Is capitalism’s werewolf greed now devouring it? Some people think this is the inevitable collapse. A lot more don’t – but want to see more regulations and controls on the system. My view is that you should let the market economy get on with what it’s good at – creating and distributing goods and services – and that it is too much control and regulation that got us into this mess.
It started in 1977, when the US authorities made mortgage lenders extend loans to people in poor areas. Helping poor folk onto the housing ladder was a noble ambition, but it meant that lenders were forced to give mortgages to people who could not actually repay them. Sub-prime, we would call it today.
After eight years of that came the Savings & Loans crisis in the US – where more than 700 US financial institutions went bust. The authorities stepped in again with a bailout package, and pushed them to merge – creating banks “too big to fail”. Great work, eh?
After that, whatever happened – the financial crisis in Asia at the end of the 1990s, the Russian, Argentinian and Mexican governments defaulting on their debts, 9/11 – the US sought to maintain investors’ confidence by simply printing money.
In Britain, meanwhile, Gordon Brown spent about £280 billion more than he raised in taxes, so that’s yet more cash going into the markets.
Likewise, when cheap imports from emerging countries like China and India meant prices in Britain should have been falling, the Bank of England was happy to see them rising at 2 percent.
So everyone had a great party. The champagne flowed. But it was all paid for by a torrent of funny money printed by governments. Eventually it had to end, and now we’re suffering the hangover.
Where were the regulators? Unconscious on the floor, it seems. They didn’t spot the bank failures coming, and acted like headless chickens afterwards.
In a casino where the government is handing out free chips and the regulators are standing drinks at the bar, some of the punters might well place a few risky bets.
But it’s the managers and not the players who should be blamed. This is a crisis of regulation and government, not of free market economics.
But don’t focus too much on Britain and the US. China is now the world’s fourth largest economy, and is growing at around 8 to 10 percent a year. Other emerging economies are strong too.
Even now, economists expect the world to grow at maybe 4 percent next year – far more than Britain has mustered recently. So the global market economy still looks pretty resilient.
Which I’m glad about. China, India and the others are growing because of trade and markets, not because of government. They tried that. It broke a lot of eggs, but didn’t make much of an omelette.
But the market system is now enabling billions of the world’s poorest people to work more productively, produce what the world wants, earn enough to buy a few luxuries, build up capital to start their own businesses, and so give them and their families greater independence and better prospects for the future.
The market is a huge international cooperation system. My shoes may well have been made in China with leather from South America and dyes from India, all shipped on a Greek freighter to my British retailer.
Such interdependence is a powerful force for peace. Business people want to see goods moving across borders, not soldiers. It’s governments that start wars. Tony Blair took us into Iraq, not the Bank of Scotland.
The market enables different people to collaborate, even though they don’t agree. I don’t much care for the government of Iran, but its growers produce succulent dates that I buy – pleasing us both.
And the market is a highly efficient, automatic system. Where shortages or surpluses arise, changes in prices quickly operate on supply and demand to correct them.
The minds of millions are engaged in the process, and all the information they comprehend. Beats central planning any day.
Markets need rules, right enough, of property and honesty. If governments stuck to enforcing those instead of trying to bully and second-guess producers, we’d all be better off.
The market is spreading wealth across the globe, enabling people to pursue their own lives. We should defend and conserve it.
Dr Eamonn Butler is director of the Adam Smith Institute. For more information go to » www.adamsmith.org
The financial crisis shows how false the stories we have been told for three decades about the wonders of the market are. The very economists and politicians that promoted them most are now saying the state has to intervene to ward off a crisis on the scale of the early 1930s.
Capitalism has always been prone to crises. It is based on blind competition in pursuit of profit and accumulation.
Capitalists race against each other to expand credit and production – and then fall flat on their faces when they discover they have done so at a speed that their profits cannot sustain.
In the 19th century crises hurt a few capitalists and had a terrible effect on workers. But this did not matter too much to those at the top, since most capitalists gained from the bankruptcy of a few.
Free market theorists felt able to argue that capitalism would produce prosperity, providing that governments did not interfere with it.
The great slump of the 1930s discredited those theories. The crisis did not resolve itself. Individual companies had become so big that when they went bust other firms were also damaged.
Nearly all pro-capitalist economists drew the conclusion that the state had to intervene.
Yet the sort of intervention preached by John Maynard Keynes could not end the turmoil. There had only been a brief recovery in the US when new problems developed in 1937. Almost all economists agree that it was only the Second World War that ended the crisis.
Nevertheless, for 30 years after the Second World War mainstream economics taught that there was nothing intrinsically wrong with capitalism that a little state intervention could not cure.
But when crises broke out in 1974 and 1980 attempts at state intervention along the capitalist lines preached by Keynes could not end them.
Many apologists for capitalism changed their tune overnight.
Whereas previously they said crises were caused by lack of state intervention, now they said the intervention itself was to blame.
