The crash of 2008 is forcing governments to make previously unimaginable inroads into the private sector. Pumping capital into the banks by partly nationalising them – the key measure announced by the New Labour government in Britain last week – looks set to spread to the US and Europe.
But for many establishment figures this doesn’t go far enough. Writing in the Financial Times last week, the economist Paul de Grauwe advocated the “temporary nationalisation” of the entire banking system.
The logic behind this is that only the state has the resources and the will to undertake the long term lending that the banks, paralysed by past losses and the fear of future ones, have stopped undertaking.
But the rub comes when de Grauwe says that once stability has been restored and “a fundamental reform of the banking system” has taken place, “the governments will be able to privatise the banking system again”.
In other words, the state can intervene so long as these are temporary measures designed to rehabilitate market capitalism. But, once this rescue has succeeded, the state should retreat.
The obvious question this strategy poses is – what’s to stop the financial markets getting up to the same old nonsense once again? The answer is supposed to be regulation. In exchange for rescuing the banks, the state will impose much tighter controls on them.
The trouble is that this has happened before. The general response to the Great Depression of the 1930s was greater state control over the economy in general and the banking system in particular.
But when capitalism began to revive in the 1950s and 1960s, it began to press up against the net of state regulation that was meant to tie it down.
Financial markets became increasingly effective at bypassing national controls. Finally, against the background of renewed economic crisis and class confrontation in the late 1970s and the 1980s, they were set free by Margaret Thatcher in Britain and Ronald Reagan in the US.
The present seems like a good moment to step off the roller coaster altogether. Instead of this infernal cycle of more or less regulated market capitalism, let’s adopt a fundamentally different form of economic coordination altogether.
This would mean getting rid of the market. This couldn’t be done all at once – it would take time. The basic step would be to replace the competition that drives capitalism with a planned economy.
There are two fundamental things about planning. The first is that it involves turning investment – the setting aside of resources for future production – into a collective decision about the future direction in which our society shall go.
Climate change is a good example. At present, despite all the targets being set to reduce carbon dioxide emissions, emissions are rising because rival firms and states don’t want to bear the costs involved in meeting those targets. A planned economy could systematically switch resources to carbon neutral or low carbon activities.
Secondly, planning would allow economic decisions to be made by those directly affected by them. There is enormous anger that the antics of a few thousand overpaid bankers should have such devastating consequences for everyone else.
A planned economy would involve networks of producers and consumers discussing and deciding how to use the resources available to them to meet their needs. These networks could be local, regional, national or international.
So planning would bring our goals and resources into alignment. It would also be democratic. Of course, the word “planning” causes a collective heart attack in the establishment.
But a state takeover of the banks involves a kind of bastard planning. The government will be involved in allocating resources to firms by deciding which ones to lend money to. The difference is that these decisions will still be guided by the search for profit and won’t be accountable to ordinary citizens.
So if we’re going to have planning, let’s have the real thing as a permanent replacement for this discredited system.