By Chris Harman
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The politics of economics

This article is over 15 years, 2 months old
The efforts of governments and central bankers to prop up the financial system and make workers pay for the crisis can be derailed by rising anger.
Issue 331

Great economic crises cause ructions within global capitalism, both among those who exploit and rule, and among those whose labour keeps the system going.
This year’s financial crisis is no exception. Not since the collapse of the old Eastern bloc and the USSR in 1989-91 have we had a spectacle of major ruling classes being thrown into such turmoil.

Now they are crossing their fingers, hoping that the almost unimaginable sums they have poured into the banking system will prevent its complete collapse. But even if their efforts succeed they cannot prevent the shockwaves from the crisis causing further instability.

There is recession at the heart of the system. Debt kept the system expanding, and its curtailment by the banking crisis means that firms across the world cannot sell all they produce. Every day there are reports of firms cutting back production and laying off workers, not only in North America and Europe, but now also in China and India. And bankruptcy is knocking on the doors of giants such as General Motors and Chrysler.

The immediate response has been more panicky action, dressed up as “decisiveness”. Those who were hardline neoliberals before the crisis, are now backing “fiscal” measures – government spending and tax cuts – to get sales going again.

Neoliberals had to abandon their claim that “there is no alternative” to untrammelled market forces. That has immense ideological implications. All the old supposed justifications for capitalism are thrown into question just as the level of pain caused by the system shoots upwards.

Yet no one is confident that such short-term remedies can work. They leave unresolved the underlying problem of the enormous losses suffered by the banks. The banking system will sink again if real cash is not found to cover these debts.

What is more, at some point the cash poured into the banks has to be recouped through measures that hit the mass of people. But if the government does this too quickly it can only cut back spending power even more and deepen the recession. The advice the Financial Times is giving to European and US governments is for a short-term increase in public investment followed by a medium-term cut back. Gordon Brown seems to interpret that as meaning he increases government borrowing now and claws it back later with renewed cuts if the spending brings electoral victory.

Complicating everything governments do is the anger of vast numbers of people at the display of upper class greed that produced the crisis.

Anger has already taken to the streets where governments have cut back. Witness the continuing wave of struggles in Greece, the sudden upsurge of workers’ demonstrations and student occupations in Italy, and the demonstration in Dublin of pensioners and students (kept apart by the Irish police).

Anger has also been expressed in a different way through Barack Obama’s election, with layers of white workers joining the electoral revolt of African Americans, Hispanics, opponents of the Iraq War and the liberal left.

US capitalism is still the most powerful in the world, despite its relative weakening over the decades. But the sheer scale of the crisis means it is having to carry out economic manoeuvres of uncertain effectiveness in the face of popular feeling that could always get out of hand. That is why many of US capitalism’s stalwarts like Paul Volcker (former head of the Federal Reserve and an architect of neoliberalism), Warren Buffet (the US’s richest man) and Robert Rubin (the Wall Street banker who was Clinton’s treasury secretary) are riding the Obama bandwagon in the hope that they can direct where it goes.

Most of the world’s states have far fewer resources. Already, countries like Hungary, Iceland and Ukraine are being forced to look for help from the International Monetary Fund – and to pay the high price it will involve in terms of living standards and welfare expenditure. Keynesianism may be on the agenda in the short term for a small number of states at the core of the system, but a reinforced neoliberalism confronts a much greater number around the edge.

A parallel may well exist with what happened to Argentina in 2001-02, when economic collapse led to an immense political crisis as people took to the streets to drive out four consecutive presidents. This time we could see half a dozen Argentinas. Economics can become politics on a very big scale.

Argentina showed how people can move from passivity to activity overnight. But it remains a capitalist country, with poverty levels still much higher than in the 1990s. Its revolutionary left grew in the midst of the insurgency, but was too weak to present a political alternative. The country’s highly bureaucratised trade unions were able to hold the employed section of the working class back from participating collectively in the struggle and so allow the Peronist party, to which they are linked, to re-establish capitalist stability.

History is shaped by objective forces – by significant economic developments and their impact on the major social classes. But at key moments what also matters is the capacity of networks of politicised individuals – of political organisations – to influence what the members of those classes do. We are going to see many such key moments around the world as the present crisis takes its toll.

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