The initial policy of the Ronald Reagan and Margaret Thatcher governments of leaving the market to itself merely made bad crises worse.
Reagan then used the state to provide an economic boost through massive arms spending. The stock market crash of 1987 caused both Britain and the US to pour billions into the economy through their central banks.
Of course the ideology of “free markets” is a falsehood – markets have always been bound up with national states that seek to protect and promote the interests of firms based in their national economy.
This is why the market system is so unstable and prone to war as economic competition spills over into military competition between states.
Free markets under Reagan and Thatcher meant intervention on behalf of the rich and the enforcement of neoliberalism on the rest of us.
Yet capitalism ran into more crises – in 1990-2, in 1997-8, in 2001-2 and then again last year.
Recovery from the earlier crises depended increasingly on debt. The removal of government restraints on banks caused a massive build up of lending to consumers.
This lending created a market for goods that firms right across the world – in China and India as well as the US and Britain – would not have been able to sell to otherwise.
Now the lending boom has come crashing down and brought the banks down with it. This is not a question of just a few “spivs”, but of a whole rotten system.
We were told that the market would lift people out of poverty – both in Britain and across the world.
Under pressure from Western governments, market liberalisation ripped through the Global South.
Far from bringing prosperity, this has led to vast and increasing inequality – within and between countries. It has left many poorer economies totally dependent on the global market. So the crisis that threatens misery in Britain and the US could prove catastrophic for millions in the Global South.
Current attempts by governments to bail out the system will only succeed in putting an enormous burden on the rest of us.
They do, however, prove that markets are destructive and chaotic, and that we need a different way of running things – not based on either “free markets” or top-down state planning – but one run by the workers who create the world’s wealth.
We need a system organised for need not profit – socialism.
Chris Harman is the editor of International Socialism journal. For more information go to » www.isj.org.uk He is a former editor of Socialist Worker.
Eamonn Butler’s reply to Chris Harman
What are we talking about here? Theory or practice? You can’t compare the hell of capitalism in practice with the paradise of socialism in theory. You have to compare like with like.
And on that front, I’d take capitalism every time. It may have brought us the credit crunch, maybe even the Great Depression, but it didn’t bring us the mass purges of Stalin, Mao or Pol Pot.
But then I don’t defend capitalism. I defend free markets. And I’m very happy to give governments the powers needed to enforce the rules of the market – respect for property, honesty and contracts, and competition and choice as antidotes to coercion and exploitation.
It’s when governments go further, and become players rather than rule-makers, that you get a politicised mess.
It’s not markets that made the Great Depression great – it was political authorities that squeezed credit in response.
It’s not markets that created sub-prime mortages – nobody wants bad business – it’s the US politicians who forced them.
We need governments, right enough – you didn’t think I was an extremist, did you? But we need to limit them to maintaining the framework that lets markets work. And that is what creates prosperity.
Free markets work because both sides gain. They wouldn’t enter a voluntary exchange if they didn’t.
The more exchange we facilitate, the more this mutual gain spreads. And I am glad that it is spreading across the entire planet, as once closed countries are coming into the world trading system.
Sure, some people are richer than others. But at least markets do produce riches. Socialist countries just seem to spend them.
Some countries started creating productive capital early on, and still have an edge. But others will overhaul them, and get rich too, unless prevented by politicians’ protectionism.
Sounds like a workers’ paradise, Chris. You should join me in fighting big government!
Chris Harman’s reply to Eamonn Butler
The claim that it is government intervention that creates crises is bizarre indeed. The present crisis arose from the behaviour of privately owned banks, mortgage companies and hedge funds. They followed the good old capitalist principle that private greed is good. Look where it got them – and us.
The attempt of the US government to rely on free market principles led to it allowing Lehman Brothers to go bust. This led to other major financial institutions across the globe heading for mass bankruptcy.
The only option for George Bush was a sudden U-turn to prop up the system with state intervention on behalf of the rich.
We have been here before. The crisis of the 1930s forced governments to try to save capitalism from itself.
The extreme example was that of Germany. At the end of 1932 big business decided that allowing Adolf Hitler to take power was the “lesser evil” to a continuation of the crisis. That pushed Germany and the world towards war and barbarism.
Today, we are witnessing another attempt to solve the crisis on capitalism’s terms. This involves attacks on workers’ living standards right across the globe.
The market is not a series of mutually beneficial voluntary exchanges. It is founded on ruthless competition with companies and nations attempting to dominate their rivals.
For most of us, participation in markets is based on economic compulsion – the need to work in order to survive.
Markets do not create riches – neither do speculators, banks or bosses. Workers create wealth – and yet the majority have no say over the production or distribution of that wealth.
Stalin’s Russia was not socialist. It was a country where capitalism was organised through a top-down state and was shaped by the drive to compete economically and militarily in a world market.
There is an alternative to the market – a takeover of all the giant banks and corporations by a state subject to the control of those whose labour creates the wealth, not of the capitalists who rob it.