Of Capitalist Catastrophes And Collectivist Triumphs

Greed Meets Fear: A New York stockbroker attempts to keep pace with the vertiginous slide in the Dow Jones Index following China's "Black Monday" (24/8/15). Capitalism likes to paint itself as a force of nature, before which human-beings are individually and collectively powerless. Only when this economic fatalism is challenged by people's renewed confidence in the efficacy of collective action can capitalism's catastrophes be overcome.

 

ROUND AND ROUND AND ROUND it goes, and where it stops nobody knows! You might think that ordinary human-beings would have tired of Capitalism’s cyclical catastrophes by now. But our capacity to absorb these entirely man-made calamities appears to be no less impressive than our ability to cope with the genuine disasters nature sends our way. Indeed, Capitalism’s longevity is, almost certainly, attributable to its success in convincing us that it, too, is a force of Nature – something far beyond our feeble strength to influence for good or ill.

 

It was not always so. Eighty years ago, with the world in the clutches of another capitalist catastrophe, human-beings somewhere found the collective strength to denounce this “force of nature” falsehood. They decided that what humankind could ruin just by “letting things go” (laissez-faire) it could rebuild by replacing the “invisible hand” of the all-powerful capitalist market with their own.

 

The American President, Franklin Roosevelt, demonstrated the power of those all-too-visible hands in the massive public works of his “New Deal”. And the British Prime Minister, Clement Atlee, likewise demonstrated what focused political will could achieve when, in the midst of post-war austerity, the British people created their National Health Service.

 

Nor was New Zealand lacking in these triumphs of the people’s will. The First Labour Government’s Social Security Act of 1938 was New Zealand’s answer to the poverty and desperation of the Great Depression. Likewise its state housing programme: a massive construction effort funded by “Reserve Bank Credit”. (A capital source unrecognised by contemporary capitalist economists!)

 

So spectacular were the achievements of collective endeavour in the years before, during and after the Second World War, that capitalists everywhere felt obliged to pay them a grudging lip-service. This apparent conversion was, however, illusory. Whenever the parties of “private enterprise” managed to supplant the parties of collectivism, the latter’s policies were either subtly, or not so subtly, perverted. Projects designed to serve the interests of the many, always seemed to end up by disproportionately benefitting the few.

 

Visionary Blueprints: Ministry of Works plans for "The Auckland That Never Was".

 

The visionary blueprints for the development of post-war Auckland, drawn up in the mid-1940s by Ministry of Works planners, anticipated the goals of Auckland’s contemporary urban planners by 70 years. Tragically, the election of the First National Government, in 1949, put paid to this “Auckland that never was”, leaving Aucklanders with the sprawling, automobile-dependent conurbations that, today, they cannot afford to fix.

 

An even more comprehensive development plan, this time embracing the whole country, was brought together by William B. Sutch in the 1950s. One of New Zealand’s most creative (and controversial) public servants, Sutch recognised, very early, the urgent need for New Zealand to diversify its agricultural commodity-based economy. He argued for the sort of value-added products that distinguished the export-base of small economies like Switzerland and Denmark. This would require a much stronger national emphasis on skills acquisition and tertiary education. Only with a highly educated workforce could New Zealand produce the innovation necessary to broaden its economy. Sutch also argued for an economy that was much less import dependent. New Zealand, he said, must develop a much stronger industrial base.

 

In the Second Labour Government (1957-1960) led by Walter Nash, Sutch found a pair of eager listeners. The Finance Minister, Arnold Nordmeyer, and the Industry and Commerce Minister, Philip Holloway, were both convinced that Sutch’s ideas offered the only coherent path to a more prosperous, and less vulnerable, economic future for New Zealand. It is one of the great tragedies of this country’s history that the Second Labour Government did not last long enough for the change it contemplated to be undertaken and become entrenched.

 

As Sutch would later write: “The National Party could not have made this change because of their dependence for financial and political support on the farmers, importers, merchants and finance houses.” Plus ça change!

 

It’s been seven years since the Global Financial Crisis of 2008 provided yet another warning of New Zealand’s economic vulnerability. Was it heeded? There’s scant evidence of it. What cannot be missed, however, is seven years of enormous investment in dairying. The export of raw commodities remains this country’s stock-in-trade.

