The Crisis and Economic Alternatives

THE CRISIS AND ECONOMIC ALTERNATIVES GREG ALBO ince 2008, the world market has been wracked by a degree of economic Sturbulence unusual in its scope, depth and duration. Although uneven in its recessionary impacts, no corner of the global economy has been untouched by this. In the central economies of North America, Japan and Europe, this period has been universally demarcated as a ‘major crisis’, comparable to the ‘great depressions’ of the late nineteenth century and the 1930s and the stagflation of the 1970s. Even as the crisis now presses into its fifth year, economic prospects remain highly uncertain. In cataloguing obstacles to a renewal of economic growth in various parts of the world, the July 2012 IMF World Economic Outlook observes, with a tone of understatement, that ‘the global recovery, which was not so strong to begin with, has shown further signs of weakness’.1 As in other major turning points in the history of capitalism, powerful forces for restructuring the state and the economy have been set in motion. From both sides of the political spectrum, governments have been falling like dominos. In Italy and Greece, ‘technocratic governments’ were struck while in others something like a ‘common front’ formed between centre- right and social democratic parties to back the bailouts of the financial system and secure long-term policies of ‘fiscal consolidation’ (read austerity). This has kept even more interventionist economic policies within the parameters of ‘exceptional monetarism’ (along the lines advocated by Ben Bernanke of the US Federal Reserve), thereby seeking a balance between fiscal austerity and the ‘quantitative easing’ of monetary policy and debt consolidation to stabilize the financial system. This has allowed governments to attempt to reconstruct their broader neoliberal policy frameworks and power structures on a new foundation. For some observers, this has marked a ‘return of the state’, after years of ‘free markets’. But it mainly reveals how important the state has always been in capitalist economies, even in the neoliberal era. Still, the politics of the crisis has renewed the critique of neoliberalism, 2 SOCIALIST REGISTER 2013 and even capitalism, and opened up new spaces of political opposition. An impressive array of struggles against austerity have erupted, and continue to emerge, from the global Occupy movement to the Indignados in Spain, UK Uncut, and Blockupy Frankfurt, demonstrating a tactical inventiveness that the left very much could use. The radical left has, moreover, managed to re-establish a degree of national prominence in the electoral arena and the broader field of political parties – Syriza in Greece, the Left Bloc in Portugal, the Left Front in France, the Socialist Party in the Netherlands, the Red- Green Alliance in Denmark, to name the most prominent examples – that it has not held in decades. Thinking about fundamental economic alternatives – something that had been declared as either utopian or improbable speculation even on the left – is again receiving attention. The theoretical and political questions of socialist strategy have returned, including how centrally a strategy for not just challenging but changing the state must figure in them. Renewed interest alone, however, does not make the metrics for assessing alternative economic programmes – from Keynesian reflationary policies to socialist transitional reforms – particularly transparent. When even Martin Wolf, the Financial Times commentator who is one of the more progressive voices in the mainstream media, says that no ‘credible alternative’ currently exists,2 it is well to bear in mind that this assessment pivots around whether ‘credible’ means only those alternatives that, as Istvan Meszaros has put it, ‘first acquire legitimacy as a capital asset’, so as to foreclose thinking ‘beyond capital’.3 But it is certainly true that the left is still sputtering in producing – never mind anti-capitalist projects – even such alternative economic policy proposals as might successfully sustain anti-neoliberal alliances in the current conjuncture, and thereby block the ways state power and economic policy are now being deployed in austerity exits to the crisis and forestall further attacks on the working classes. Yet even just a consistent politics of fighting austerity will open space for new and broader struggles, while debating economic alternatives, at this moment, can be important to the left’s regaining an organizational presence as a social force capable of advancing the organizational and programmatic basis for an anti-capitalist oppositional bloc, forwarding structural reforms capable of cracking open space in the state for struggles over the very definitions of democracy and needs, and thereby pointing the