The crisis of neo-liberalism and the renewal of progressive ideas
[This article appeared in Arena,a magazine of left political, social and cultural commentary, published in Melbourne, Dec-January 2008-09]
There are have been many delicious moments in the last few months as the banks on Wall Street tumbled like an unstoppable sequence of falling dominos. Having the former chair of the US Federal Reserve, Alan Greenspan admit that he had misplaced his faith in deregulated free markets was one. Another was the sight of the British and American governments nationalizing banks as their losses forced them to the wall.
Another was US Treasury secretary, Henry Paulson's comment in an interview with Fortune magazine: 'Raw capitalism is a dead end. I've seen it.' Or as Nicholas Sarkozy said succinctly: 'Laissez faire, c'est fini'.
By contrast, the columnists and commentators of the free market Right continue to blame governments. They argue that the reason for the sub-prime crisis is that the Clinton administration forced banks to lend to poor people. The logic of this is, of course, that in this crisis we need freer markets and more deregulation, not less. Above all, say the Right, we must not draw moral lessons from the crash. Any talk about the grotesque bonuses to bankers and screen jockeys is far too crude. Mentioning greed as a factor causing the crisis is so simplistic.
This hasn't been the response of the Prime Minister, Kevin Rudd, who damned 'extreme capitalism' and a 'culture of greed' as the cause. Rudd is often accused of being an Antipodean Tony Blair, but the economic crisis is revealing that Rudd is quite different. Rudd's recent attack on 'free market ideologues' was a speech that neither Tony Blair nor Gordon Brown - or certainly not Paul Keating -- would have made.
After explaining Labor's response to the crisis to the Federal Labor Business Forum in Sydney in October, he characterized the crisis as a 'fundamental failure of values'. The fact is, he said, that much of the root cause of the sub prime crisis came down to our financial markets rewarding people for taking extravagant risks.
'Executives earned massive bonuses. Their rewards were skewed to short term â€œsuccessâ€ rather than long term creation of asset value. They literally laughed all the way to the bank â€¦ These were the most obvious manifestations of the culture of greed and short-termism which pervaded large parts of the American financial sector. This culture was never challenged by a political and economic ideology of extreme capitalism.'
His particular target was 'extreme free market ideologues' who, he said, 'have a naÃ¯ve belief that unrestrained markets are always self-correcting and that markets left to themselves will always achieve optimum outcomes. Ideologues who believe that any regulation of private business is fundamentally wrong. Ideologues who have resisted the regulation of financial markets and the supervision of a wide range of financial institutions. Ideologues who lectured the developing countries caught up in the Asian Financial Crisis a decade ago about the need for transparency and disclosure, but did little to reform their own financial systems. Ideologues who believe that government is always the problem, never the solution.
'Except of course when there is a crash - then, the self-same ideologues argue, having privatised their profits, [say] we should socialize their losses. And by the way, having demanded lower and lower taxes all the way through.'
Rudd's attack drew a predictable reaction. The Daily Telegraph's Piers Akerman denounced him. Janet Albrechtsen in The Australian' said that the banks were not to blame at all. It was â€œdo-gooders peddling universal home ownershipâ€. The Melbourne Herald-Sun's Andrew Bolt chimed in on cue and said: 'The "greed" that started it was that of poor people in the US who wanted a house and took out home mortgages they had little hope of repaying.' A few weeks later Albrechtsen returned to the theme, arguing that Rudd's speeches were merely a 'dog whistle' to the Left. If that is all they were, you might wonder, why is she so upset?
But these justifications don't cut much ice. The reason is plain for all to see. Today, it is only government which can save society from the consequences of decisions made by the banking sector and its poor lending practices. It was always going to be that way - but this was an unfashionable thing to argue when the economy boomed and neo-liberalism held sway. This economic ideology of the free market has been most deeply applied in the banking and finance sector. And for quite a while, it seemed justified. In the old days, it is true, home loans were given only to the most cashed up borrowers. You had to go to the banks on bended knees to get a home loan. Deregulation seemed to make sense.
But the level of home ownership has not changed very much over the decades and deregulation meant high interest rates at times and a housing bubble. The availability of easy credit has meant the creation of a wider debt bubble. That is why the coming recession will hit many people very hard. Those who lose their jobs or businesses will have large personal debts still to pay off, and these debts will be larger than in previous recessions, because Australians have been encouraged to borrow freely for many years.