 

Today, as another capitalist catastrophe looms, is it not time to heed the collective spirit of ‘38 and ‘45 and ’57? Those years when “Yes we can!” was more than a presidential slogan.

 

This essay was originally published in The Waikato Times, The Taranaki Daily News, The Timaru Herald, The Otago Daily Times and The Greymouth Star of Friday, 28 August 2015.

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.

Prime Suspects

A disaster without consequences? Can so much damage be inflicted on the global economy without leaving a trace?

THERE’S SOMETHING not quite right about this so-called "economic recovery". Something that simply doesn’t add up.

Apparently, it’s possible to inject trillions of dollars into the world’s major economies without setting off an inflationary firestorm. Supposedly, it’s possible for the world’s taxpayers to rescue a teetering financial system without their governments erecting even the flimsiest of safeguards to prevent the poor dupes from being forced to rescue it all over again. Theoretically, the restoration of consumer confidence will be enough to get business back on its feet – even though the endless supply of credit that kept consumers spending before the financial crisis shows little sign of being restored along with it.

What the economic experts seem to be saying is that all of the arguments that were rolled out against governments and families spending more money than they received simply cease to apply when the world’s largest banks, investment houses and insurance companies stand in need of a bail-out. These institutions, we’re told, are "too big to fail".

Sadly, the obverse contention: that the debts of low-income mortgage-holders and borrowers are "too small to worry about" doesn’t seem to carry the same weight. Indeed, there are many economists who argue that it was the big money-lenders’ disinclination to worry about the credit-worthiness of their small, "sub-prime" debtors that precipitated the whole sorry saga.

But why, you might well ask, would a banker lend money to someone who could never hope to pay it back? Whatever happened to the level-headed, no-nonsense manager of your trusty neighbourhood bank? The chap who, after many years spent weighing-up the ability of his customers to honour their obligations, knew, to a high degree of certainty, who he could take a punt on – and who he should refuse?

Gone – along with the sort of bank he used to manage.

Your mortgage may stretch out ahead of you for the next 15 to 20 years, but the financial institution which signed you up doesn’t measure its business in terms of years or decades, but in quarters.

No longer are bankers rewarded for their sober judgement and dependability, but according to how much debt they have sold in the last three months. The more they sell, the more they make. Not, as used to be the case, through steady increments in their annual salary, but by way of huge bonus payments.

At the upper levels of the world’s biggest banks, these bonus payments now far outstrip their recipients’ base salaries and, not surprisingly, such bonuses have become the prime focus of their careers.

But, where is the incentive to be cautious, or even sensible, when you are paid according to your contribution to an institution’s profits, and have no responsibility for its losses?

The world’s financial institutions are like the motorist so obsessed with increasing his speed that he devotes more and more of his attention to the speedometer, and less and less of it to steering the car.

Small wonder the global economy crashed.

The last time global capitalism got itself into such a parlous state was 80 years ago, and the financial institutions responsible paid for it politically. Indeed, the staid neighbourhood banker invoked earlier was the product of their democratic chastisement. A strict regulatory framework was thrown up around the finance sector, and for nearly 50 years capitalism kept its eyes on the road and its foot off the accelerator. As a result, the 30 years following World War II were the most prosperous in human history.

Sadly, while the leaves of human memory are prone to fall, human greed is evergreen. By the 1980s a toxic combination of inflationary war expenditures, reactionary politics and technological innovation had contrived to free finance from the restrictions imposed upon it by the Wall Street Crash.

Like a corrosive acid, the ethos of finance capital dissolved not only the regulatory chains that bound it fast, but also practically every other restraining device created by the democratic state for its own defence.

Which is why, though no one disputes their guilt, the international financial institutions responsible for the Crash of 2008 have proved more than a match for those who have, once again, attempted to chain them down.

Hence my scepticism concerning all this talk of "recovery".

The only "green shoots" I can see are in the bankers’ garden.

This essay was originally published in The Timaru Herald, The Taranaki Daily News, The Otago Daily Times and The Greymouth Evening Star of Friday, 25 September 2009.

New Zealand not ready for Irish anger - yet

One hundred thousand strong: The protest demonstration against the retrenchment policies of Ireland's Prime Minister, Brian Cowen, was one of the largest in recent Irish history.

