Hein Marais: A SECOND LOOK
Eighteen months ago, questioning the virtues of the free market was tantamount to flashing a membership card of the Flat Earth Society. Today, there’s standing room only on the bandwagon of second thoughts about laissez- faire capitalism.
Minister of Finance Trevor Manuel, President Nelson Mandela, British Prime Minister Tony Blair, World Bank chief economist Joseph Stiglitz, former United States secretary of labour Robert Reich and Harvard University’s Jeffrey Sachs are some of the establishment figures tripping over one another to call for a rethink of what 15 months ago was deemed sacrosanct: that a liberalised and deregulated world economic system spelt unparalleled global prosperity.
George Soros tells the US House of Representatives that the global capitalist system “is coming apart at the seams” and routinely warns other audiences that “extending the market mechanism to all domains of society has the potential of destroying society”.
Sachs, a reconstructed pointsman of neo- liberalism, now speaks blithely of the “phony Washington Consensus” which ignored “a world of greater income inequality than ever before in history”. Programmes imposed by that dominatrix of free market capitalism – the International Monetary Fund (IMF) – “are too flawed to be a standard of good or bad performance”, he says.
Lifting the scales from their eyes has been the ongoing financial turmoil and the danger that it could drag an ostensibly vibrant world economy into the dank depths of recession or, worse, depression. All agree that the dream of a laissez-faire global economy, governed by the corrective impulses of The Market, now looks spindly and perilous.
But the stampede towards “new answers” is premature. Before solving the conundrum, we must, as the old TV series Kung Fu used to announce in its opening credits, “seek to understand the question”. And the question is elementary: what exactly has gone wrong?
Fingers are being wagged at the vagaries of untrammelled financial capital flows that continue to transmit instabilities throughout the world system. Correctly, the dogma of financial liberalisation is yielding to a search for new ways of regulating capital flows, new remedies for liquidity crises, and so on.
These are important but incomplete quests. Their premise is that the global capitalist system is generally sound, save for the malignancies triggered by footloose financial capital. The prime task, it follows, is to protect an otherwise buoyant and feisty global system against such convulsions. That done, the world economy can return to its presumably “normal” equilibrium.
Which brings us to myth one: the idea of “normality” in the capitalist system. Defying such a notion is the very history of capitalism – from the long boom of 1850 to 1873, the Great Depression of the next two decades, the pre-World War I upturn, another Great Depression in the inter-war period, the quarter-century boom after 1945, and the subsequent and ongoing 25-year downturn.
A quarter-century downturn? The conventional record parades evidence of rising volumes of global trade and investment, victories over inflation and steady (though unspectacular) levels of economic output. That version of reality deceives through omission.
Conjured up is myth two: that year zero of global capitalism’s current crisis was last year’s Asian meltdown. Instead, as economic historian Robert Brenner shows in The Economics of Global Turbulence, the origins of these upheavals date back to the early 1970s.
Plaguing the world economy since then has been a long-term and system-wide economic downturn which has registered profoundly in the most advanced capitalist countries. Today’s world economy is a pale shadow of its post-war counterpart.
“Throughout these economies,” Brenner demonstrates, “average rates of growth of output, capital stock [investment], labour productivity, and real wages for the years 1973 to the present have been one-third to one-half of those for the years 1950 to 1973, while the average unemployment rate has been more than double.”
Between 1970 and the early 1990s, the manufacturing rate of profit in the Group of Seven (G7) economies was 40% lower than between 1950 and 1970. Not only are the latter figures key indicators of the system’s overall health, but they’re important clues for understanding the current crisis.
Myth three is the folksy faith still vested in the “American Model”, which seems enviably muscular compared to the wheezing efforts of other G7 economies. Unemployment in the US has dropped to about 6%, inflation has sagged to 3%, and gross domestic product has dug in its heels around 2% to 3%.
The US recovery, Brenner shows, was “built precisely upon historically unprecedented wage repression and dollar devaluation”. Low US joblessness figures hide a shift to a low- wage economy in which almost half the labour force has seen real wages drop between 8% and 12% since 1979. This was achieved through the fiercest and most sustained attack on labour since the American Civil War, an assault that began under the Carter administration and which US President Bill Clinton still dutifully persists in.
In the 1990s, 15% of US workers have lost their jobs. Most have found new work. Unfortunately, they now earn 14% less than before. Last year, real wages of USworkers were still stuck at their 1965 levels, while 36-million Americans (many with jobs) were living in poverty. Meanwhile, income inequalities have soared to unprecedented levels.
Inadvertently, the US “miracle” confirms one of the pillars of Marxist eschatology: capitalism’s tendency towards impoverishing the working classes and “proletarianising” the lower middle class – a key factor in explaining the dizzy levels of US corporate profits.
At face value, the US seems an exception to the long downturn afflicting other G7 economies. In reality, productivity in the US economy between 1973 and 1996 fell to its lowest levels in the country’s history, prompting the Financial Times to note last year that “US performance has been mediocre at best”.
Which brings us back to that elusive question. In Brenner’s view, the ongoing downturn in the world system is not an aberration. It is systemic and stems from “the unplanned, uncoordinated and competitive nature of capitalist production” – specifically investors’ “inability to take account of the effects of their own profit-seeking on the profitability of other producers and of the economy as a whole”.
Since the late 1960s, fierce competition between producers drove down prices (and profitability in manufacturing – still the wellspring of capitalist growth). This caused a reluctance to invest surplus capital in the “real economy” and unleashed a rush towards other profit-making opportunities. Hence the surge in financial transactions, and the frenzy of speculation and lending.
With bad loans effectively underwritten by the IMF’s bail-out policies and neo-liberal adjustments lubricating financial ventures, profit-taking became easy. Last year, that barrel burst, revealing afresh a gravely unstable world system which liberalisation and deregulation had supposedly “corrected”.
Brenner’s conclusion is sobering: “After a quarter century marked by snail-like growth of investment, productivity, and wages, more severe cyclical crises, weaker cyclical upturns and rocketing unemployment, mainstream economists cannot even consider the possibility that the individual profit maximising and the competitive market mechanisms that drive the capitalist economy might themselves be responsible for secular economic problems.”
In short, there might be some reason to question the dogma that the freer the market, the better the economic performance.
Hein Marais is a researcher and journalist based in Johannesburg