Beginning of economic restructuring
David KOTZ
Every form of capitalism has contradictions that eventually bring
about a structural crisis of that form of capitalism. In the 1970s the
system of state-regulated capitalism, having produced rapid growth and
high profits for a few decades, stopped working effectively and went
into structural crisis.
| As
neoliberal capitalism enters a period of crisis, we can see
the rapid loss of legitimacy of the previously reigning
dominant ‘free market’ ideology. This is similar to the
sudden demise of the previously dominant Keynesian ideology
of regulated capitalism in the 1970s. Capitalism is going to
be restructured, in the United States and globally, during
the coming years. The outcome of this restructuring process,
however, is not pre-determined. |
The predominant form of capitalism changed to the ‘neoliberal’ form,
which means a type of capitalism in which the state plays a limited role
in the economy, particularly withdrawing from activities that benefit
ordinary people.
Neoliberal Capitalism
It now appears that neoliberal capitalism can no longer overcome two
key problems and is entering a structural crisis of its own. First, the
high and rising inequality it generates means that the majority has
insufficient income to buy the growing output of the economy without
relying on an unsustainable build up of household debt.
Second, the deregulated financial system of neoliberal capitalism is
inherently unstable, as we have so clearly seen in recent months.
From 1945 to 1973, a regulated form of capitalism predominated in the
world, including in the United States.
Regulated capitalism
Regulated capitalism here included extensive government regulation of
business and finance, regulation of the macroeconomy (aimed partly at
achieving a relatively low unemployment rate), social programs that
amounted to a modest welfare state, relatively cooperative relations
between big business and trade unions, restrained competition between
big corporations, and trade and capital flows regulated by governments
and international institutions.
The shift to neoliberal capitalism in the United States involved the
deregulation of business and finance, the reduction of active government
macroeconomic policy (and a shift of aim to assuring low inflation, not
low unemployment), sharply reduced social programs, a big business and
government attack against labour unions, unrestrained (‘cutthroat’)
competition among large corporations, and relatively free movement of
goods, services, and capital across national boundaries.
 This neoliberal transformation of capitalism was relatively thorough
in the United States, the United Kingdom, and in international financial
institutions such as the International Monetary Fund and World Bank.
As neoliberal capitalism enters a period of crisis, we can see the
rapid loss of legitimacy of the previously reigning dominant ‘free
market’ ideology.
This is similar to the sudden demise of the previously dominant
Keynesian ideology of regulated capitalism in the 1970s. Capitalism is
going to be restructured, in the United States and globally, during the
coming years. The outcome of this restructuring process, however, is not
pre-determined.
Initial Restructuring
So far the bankers have led the initial stage of restructuring.
Treasury Secretary Henry Paulson, the former CEO of Wall Street giant
Goldman Sachs, has been succeeding so far in getting the government to
rescue the banks in ways that mainly benefit the bankers.
This process has encouraged rapidly growing concentration of the
financial sector, as the largest banks merge with one another and get
big cash infusions and new federal backing.
However, the restructuring is just beginning. We can fight for
changes that would benefit the majority rather than the bankers. First,
the underlying reason for the financial crisis is all those people
unable to make the payments on their mortgages.
The Government should pass an emergency measure to ease mortgage
terms to reflect the declining values of homes and the declining
economy.
Financial Institutions
This would impose a onetime loss on the financial institutions that
invested in the risky new mortgage-based securities, but it would also
make it easier to know the value of the mortgage-backed securities,
eliminating a source of great uncertainty in the financial system.
Second, millions of people have learned the important lesson that banks
and other financial institutions are not ordinary private companies.
If General Mlls loses money, or even goes bankrupt, it harms its
shareholders and workers- but its competitors gain. But if a few major
banks lose money and are in danger of going under, this threatens the
entire financial system, and with it the economy as a whole.
The writer teaches economics at the University of Massachusetts at
Amherst. He is co-editor of Understanding Contemporary Capitalism:
Social Structure of Accumulation Theory for the Twenty-First Century,
forthcoming from Cambridge University Press. |