THEY marched through the streets of Dublin in their tens-of-thousands last Saturday: public servants mostly, angry at their government’s decision to divert an additional 3-10 percent of their earnings into Ireland’s state-run superannuation fund.

At least that was the ostensible reason for the massive protest demonstration. I suspect there was a little more to it than that.

For years the Irish people have reveled in their nation’s "Celtic Tiger" sobriquet. A decade of turbo-charged economic growth, fueled by massive injections of foreign capital, transformed Ireland from a dwindling European backwater, whose children were forever taking wing for foreign parts, into a brash and confident poster-child for neo-liberal economic "reform".

For ten glittering years, Dublin skipped down the same primrose path as Auckland in the late-1980s: rampant speculation leading to boom-time opulence; crass conspicuous consumption masking pervasive moral squalor.

All gone now.

The speculative bubble has burst. Paper fortunes have evaporated. Property prices have tanked. Where once Ireland could boast of having Europe’s highest rate of economic growth, it must now content itself with the EU’s highest rate of unemployment: 9 percent – and rising.

But, as if all this bad news weren’t enough, the Irish middle- and working-classes have also had to endure the sordid spectacle of their country’s political leadership bailing-out the very same wide-boys whose recklessness and greed is responsible for turning the Celtic tiger back into an Irish kitty.

No wonder they’re angry.

THIS AFTERNOON, our own Prime Minister, John Key, emerging from Manukau City’s splendid Pacific Events Centre, where he has been hosting his much-anticipated "Jobs Summit", will also encounter a demonstration. But whereas an impressive 100,000 demonstrators marched through Dublin’s fair city to vent their anger at the centre-right, Fianna Fail-led coalition government of Brian Cowen, Mr Key’s reception committee will be lucky to muster more than a hundred.

This is because Mr Key, instead of being burned in effigy like his unfortunate Irish counterpart, continues to ride the most extraordinary wave of public support and affection. Like the characters in that old television advertisement for a new brand of fruit juice: the ones who, upon taking a sip of their rival’s product, exclaim "Oh … it’s good!" – even those New Zealanders who voted against Mr Key have been pleasantly surprised at how well their new leader is performing.

There is simply no traction – yet – for the Manukau protesters’ argument that the Prime Minister and his government are responsible for the current economic recession. Though it riles the Grinchs of the Far Left to admit it, most New Zealanders do indeed believe that if the Jobs Summit can instil a sense of "national purpose" into the recovery process, it will be a very good thing. That’s because, when it comes to dealing with the global economic crisis, the slogan "We are all in this boat together", corresponds much more accurately with the mood of the New Zealand electorate than the European Left’s defiant "We won’t pay for your crisis!"

That mood of defiance, anger and rejection may come (most likely when our own unemployment rate reaches the same menacing heights as Ireland’s) but, outside the fractious ghettos of the Far Left, it has not arrived here yet.

To most New Zealanders, Mr Key appears to be doing his best. And, if that rather goofy smile of his doesn’t quite translate to Franklin D. Roosevelt’s "the only thing we have to fear, is fear itself", it’s effect on the public mood has been almost as reassuring. The Prime Minister oozes positivity, and in times of crisis, positivity trumps carping criticism every time.

Which is why Phil Goff, instead of complaining about being excluded from Mr Key’s Summit, would have been much wiser to organise his own. New Zealand contains a host of progressive men and women, whose contributions to the current debate would have been well worth hearing: Brian Easton, Robert Wade, Bryan Gould, Susan St John, Marilyn Waring, Jane Kelsey, Matt McCarten, Jim Flynn, Tim Hazledine, Jonathan Boston, James Belich – the list goes on.

I’d have offered pretty good odds that the recommendations of such a conference would compare more than favourably with those of the 200 businessmen, bureaucrats, union officials and community leaders meeting today in Manukau.

A good idea almost always achieves more than a shouted slogan or marching feet – even 200,000 of them.

This essay was originally published in The Timaru Herald, The Taranaki Daily News, The Otago Daily Times and The Greymouth Evening Star of Friday, 27 February 2009.

Whose Crisis?

Proletarian squalor, as captured by the 19th Century artist, Gustave Dore. For more than a century this has been the vulgar Marxists' mental picture of the working class's predicament. But, in a modern industrial society, such as New Zealand, does the working class really live like this?

