantly the prospects of the inevitability of a secular crisis. Do you agree with the notion of a full-fledged economic, political, social, and environmental neoliberal capitalist crisis which contains the seeds for the displacement of the market as the final arbiter of social relations even in a still dominant capitalist setting?
JBF: I agree that neoliberal economic policies made things worse. I would place less emphasis, however, on neoliberalism as a mistaken economic regime. Ideologically, it can be understood an attempt to turn the clock back to a purer form of capitalism. But in an even more fundamental sense it was an attempt to provide legitimation for a financialized capitalism that was historically unprecedented. What we have seen emerge since the 1970s is the domination of financial capital in a period of creeping stagnation and concentration and centralization of capital. I think this is best characterized as the phase of monopoly-finance capital. The ideology of neoliberalism was directed not simply at instilling what we could call market-fetishism, the myth of the self-regulating market, but was also aimed at promoting financialization of the capitalist economies. This required, if anything, higher rates of exploitation and inequality, and the constant infusion of cash flows into the financial superstructure of the economy, since production was increasingly dormant. There was really no other economic regime possible for the system during this period in the face of deepening stagnation tendencies.
Eventually, however, neoliberal financialization just put off the day of reckoning and made it worse. In the process, as you say, what has emerged is a full-fledged economic, political, social, and environmental crisis, which, all combined, is possibly far worse than anything the world has ever seen. The market, everyone agrees — especially capital, which needs the state to rescue it — can no longer be the final arbiter. Capitalism is back in the oxygen tent.
Our argument in The Great Financial Crisis is that at this time, in which capital is having direct recourse to the state — already the U.S. Federal Reserve and Treasury have committed $8 trillion in programs to rescue business, primarily the banks — a new historic moment is emerging in which it is possible for people generally to recognize that we live in a political economy that affects us all. Viewed in these terms, what we should be asking is: How do we mobilize people politically to reshape the economy to meet real human needs and the goals of equality, sustainability, and social and economic justice? In Greece, where revolts in response to the crisis and to decades of neoliberal barbarism recently touched off a more general European resistance to the system, this question of political economy is of course far better understood than it is in the United States. The conservatism of the United States is of course related to its role as the leading imperial power and the effects that this has on the consciousness of the population.
CP: You have written extensively about the ecological contradiction built into the heart of capitalist economic relations, but some will be quick to point out that the system of actually existing socialism proved perhaps even more devastating (even if not at a global level) to the environment than its capitalist counterpart. Can you split this two-part question and suggest how we might avoid an environmental catastrophe when the two main socio-economic systems we have known in the course of modern history have both failed to provide sustainable development?
JBF: There is no denying that the Soviet-type system (or "really existing socialism") was extremely destructive of the environment, at a level that I referred to as "ecocide" in my 1994 book The Vulnerable Planet. Of course planetary ecocide is distinctly the product of capitalism. One way to look at this whole complex problem of capitalism and socialism and the environment is to recognize that the positivist (mis)understanding of "progress" as an unstated ontological premise was rooted in capitalism’s commitment to endless accumulation and hence endless expansion as the sole goal of economic society. This was to contaminate the socialist movements of the second and third international, which fell prey to the same productivist errors. In the exploitative society that eventually emerged in the Soviet Union, production for production’s sake became the entire rationale for the system, in a way that mimicked capitalist modernity. It is true that in the early Soviet Union in the 1920s there were numerous attempts to put forward an ecological view, but this was destroyed in the 1930s, as a repressive post-revolutionary class society consolidated itself, in what is commonly referred to as the "Stalinist" period.
This tendency was clearly inconsistent with Marxism, as envisioned in Marx’s own socialist project. An understanding of human inter-relations with nature as "metabolic" was basic to Marx’s thinking; in fact he was the first thinker to emphasize the metabolic relation of humanity to nature through labor as the "ever-lasting condition" of human existence. Socialism in any genuine sense is a system geared primarily to addressing substantive equality and collective needs — through planning by the associated producers. Such a society must be ecological if it is to remain on the socialist track. It is no accident that the Living Planet Report has designated Cuba as the only society with high human development together with a below average ecological footprint.
