Ask not for whom the bell tolls. It tolls the din of imploding financial institutions, crashing stocks, choked credit markets, and government bailouts. It tolls the end of an age of reaction. What is to come may be better, it may be worse. It will be different.
What has ended is the Anglo-American era of globalization, with its ever vaster financial markets, de-regulation, and the out-sourcing of production to the cheapest available pools of labour. At the helm were the members of a ruling class nourished on bonuses, mergers and acquisitions, who never spared a thought for the people whose lives they were blithely reordering, often destroying.
The pillars of the system that has crumbled were constructed from the early 1970s on when the earlier system of Bretton Woods and Keynesianism collapsed as a consequence of the Vietnam War, the oil price shocks of 1973-74, stagflation and the fiscal crisis of the state. The new, meaner, footloose capitalism that took shape was centred in finance capital, with national economies, manufacturing, trade unions, and the relatively well paid working classes of the advanced countries consigned to the dustbin.
Monetarism and supply-side tax cuts for the rich—trickle down economics—replaced Keynesianism. With the election of Margaret Thatcher in the U.K. in 1979 and Ronald Reagan in the U.S. in 1980, the political tone of the era, with its hallmark myths and axioms, was set. What followed were successive waves of deregulation that did away with the rules governing financial institutions, minimizing the distinctions among deposit banking, investment banking and insurance. New investment instruments—-all manner of derivatives and futures options—were legitimated to allow the lending of ever larger amounts of capital, backed by ever smaller reserves of real assets. A pyramid was being constructed. It was a self-propelling, self-consuming pyre that could only survive through the continuous addition of new debt, its essential fuel.
With the United States, and Americaâe(TM)s offshore island, the United Kingdom, at the centre of the global system, the debt took many forms, personal indebtedness, the indebtedness of America to the rest of the world, and the rising indebtedness of the United States government. As it turned out, it was the bursting of the housing bubble that took down the system.
That housing prices in many countries were inflated due to the expectation of further increases had been evident to observers for some time. The housing bubble was further inflated by so-called âeoesub-primeâe lending on a massive scale to high risk borrowers. The red ink from the sub prime sector spewed unredeemable debt out to each of the other sectors drowning them one by one.
The old lesson, learned nearly three centuries ago, with the South Sea Bubble, is that bubbles are bound to burst, that all the hype that attends their expansion is blown away in the cataclysmic instant when it all flies apart.
The era that has ended prized finance, wealth, showy consumption, the acquisition of grand houses, to be renovated from top to bottom, private schools for the children of the privileged, and safaris to see the Big Cats of Africa. Workers, craftsmen, teachers, farmers and nurses were not much valued. The affections of the era were erratic, transitory and rootless.
A central axiom of the age was that the heavy hand of government should be lifted to allow business to have its way. Regulation was negative as were taxes. The tax-man was an evil doer, an oppressor of upstanding citizens.
A central myth of the age was that a borderless world was in the making. This was true enough for capital, but for labour, refugees, and the wretchedly impoverished, it was a hard world, in which migrations to better places grew ever more perilous. Globalized economic production drove the poor off the land and into gigantic cities, notable for dreadful housing, sewage and infrastructure. One milestone in this miserable era was that toward its end more than half of humanity had come to dwell in cities.
In Europe and Canada, where public enterprise had been widespread across a range of industries and services, it was an age of privatization. Thatcher’s Britain set the pace with the privatization of British Rail, British Telecom, city transit systems and the country’s water utilities. In Canada, Petro Canada was privatized by both Conservatives and Liberals. Over the past five years, the company that tax payers built made a profit of 9.2 billion dollars. All Canadians should have reaped that reward. Instead private investors did. Some old Tories such as Harold Macmillan, objected to all this as the âeoeselling of the family silverâe but he was out of fashion. The tax payers were the losers. The winners were financiers, and in many cases, the top executives of formerly public companies who had prepared the way for privatization and had been rewarded with huge salaries.
Particularly in the United States and the United Kingdom, but also in Canada, the whole idea of economic planning was disparaged as a fossilized relic from the bygone days of the mixed economy. The short term was what mattered. The long term could take care of itself. A major consequence of this mentality was the deterioration of public infrastructure. Highways, roads, bridges, rail systems, schools, universities, and hospitals were allowed to decline into ever greater states of dilapidation. An emblem of the public squalor of the age was the London Underground, the grand old lady of the world’s rail subway systems. Journeys on the London Tube customarily began with passengers hearing the announcement of a long list of the lines or sections of lines that were, or soon would be, out of operation, or undergoing repairs.
The private opulence of the few was thought too important for it to be scaled back to provide resources to address the public squalor endured by the many. Catastrophes punctuated this reality. In 2005, when Hurricane Katrina ravaged New Orleans, not only were the levees a shambles, there was no plan to ensure that the poor, mostly black, residents who didn’t own cars, could escape from the city. In 2007, thirteen people died when a highway bridge collapsed in Minnesota.
During the age of reaction, the hegemonic myth had it that the market, conceived as a natural, impersonal actor, set the monetary rewards for work according to the true worth of those doing the work. A top banker, who earned many millions of dollars a year in salary, bonuses and stock options was worth that money because he could command it in the marketplace. Any interference with this magisterial process, through higher taxes or by regulating the amount of income an individual could earn, would inexorably result in a loss of productivity that would damage the performance, not only of the bank for which he worked, but by extension, would retard the forward thrust of the economy and, therefore, the general well-being. This preposterous postulate, equivalent to the Ptolemaic theory that the sun revolves around the earth, turned cause and effect inside out. It was a time when the dominant myth held that the real work was done in the office towers of financiers and corporate law firms, rather than in factories, fields, schools, laboratories, hospitals and on construction sites.
Now that the once revered supermen of the age have flown the economy into the side of a mountain, the wreckage lies all around us. The myths of the supermen have been exposed as the lies of con men who enriched themselves at the expense of humanity. The price that will now be paid by people the world over for the rule of the financiers will be stupendous. One thing people everywhere have gained, though, is freedom from the power of the lies that they were told. And that freedom can be the basis for a new beginning.