STEVE COWAN, in his blog "Against the Current", takes me to task (yet again!) for failing to take the side of the New Zealand working class in my posting entitled "Ending the Phoney War".

This is irritating.

When I insist, as I do in the penultimate paragraph of the posting, that:

What the Prime Minister must not do is seek to appease the greed of those who financially backed his party’s election victory. Any attempt to shift the whole burden of New Zealand’s economic recovery on to the backs of its long-suffering citizens will merely guarantee that John Key leads his one-term National-Act-Maori Party Government to electoral oblivion.

Exactly whose side does he think I’m on?

If, as the British Marxist theorist, Alex Callinicos, insists, the socio-economic territory occupied by the citizenry and the proletariat is, in a modern industrial state, 70 percent co-extensive, then the above paragraph can only be read as a demand that the working class not be required to bear the burden of the economic recession on its own.

Steve also appears to have difficulty with the expression "equality of sacrifice". This is a term with a long and proud pedigree, stretching all the way back to World War I when it was used to demand that wealth – no less than men – be conscripted for the war effort. In the context of World War II it’s meaning was made plain by the imposition of food-rationing, confiscatory rates of progressive taxation, the requisition of stately homes, and the effective nationalisation of privately-owned natural resources such as coal.

This is what most people understand the term "equality of sacrifice" to mean, but for some reason Steve interprets it as "calling for ordinary New Zealanders to pay the price of an economic crisis not of their making".

There are any number of responses I could make to this extraordinary non sequitur, but, for the sake of brevity, I shall limit my reply to just three critical observations.

First. The looming economic crisis is indeed an exogenous event. It’s origins lie in the excesses of the US financial sector, and Steve is quite right to say that Kiwi workers have had no part in its making. Their innocence will not, however, prevent the effects of what is now confirmed as the most serious economic downturn since World War II from washing over New Zealand. And, that being the case, the National-led Government cannot avoid dealing with its impact.

Second. When it comes to the most appropriate governmental response, Steve is clearly of the view that the 70 percent of New Zealanders who belong to the working class should not be asked to play any role in dealing with the crisis. Logically, this leaves the remaining 30 percent of the population to come up with a solution on its own. Now this is rather odd, because, from his own writings, it is very clear that Steve abhors the very notion of the upper and middle classes deciding the fate of working people.

Of course, what Steve might actually be suggesting is that the middle and upper classes should bear the entire weight of the crisis on their own shoulders. If so, I would like to hear him explain why these Kiwis (who are also, presumably, innocent of any role in the creation of the global recession) should be the ones to make all of the sacrifices. Apart from utterly impoverishing these groups (and thereby transforming them into members of the working class) what purpose would be served by such an inherently unjust policy?

Which brings me to my third and final point: Steve’s apparent unwillingness to concede to individual members of the New Zealand working class the slightest hint of personal autonomy or social responsibility.

To Steve the proletariat can only ever be mired in absolute and irremediable destitution. In his mental universe its members no doubt resemble those extraordinary woodcuts by Gustave Dore depicting the poor of Victorian London. These are not people who drive around town in imported second-hand SUV’s, or take out hire-purchase agreements on flat-screen television sets. They do not belong to families who have just come back from a holiday at the beach. They are not paying off mortgages, or helping their kids through polytechnic. They do not have trade certificates and are certainly not paid $28 per hour. In short, Steve’s Dickensian working class bears not the slightest resemblance to the real 21st Century workers passing by him every day in the street.

To suggest that this vast swathe of the New Zealand population possesses neither the capacity, nor the inclination, to participate in any plan for getting their country through the most serious economic crisis since the 1930s is as outrageous as it is condescending.

And, just so there’s no mistake, Steve: Yes, I do support a rise in the minimum wage for low-paid workers. And yes, I do believe that families dependent on the domestic purposes benefit deserve a substantial lift in their weekly income. It might also be a good idea for the National-led Government to offer temporary tax relief to this country’s tens of thousands of small, family-owned and run businesses. It should also embark on a massive state house construction programme, and reverse its decision to halt the insulation of old/cold homes. I’m also in favour of a substantial increase in the top marginal tax rate for persons earning over $100,000.

