Capitalism, the financial crisis, and us

A keynote essay for the Battle of Ideas 2008

Any major issue in world affairs can lead to political reflection and even an appetite for change. Given the scale of the current financial crisis, it is not surprising that many people are beginning to ask awkward questions, scouring the business pages of newspapers, and trying to get a handle on contemporary capitalism. This is undoubtedly a healthy response, and perhaps even an opportunity for serious political debate. But in fact it is something of a paradox that we should come to discuss the fundamentals of our social system at a time of unprecedented disengagement from politics.

This raises the question of who ‘we’ are when we discuss these problems. No doubt scholars and other experts have light to shed on things, but are the rest of us mere spectators? Of course we have an interest in developments, as tax payers, consumers and workers, but how might these interests affect our perspective on the crisis, and do they have political consequences?

It would be a mistake to think the crisis will necessarily lead to more critical attitudes to capitalism, and a search for alternatives, as many left-wingers hope (1). In fact, it could just as easily lead to an entrenchment of the political fatalism which has become pervasive in recent years. Too many critics, whether in newspapers or in the pub, pin the blame on human greed rather than a system that might be changed, and most now talk in terms of restraining capitalism rather than transcending it. The global banking crisis has even been unhelpfully confused with rising personal debt and consumerism, as if individual laxity were the key to the problem (Lewis).

In order to develop a more incisive critique of contemporary society, it is necessary to consider not only the particular nuances of the financial economy, whether subprime mortgages or the derivatives market, but also the broader historical context, and the relationship between capitalism and wider social and political forces. This means going beyond moralistic critiques that focus on greed and materialism and simply call for restraint, as well as Manichean political accounts of the so-called ‘neoliberal’ domination of society (2).

Irrational or immoral?

Even those who evoke the older Marxist tradition of anti-capitalism by decrying the ‘irrationalism’ of the capitalist system are nonetheless quick to blame the greed of investment bankers when thing go awry. This implies that capitalism would work – be rational – if only its functionaries behaved properly. In the absence of an alternative, critics have convinced themselves there must be a right way, a moral way, to do capitalism. In fact, whatever the role of reckless investment bankers or spineless politicians in the current crisis, the point is that capitalism faces crises even when everyone behaves impeccably – a fact acknowledged even by the free-marketEconomist newspaper.

This is precisely because capitalism is irrational: it creates wealth for society at large only as a side-effect of producing profit for capitalists, those who own the means of production. And because wealth is only produced in the particular circumstances that produce profit for capitalists, capitalism cannot consistently and dependably work to the benefit of society as a whole. Moreover, faced with a crisis of whatever kind, a capitalist society lacks the means and institutions to look after the interests of the public without shoring up this system, however maleficent its functionaries have been.

Thus, while many object to our governments bailing out the ‘greedy’ investment bankers caught in the current banking crisis, modern capitalist societies simply can’t function without sophisticated financial institutions. There is no ‘Main Street’ without Wall Street, which is why the ‘real economy’ has already been affected and we face a full economic recession. Governments thus have little choice but to put the welfare of the financial system before the immediate interests of the tax payer.

For this reason, if the international political elite does get its act together and come up with an effective concerted solution to the current banking crisis, it could well mean more instability and less prosperity for most of us in the short to medium term. The point of the various bail-outs, and any further restructuring, is not to help the general public directly, but to save the system, because that is the only means society currently has to produce wealth and benefit us all in the longer term – although there are no guarantees about that.

This is the best capitalism has to offer, which is why it first occurred to radical critics to do away with the system altogether, rather than trying to find solutions within it. Indeed, one old slogan of the radical left was: ‘One solution – revolution’. When it comes to overcoming the fundamental irrationalism of capitalism, the slogan is still true – however unhelpful in today’s political context.

This is not to say that the current crisis is born inevitably of the failings of the capitalism, and will lead inexorably to its breakdown. The crisis began as a very particular one in the banking system, and while it is affecting the real economy, there are no signs of a more fundamental crisis of profitability. And as indicated above, the right kind of government intervention may well get the system back on track, not by correcting its moral failings, but by fixing the financial economy, and thus helpingrestore capitalism to all its irrational glory. The problem is that ‘the right kind of government intervention’ is not obvious: it is a difficult political problem in its own terms.