There is another element, I think, to your very complex question. How do we build an ecological society when our previous attempts at social organization, encompassing a certain level of industrialization, have all (or nearly all) failed? My answer to this is that it is necessary to create something new under the sun, a new socialism for an ecological century. Anything else spells collapse for civilization and for the world’s ecosystems.
CP: Perhaps this issue is a taboo in radical political economy circles, but is overpopulation a cause of the ecological crisis?
JBF: Environmentalists use a simple shorthand for environmental impact: Impact = Population x Affluence x Technology. Of course this raises more questions than it answers, but it does rightly suggest that if population increases and affluence (the weight of the economy) and technology (the degree to which prevailing technological choices affect environmental impact) stay the same, then environmental impact will increase. I think it is axiomatic that increases in population make it more difficult to maintain global sustainability. I would not, however, place the greatest emphasis on population, and indeed the factors conditioning population growth are complex. The ecological footprint effect on the world of someone being born in the high consumption society of the United States and someone being born in Bangladesh is quite different. World output has been growing at something on the order of three times the rate of population over the past century or so. Most demographers, I believe, expect population to stabilize at around 12 billion this century. This may be too optimistic. The key to population stabilization is of course "demographic transition," i.e. we know that as peoples’ living conditions improve (income, education, health, women’s rights) birth rates tend to level off. The continuation of imperialism, where some countries are essentially forced into the position of what Barry Commoner called a "colonial" birth rate, makes it difficult to stabilize population. But the real point to understand is that we live in a system geared to accumulation and expansion without end, in which population growth is essentially a dependent variable and not the most important factor. Even if population were to stabilize the system demands that the economy grow ad infinitum and we are now rapidly learning how impossible and dangerous that is for the climate and the entire earth system as we know it. Nor, as we can see today, is an economy without growth a stable solution under capitalism.
CP: Monthly Review has been at the forefront of providing a Marxist-based critique of capitalism and advancing the vision of socialism. As the sole editor of MR and president of the Monthly Review Foundation, the responsibilities for continuing the work of Paul Sweezy and Harry Magdoff must be truly overwhelming. So what I want to ask you is if Monthly Review’s theoretical and political agenda has consciously changed since the days of the monopoly capital tradition — and if so how — and whether, in your view, the prospects for the renewal of socialism are still as encouraging in the long march of history towards a more humane social order.
JBF: I don’t think that the direction of Monthly Review has altered in any fundamental sense since its first issue almost 60 years ago in May 1949, which included Einstein’s now classic article "Why Socialism?" We have responded to changing historical conditions and in that sense our analysis has had to change to confront these new conditions. For example, the "monopoly-capital tradition," as you call it, has had to shift to take account of what we now call the more specific phase of "monopoly-finance capital." Yet, the entire argument that Fred Magdoff and I developed in The Great Financial Crisis evolved directly out of the work of Harry Magdoff and Paul Sweezy, who were the first to analyze the financialization process and its relation to stagnation.
Today we have concrete signs of the renewal of socialism in Latin America. At the same time capitalism has become an economic, ecological, and imperial disaster, threatening not simply the welfare of the world’s people, but even their survival. What has changed, and what is most alarming, is that it is much harder to speak of "the long march of history towards a humane social order," because time is in many ways running out. The emergency-room condition of the planet, the reemergence of naked imperialism, and global economic disaster, in which literally billions of people are suffering, says that history is accelerating. We need to renew socialism now globally and in the broadest terms consistent with a sustainable society if humanity is going to be able to restore the conditions for its own survival. I have taken this problem up in a forthcoming book (due to be published in a couple of months) on The Ecological Revolution: Making Peace with the Planet.
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