These are all measures any self-respecting social-democrat would be proud to support, and the NZ Labour Party has already suggested most of them. It’s what we mean when we talk about ensuring "equality of sacrifice".

Because, believe me Steve, if the New Zealand working class is not encouraged to become a leading actor in the unfolding economic drama, then the only role it is likely to be assigned is that of victim.

Ending the Phoney War

In 1939-40, Neville Chamberlain, hailed here as "The Pilgrim of Peace", represented a profoundly compromised British ruling class. Even after the war with Germany had begun, there were many aristocratic Englishmen who favoured a negotiated peace with Hitler. In the face of the present economic crisis, ruling classes around the world are similarly divided on how best to defend their interests.

I’M glad the Prime Minister and his senior colleagues are keeping the intensifying economic crisis uppermost in their minds.

Ever since the global economic situation became critical in October of last year, I have been unable to shake the impression that New Zealand has been living through a "Phoney War" period in relation to the turmoil beyond its shores.

The metaphor is apt in many ways.

The Phoney War was the name given to the seven month period between the outbreak of World War II in September 1939 and the invasion of France in May 1940. It earned this title because, in spite of the fact that all the major Western European powers were at war, nothing much seemed to be happening.

Although we still don’t like to talk about it, there was a very good reason for this singular lack of serious bellicosity. It was because, at the highest levels of the British, French and German governments there was a deep reluctance to take the final step into full-scale war.

Hitler didn’t believe that his British and French opponents’ hearts were in the conflict, and with the rapid defeat and occupation of Poland, he simply couldn’t understand why they repeatedly refused his offer to make peace.

Because there were many in the upper echelons of British and French society who were eager to accept Hitler’s offer. At the very highest levels of the British aristocracy, in particular, there was a deeply ingrained view that the Western nations must stand together against the threat posed to their way of life by Soviet communism.

Others (including George, Duke of Kent) were fearful that the prosecution of "total war" against Germany would fatally weaken the British Empire and usher in a period of American hegemony.
Interestingly, Hitler agreed with them.

And certainly there were many in the upper classes of France who feared their own, home-grown socialists and communists much more than they feared Hitler’s Nazis.

The Phoney War may, therefore, be understood as a period of intense political struggle within the ruling classes of France and Britain: a struggle between those who favoured a negotiated peace with Hitler’s Germany, and those who recognised in the Nazi regime a qualitatively different form of authoritarian government – one which posed an existential threat to the whole of Western civilisation.

Only with the final victory of this latter faction, led by the redoubtable Winston Churchill, on 10 May 1940, did Hitler feel constrained to unleash "Plan Yellow" (Germany’s invasion of the Low Countries and France) – thereby bringing the Phoney War to an end.

A similar internal struggle is currently being played out with the ruling classes of the capitalist countries in relation to the global economic crisis.

On the one hand we have those who characterise the current difficulties as a simple (if brutal) market correction. Let it play itself out, they advise, and the system will swiftly regain its equilibrium.

On the other side of the argument stand those who see in the unfolding crisis an existential threat to the global economic order as deadly as that posed by the Great Depression of the 1930s.

These two factions are well represented within the National-led Government and the civil service. Which is why I’d love to have been a fly on the wall of the Prime Minister’s office on 15 January as he and his senior ministers examined the various options for dealing with the crisis.

We must hope that in this fight the Prime Minister takes historical inspiration from Winston Churchill and not Neville Chamberlain.

Because with every passing week it becomes clearer that, if the people of the world are to come through this economic crisis without enduring enormous hardship and suffering, then political leadership of truly Churchillian courage and determination will be required.

What the Prime Minister must not do is seek to appease the greed of those who financially backed his party’s election victory. Any attempt to shift the whole burden of New Zealand’s economic recovery on to the backs of its long-suffering citizens will merely guarantee that John Key leads his one-term National-ACT-Maori Party Government to electoral oblivion.

But, if the Prime Minister ends this Phoney War against the recession by requiring genuine equality of sacrifice from all New Zealanders, then they will readily dedicate their "blood, toil, tears and sweat" to its defeat.

This essay was originally published in The Timaru Herald, The Taranaki Daily News, The Otago Daily Times and The Greymouth Evening Star on 16 January 2009.