Capitalism and politics
Many observers have made the point that, historically, capitalism has shown itself to be a hugely resilient and adaptable system, suggesting it will work its way out of its current woes somehow. It’s certainly true that capitalism has changed dramatically in the past two centuries, adapting to changing circumstances – not least to the unforeseen problems thrown up by its own development. From the evolution of the stock market and the corporation to nationalisation and the welfare state, to more recent deregulation, capitalism has seemed to evolve remarkably successfully over time. The sophisticated financial instruments at the centre of the current crisis were themselves developed to enable capitalists to operate more efficiently and to manage risks in an increasingly flexible and fast-moving international economy. But the crisis is a reminder that capitalism does not in fact ‘evolve’ all by itself.

The banking crisis has already led to massive state intervention, and even more radical reorganisation is almost certainly required if the system is to recover successfully. Looking back, it is clear that this is nothing new. Historically, capitalism has always adapted through politics: imperialism, welfarism, nationalisation and indeed privatisation – none of these things happened simply through capitalists pursuing profits, which is the essence of capitalism as an economic system. Instead, capitalism’s adaptability and resilience has always been dependent on political intervention at crucial moments – whether or not individual capitalists welcomed it. For this reason, capitalism requires political leadership.

The political aspect of the current financial crisis has been generally neglected. But Phil Mullan has argued that it is the fearful and incoherent response of the political elite internationally that is turning a banking crisis into a broader economic downturn. In contrast to the political elites in those previous periods when capitalism has been reorganised, today’s elites lack the ideological coherence and indeed belief in their own system that is necessary to determine what needs to be done and to act with resolve. More practically, Frank Furedi makes the point that the depoliticisation of the economy in recent years has led to ‘the marginalisation of strategies that aim to harness economic forces towards political objectives’. This depoliticisation, which has generally been celebrated as a good thing – such as with New Labour’s granting independence to the Bank of England in 1997 – points to an even deeper problem underlying all this.

For much of the 20th century, the challenge of socialism and communism gave the capitalist elites something to cohere themselves against politically, spurred them into action – and offered ideas and institutions that could be co-opted when necessary (such as in welfarism). In contrast, today there is no organised opposition to capitalism to play this role or any other. The current political crisis is thus not reducible to a failure of character in the political class, but illustrates a more profound social impasse. The lack of an alternative to capitalism has transformed politics more generally into a matter of administration rather than principle, and narrowed the scope of politics to the detriment of any sense of political agency even within the parameters of capitalism. This is the root-cause of the recent popular disengagement from politics.

In this context, pointing out that capitalism is irrational – even dreaming up an alternative way of organising the economy – is not enough to constitute a real political alternative. This requires ideas, certainly, but also a coherent constituency for those ideas, a movement capable of acting on them. The constituency for Marxism in its various forms was the organised working class, which had the means and institutions to present a serious challenge to capitalism. Today those institutions are empty shells, and the working class has been notably absent from the debate about the crisis.

Instead, we talk about ‘the tax payer’ as the sucker who is having to bail out the banks. But tax payers don’t constitute a particular constituency – they comprise just about everyone (including investment bankers) and a plethora of competing interests and preoccupations. As such, ‘the tax payer’ has no particular political interests, and cannot be mobilised without an appeal to something else. In the current political context there is a dearth of means to differentiate tax payers into more coherent sections or interest groups, let alone a constituency for radical change. Tax payers may well vote out the British government at the next election, but if so they’ll do it by electing the avowedly pro-capitalist Conservatives, not the Socialist Workers Party. The old politics of class are no longer salient, and the current crisis has only confirmed this.

In the recent past, some thinkers tried to explain the demise of the working class in terms of structural changes in capitalism which had transformed the character of that class: the move from manufacturing to service industries, for example, or indeed the rise of the ‘post-material’ financial economy. Others suggested the working class had been ‘bought off’ in the 1980s: the newly wealthy Essex Man in Britain and the Reagan Democrats in the US had embraced the individualistic values of the Right. This prejudice is repeated in some of today’s discussions about consumerism, which depict the public as passive dupes of advertising and political spin.

