Reality Check

Saving Capitalism from itself: The global economy was rescued not by the actions of private individuals and corporations, but by the collective wealth of the planet's peoples.

SO, THAT WAS 2009? A peculiar year – both here in New Zealand and around the world. A year in which the economic and social theories which have governed our lives for the past quarter-century continued to hold sway, even though their fundamental premises were daily contradicted by reality.

A year of denial, then, for local and global elites. And, because elite opinion – undivided and unchallenged – is transferred to us by an increasingly under-resourced news media, a year in which the ordinary person’s grasp of what is actually happening "out there" has become correspondingly tenuous.

For the world’s neoliberals 2009 has also been a very confusing year. Why? Because politicians in the world’s leading financial and industrial powers – the United States, China, Japan, Germany, France and Britain – only succeeded in rescuing the capitalist system by adopting precisely those economic strategies which neoliberalism has consistently denounced: massive state intervention; printing money; and running-up colossal deficits.

It was precisely the failure of 1930s politicians to adopt such remedies that plunged the world into the Great Depression. Neoliberals, however, have long argued that it was President Franklin Roosevelt’s economic interventions and his administration’s deficit-spending that turned a momentary market "correction" into a world-wide slump.

Reviewing the events of 2007-2009, however, it’s crystal clear that only the timely and virtually unlimited underwriting of the international financial system by the world’s most powerful nation-states prevented its utter collapse; and only the unstinting expenditure of trillions of Dollars, Yuan, Euros and Yen has averted another Great Depression.

In other words: we have been saved not by the actions of private individuals and corporations, but by the collective wealth of the planet’s peoples; and that, when it comes to making intelligent economic decisions, the performance of the world’s politicians and bureaucrats has proved to be far superior to that of its business leaders.

These brute facts should be transforming the way the world is run – but they’re not. In spite of the crisis of the past two years being almost entirely attributable to the greed and recklessness of capitalism’s "best and brightest", the message promulgated by the world’s elites is unequivocal: this is the best of all possible worlds; no change is necessary; business as usual.

It’s the unceasing reiteration of these extraordinarily dangerous – because utterly false – reassurances that explains the unprecedented popularity of John Key’s Government.

It can’t last, of course.

The world’s leading nation states must rebuild their revenues, and quickly, or their own financial situation will become as untenable as Lehman Brothers’.

In the past (to underwrite the extraordinary expenditures required during World War II, for example) this was accomplished by imposing higher taxes on the nation’s wealthiest individuals and corporations and by encouraging ordinary citizens to save more.

In the current climate, however, such a solution is unlikely. After all, it was the roll-back and ultimate elimination of precisely these kinds of social-democratic interventions that neoliberalism was devised to accomplish.

The alternative approach involves governments restoring their financial stability by imposing swingeing cuts in public spending, reducing the wages of public employees, and making the whole population pay higher taxes.

This is exactly the solution which the leading credit-rating agencies (yes, the very same agencies whose triple-A rating of manifestly deficient credit instruments fuelled the global financial crisis) are asking the world’s politicians to impose upon their peoples. It’s the "solution" America’s ruling elites expect President Barack Obama to impose on the American people, and it’s almost certainly what Mr Key and Finance Minister, Bill English, have planned for New Zealanders in 2010.

Worse still, it looks increasingly likely that the National-led Government will be prevailed upon to slash the top marginal income-tax rate from 38 to 30 percent – even as it raises the rate of GST from 12.5 to 15 percent. This will, of course, confer a huge windfall upon the country’s wealthiest citizens, while lowering still further the already declining incomes of its poorest.

The result will be another, much sharper, economic contraction: higher unemployment; rising poverty; and decreasing social cohesion. And, even though they’ve just persuaded the Government to intervene decisively on behalf the wealthy, the neoliberals will insist that the poor be left to fend for themselves.

Amazingly, as 2009 draws to its close, most New Zealanders are anticipating none of this.

"Happy New Year!" we cry.

It won’t be.

This essay was originally published in The Timaru Herald, The Taranaki Daily News, The Otago Daily Times and The Greymouth Evening Star of Friday, 1 January 2010.