Whether the Rudd government will do anything to change this is a moot point. Its watchword so far has been excessive caution, disappointing many supporters. Rudd has decided that a key part of winning the next election is to fulfil the letter of election promises, neither more nor less. Hence his unwillingness to introduce reforms that genuinely roll back the workplace laws which Howard introduced. But a global economic crisis changes the terrain on which politics is played and some caution needs to be set aside. Already his government is using traditional spending measures to stimulate the economy and it has said that it will go into temporary deficit if necessary. Re-regulation and deficit spending mark small but important changes to the neo-liberal wisdom.
But the erosion of neo-liberal dominance can and will open up real possibilities for change - if only progressives can grasp them. Free market ideology has been mortally wounded on its strongest point: that it is the only economically sustainable choice worth taking. Now it has been shown to be economically unsustainable and potentially the cause of a great deal of misery depending on how deep the recession dives.
There is a tendency already evident that for some people to see the economic crisis in very traditional terms. They point to all those articles suggesting that Karl Marx will rise from Highgate Cemetery and be vindicated at last. But neo-liberalism was much more complicated and far-reaching than an economic phenomena. And neo-liberalism's social and environmental effects are still with us. They have had a permanent impact on social institutions and have not been eliminated. The logic of neo-liberalism is still threatens the climate. That's why its fatal wounds still call for a new politics.
We have to deal with the fact that neo-liberalism has created social practices that are unsustainable. For example, it has eroded the social and cultural framework in which certain things were not done, no matter how profitable they might be and certain areas where no go areas . Neo-liberal policies have meant the massive spread of gambling. All over Australia gamblers and especially gambling addicts provide massive revenue for state treasuries. Similarly with the sale and consumption of alcohol. Free trade in gambling and alcohol sales is economically rational. So we now have a choiceâ€”that wonderfully deceptive word - about buying vodka at midnight and playing the pokies til 6am. We are therefore in a freer society.
But both gambling and alcohol consumption have downsides, in some cases terrible social effects. And the more they are liberalized, the worse the effects become. My point is that it was once only the religious right who opposed their spread. Today I think there is a good case for the left to combat these policies and to link up with anybody on the right who sincerely wants to roll back the libertarian policies. This doesn't entail closing all pubs and banning gambling - but significant changes less than that.
Neo liberalism also slowly and relentlessly creates a culture in which widely held social values are skewed towards individualism, self-interest, and competition. It creates a society in which we are obsessed with paid work and with the material goods which work brings. Without going into it more deeply, all this process of commodification is antithetical to the kind of personalities and instincts we have as creatures shapes by hundreds of thousands of years of evolution. In human values lies part of the resistance to neo liberalism.
Another consequence of the encouragement of individualism, self interest is the loss of social cohesion. Often this is clothed in the language of diversity, choice and flexibility. The lack of social cohesion expresses itself in the increasing need for private provision for heath and education and the degrading of public provision. In a different kind of way, social cohesion is put under strain by the changes in the work forces such as outsourcing. We are now in the process of creating a layer of working poor in our society. When the unions and their supporters challenged Work Choices this was movement for greater regulation ad for greater social cohesion. Some saw it as a sign of revival of an old movement and I suppose it was that - but the resonance it struck in a wider society was about resistance to the disorder and decreasing social cohesion which neo-liberalism entails.
All of this is about what I've called a libertarian capitalism or what Anne Manne and others call the New Capitalism. It may seem quite natural and normal for people under 30, but it is something which is quite new, it is constructed, and it can change. Indeed it must change because a society of individuals pursuing self interest has a lot of trouble acting in collective ways. Yet the kinds of challenges which we will face in coming decades are ones which need a collective solution.
The most obvious instance of unsustainability is climate change, although it is not the only one. The British economist Nicholas Stern regards the climate crisis as an example of 'market failure'. He said:
'Markets do not automatically provide the right type and quantity of public goods, because in the absence of the right kind of public policy, there are limited or no returns to private investors for doing soâ€¦Thus climate change is an example of market failure involving externalities and public goods â€¦. All in all it must be regarded as a market failure on the greatest scale the world has ever seen.'
The most recent research indicates that its effects are coming faster than anticipated. A report from Sweden I saw recently seems to indicate that parts of the permafrost in the northern hemisphere are warming, releasing methane gas. And thanks to David Spratt and Phillip Sutton's book Climate Code Red we know that the decay of the polar icecaps is proceeding far more quickly than scientists predicted.