way not just to impeding but potentially transcending capitalist power. THE CRISIS AND ECONOMIC ALTERNATIVES 3 KEYNESIAN DEPARTURES Critics of the neoliberal rescue and exit strategies have become more numerous and more vocal as the crisis has worn on. Keynesian analyses have argued how bursting asset bubbles and financial meltdown led to flagging effective demand as individual market actors simultaneously slashed spending and de-leveraged debt loads, turning specific market failures into generalized recession, with an excess of labour and productive capacities in all parts of the world. In this setting, as in the 1930s, new gross investment, or net exports for individual states, cannot be expected to spur new growth. Consumers remain overextended and fearful for their jobs. Capitalists prefer to sit on ‘money hoards’. And the world market has a depressive configuration: the US is now exhausted as ‘consumer of last resort’; China’s imbalances have been exposed; and the EU remains locked in its banking and currency crisis. Uncoordinated strategies of currency realignment risk slipping into ‘beggar-thy-neighbour’ devaluation wars. Neoliberal policies of fiscal consolidation to reduce government debt mistake symptoms for causes and, in fact, reinforce the crisis. The economic authorities, according to the Keynesian dissidents, have failed to understand what is distinctive about this unique market failure and thus utterly lack a coherent strategy to move from emergency financial stabilization to steady growth and economic rebalancing. To counter the slide into further economic chaos, policies for exiting from the crisis need to abandon the short run fixation on austerity, adjust the policy mixture and timing of restraint and expand the scale of economic intervention. This perspective has informed the newly elected Socialist government of Francois Hollande, for instance, which campaigned on an anti-austerity (not anti- neoliberal) platform of reorienting the eurozone to ‘growth-led’ policies, while still promising to meet fiscal commitments, through increased use of the European Investment Bank, EU project bonds, issuance of eurobonds and an EU-wide financial transactions tax. The new government’s immediate move to increase taxation, notably via a 75 per cent tax on the richest brackets, and modestly increase public expenditures, with a half million new public housing units a priority, stands out against the withering conformity to the realpolitik of austerity elsewhere. A host of financial commentators – Nouriel Roubini, Martin Wolf, Wolfgang Munchau to name just three – have been more audacious in their proposals than such left-of-centre governments and parties. Proceeding from a pessimistic (bordering on alarmist) assessment of the rigidity of global imbalances and the adequacy of debt consolidation by moving it from the private banking system into the state sector, they insist that weak 4 SOCIALIST REGISTER 2013 global demand can only be compounded by government restraint. Any ‘fiscal compact’, as being proposed for Europe, needs to be a long-term objective, preceded not only by steps toward a banking and fiscal union, debt mutualization through the European Central Bank, and greater resort to the European Stability Mechanism for orderly default by sovereign debtors (including allowance for exit from the euro), but above all by a short-term ‘growth compact’, wherein governments need to undertake sustained fiscal borrowings to expand public infrastructure spending to offset private sector financial surpluses. But since, in many countries, the lack of effective demand is compounded by structural current account deficits and the US can no longer continue as a net importer in the same way, they argue that a fundamental rebalancing of the world market will be essential to any new phase of growth. As Wolf warns against the enticements of austerity for ruling elites, ‘this will be a lengthy and fragile recovery. A far greater danger exists of premature retrenchment than of excessive delay.’4 As weekly columnist for the New York Times, the Nobel laureate Paul Krugman has come to occupy the mantle as the foremost Keynesian critic of austerity. In innumerable columns and two recent books, he argues that the US and other core countries have been in a depression since 2008, following J.M. Keynes’s definition of a depression as a ‘chronic condition of subnormal activity’ that is self-sustaining. For Krugman, this calamity is ‘basically a technical problem, a problem of organization and coordination… Solve this technical problem, and the economy will roar back to life’.5 Deficit reduction needs to wait until the medium-term, he argues, and governments in the capitalist core countries instead need to soak up the excess

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