But these accounts focus on relatively superficial factors and neglect the crucial political aspect of social class, and in particular the fact that the working class waspolitically defeated, perhaps most dramatically in Britain in the 1980s, but also more generally across the Western world in the final decades of the last century. Socialist ideas were widely discredited, and the collapse of the Soviet Union undermined the case not only for Stalinist Communism but any systemic alternative to capitalism.

This defeat is not merely an historical fact, but an implacable material reality with profound consequences for contemporary politics. It fundamentally transformed the character of the working class and of society as a whole. To ignore this and point to this or that strike somewhere or other as evidence of resurging class consciousness, as some left-wingers still do, is to engage in fanciful thinking rather than serious politics. The experience of defeat is important because it colours the political landscape today, not only on what remains of the radical left, but also more generally.

Capitalism in an age of low horizons
The rapid demise of radical alternatives effectively discredited the very idea that human beings can shape history, so that what first appeared a victory for liberal capitalism quickly gave way to the sense that this is simply the way things have to be. This disoriented the Western political elites, who were no longer charged with defending democracy and the free market from external and domestic threats, but simply with keeping the system ticking over, and dealing with all its unmistakable imperfections. The diminishment of political agency was the real cause of the ‘depoliticisation’ of the economy, and has made it difficult for governments to respond effectively to the current crisis even in technocratic terms.

More importantly, these developments altered the relationship between capitalism and the rest of us. Instead of being a system we could endorse or oppose politically, capitalism came to be seen as the natural order of things, whether we like it or not – something to be bemoaned, perhaps, but not transformed. An entire generation has now been brought up with dramatically limited political horizons, a fact reflected in widespread disengagement from politics. Not only is there no alternative political movement waiting to seize power when the ruling elite is seen to be failing, but there is barely even a public – a ‘we’ – to debate the matter in political terms.

This is the context in which the current discussion about capitalism has emerged. Crucially, this means that challenges to ‘the system’ have often taken on a misanthropic rather than political character. This is most apparent in environmentalist critiques, which target ‘excessive consumption’ and champion austerity for all, rather than representing the self-interest of the public in its various forms, as traditional political movements did. The danger is that rather than precipitating a re-engagement with politics, the current financial crisis and ensuing recession could reinforce a pervasive fatalism, or what I’ve discussed elsewhere as ‘cynical anti-capitalism’.

For all the limitations of the current period, however, we need not choose between passively accepting the status quo, and the self-sacrifice proposed by environmentalists, especially as these two positions have more in common than is generally acknowledged. Instead, we can try to articulate our own interests – not only economic, but also social and cultural – and explore how they intersect with the interests of others. Genuinely public discussion and argument – as opposed to expert commentary and academic debate –  is the beginning of any political challenge, and this is what is most obviously missing from the current situation. The atomisation of the public is not an inevitable consequence of capitalism in its current form, however, but the product of specific historical developments. While these cannot be ‘undone’, circumstances are subject to change.

Capitalism is not merely an economic system, but a form of society. And the current crisis is not merely an ‘economic’ problem. In order for the economy to be a meaningful political issue, though, there must first be a constituency for an alternative of some kind; failing that, it is simply out of our hands. Changing society means first of all changing politics, and that is something we as an emerging public can do.

Cummings, Dolan, 2008. You won’t fool the children of the ‘revolution’, Culture Wars, 18 April
Cummings, Dolan, 2008. Cynical capitalism, cynical anti-capitalism, Culture Wars, 4 March
Economist, 2008. Capitalism at bay, The Economist, 28 October
Furedi, Frank, 2008. The state won’t be the saviour of the economy, spiked, 15 October
Hutton, Will, 2008. This terrifying moment is our one chance for a new world,Observer, 5 October
Lewis, Carol, 2008. The man who wants us all to stop and think about the way society is headed, The Times, 8 October
Mullan, Phil, 2008. It’s the politics, stupid, spiked, 25 September

1) See for example some of the responses in a Guardian feature on anti-capitalists and the financial crisis, 17 September 2008
2) Current ‘anti-capitalist’ critiques range from the mainstream, ‘economic’ arguments, such as those made by Will Hutton, to more ‘political’ attacks on so-called neoliberalism (see my review, ‘You won’t fool the children of the revolution’.)