That means that some of the problems that flow from this will arrive relatively soon. This means, for example, large scale refugee movements from flooded areas, such as Bangla Desh and from some Pacific Islands. Droughts may trigger wars and conflict over drinking water in south east Asia.
Within Australia we can predict an increase in social tension between the disadvantaged and the comfortable. To decrease fossil fuels use and change to renewables, the price of energy must rise radically and this will undermine some of the lifestyle we enjoy. The political problem is that no one wants to tell people this unpleasant truth. Certainly not a government or an opposition which wants to be elected.
On this basis, I believe that mitigating it and adapting to it will dominate politics for the foreseeable future. That is, it will be the pivot or the axis on which alternative and progressive politics will be built. A whole of lot of other concerns for progressives - racism and inequality for example - will find their sharpest expression in the response to climate change.
Theory and practice
I've spent some time sketching out these problems. I do this for a number of reasons - if you want a critique you must begin with problems, if you are interested social change must sketch those problems on large scale. If you want social change, you must be interested in connecting theory with practice - which means among other things, you must be able to make a connection between the problems which will affect ordinary people and the wider social vision you aim at.
Every successful movement for social change has invariably had one major advantage over bigger and more powerful forces. That advantage is the ability to see problems emerging from beyond the horizon and to prepare for them with a new social vision.
Why is that? Certain forces have a logic of their own. They impose themselves on events regardless. Things are forced to change - and if you are in tune with that change , if you understand something like climate change in all its shocking implications, then you can seize an opportunity when it arises. Because when things begin to change, those who have a vested interest in the present state of affairs don't want to recognise the new reality, they want to tinker with it, they hope for the best.
Those who do not have a stake in the present, but who have a vision of the future which is both principled and pragmatic can have an enormous influence.
Because you never know what is over the horizon. Let's say in the next year there was a return to a fierce drought. Let's say the water supply of Melbourne and Sydney dips below 30 %, down to 20% or less. This frightening example of climate change - would also be the kind of event which forces the whole society to consider new possibilities in public policy and politics. Being able to explain these events gives you have a tremendous advantage in being able to suggest a course of action.
In his lucid study of the pioneers of neo-liberalism Friedrich Hayek, Milton Friedman and James Buchanan, Simon Marginson notes a crucial element of the challenge presented by these thinkers.
'What has been impressive about this group - it is a lesson its opponents would do well to learn - is the long term nature of their project. They realized that this meant a major change not only in government policies but in the economic and political culture in which those policies were implemented â€¦ [This was] decades in the making.'
That's what we must do - plan to set a new political agenda over the next decade of two . It is what I set out to do in my book Beyond Right and Left. What the book is actually about is the development of a new social critique, a new critical project, a new set of ideas and values on which a new political force could be built. This seems to me vital - if only for the reason that no other movement for social change has ever existed which did not have some sort of coherent social critique.
I say this while also saying you don't have to agree with me on details. I am not saying progressives need a coherent set of ideas and they have to be my ideas. But we do need to reshape and renew out vision - for many reasons, including the challenges thrown up by neo liberalism and climate change.
But a set of ideas is not enough. The other vital ingredients for really significant social change - is mass support. And the need for some sort of mass support affects how you develop and emphases the ideas. To win mass support such ideas must be relevant to the perceived problems of a large section of society - they have to have an immediate applicability as well as some longer term depth. They must touch people's hearts and heads.
No social change has ever happened without mass support - by which I mean not 50% support - that is impossible from a standing start -- but of a critical mass, a thoughtful, determined minority which aims to speak to a majority and whose ideas are projected as a long term vision affecting the whole society.
That's what occurred over the great 150 year struggle of the labour and trade union movement. There was rank and file support for the early socialist and anarchists because of the very obvious deprivation and injustice which workers faced every day,. But there was also a long term vision to remake society - and that actually occurred, though often in unforeseen ways.
Similarly, and in a much short time frame, the emergence of feminism and environmentalism developed a set of ideas which addressed both the immediate situation and projected a longer term vision.
But these is another element in all of this which we must address. All of these visions - labour movement, of women and of the environment - are partial visions. Part of what we need to strive for is a vision which connects and makes coherent certain elements which touch on all these areas. Not a totalising and all-explanatory theory but rather a set of values that informs a looser kind of social analysis.
To analyse the multi-sided nature of the emerging crisis in our society we need to build an intellectual movement that can begin to think through some of the dilemmas all this poses - and this is not a short term project, but in terms of ideas, it is the only thing worth concentrating on at the moment.