Monday, March 31, 2008

Is Neoliberalism Finished?

According to Alexander Cockburn, citing the Financial Times' Martin Wolf, "neoliberalism has collapsed". The Telegraph reports that the Federal Reserve is considering Nordic-style nationalisations. Even New Labour is touting "socialism", albeit north of the border. The Wall Street Journal says:

On the Richter scale of government activism, the government's recent actions don't (yet) register at FDR levels. They are shrouded in technicalities and buried in a pile of new acronyms.

But something big just happened. It happened without an explicit vote by Congress. And, though the Treasury hasn't cut any checks for housing or Wall Street rescues, billions of dollars of taxpayer money were put at risk. A Republican administration, not eager to be viewed as the second coming of the Hoover administration, showed it no longer believes the market can sort out the mess.

Are the GOP really getting all Kremlinesque? Leave that to one side for a second. It seems self-evident that the whole mythology has collapsed. Neoliberalism has just not delivered the dynamism that it promised: economic growth, labour productivity and wage growth are all down on the statist-corporatist era of 1945-1970. The 'liberalisation' of financial markets has changed the property structure and increased risks while increasing global turbulence. The growing profile of the financial markets has produced record debt, insane stock market bubbles, and fraud on a massive scale, all adding to the risk in the system. (One market that has benefited dramatically from such turbulence has been securities and post-trade markets, the latter dealing with the clearing and settlement of transactions - one European settlement firm, Euroclear, had an annual turnover of $450 trillion in 2006 alone). Like previous crises such as the 1987 crash that followed swiftly from London's 1986 'Big Bang' of deregulation, there are now widespread calls for tougher regulation. Unlike in previous crises, these could be enduring. Capital and its ideologues are seriously worried.

The US economy is not only tanking, but it is dragging down the dynamic East Asian economy with it. (Although the World Bank expects China and other 'developing' countries to soften the global economic landing). The UK economy is showing worrying signs of turning purple, despite the happy face put on by the Office for National Statistics in its most recent profitability report (pdf). It looks as if the only reason for a slight rise in profit rates recently is that the figures exclude financial corporations from the accounting and include the UK Continental Shelf, which is basically the hydrocarbons producers in the North Sea. High oil prices have dramatically increased profitability in that sector to 49.8% from a mere 25% (approx) in the second quarter of last year. On the other hand, non-UKCS companies have actually experienced a decline. Overall, the combination of high energy profits and lower profits elsewhere has resulted in a slight increase in profitability of 0.1% on the last quarter. That's the happy face. Meanwhile, profits in the financial sector are falling at their fastest rate for five years. The financial services sector could slash 11,000 jobs in response to the credit crunch, the CBI says. Annual house prices are expected to fall for the first time in years, which you could argue is good from the perspective of those who haven't got a lot of money to buy a house - the trouble is that mortgage access is being drastically restricted as well: no more 100% mortgages, not for a long time. The European banking system is being seriously squeezed as the giant Union Bank of Switzerland (UBS) and Deutsche Bank announce huge write-downs of debt.

Given all this, is there any sign that the political classes are making a drastic turnaround? Not really. It is true that central bankers are considering strong interventionist measures to bail out the banking system, but this just means socialising the costs and losses incurred by the system while keeping it in private hands or restoring it to the private sector when it gets profitable again. It is exactly what they have always done. I seem to recall a financial columnist claiming to be a free marketeer during the boom and a socialist when things go bust. That about sums up the attitude of the average investor. No long term transformations of orthodoxy are in evidence. For example, this is the Treasury Department's recommendations for a new regulatory system for US finance (pdf). There is noticeably no break with neoliberal orthodoxy, and in some ways it promotes further deregulation for example by reducing the power of the SEC. It seems to be intended to deal with alleged competitive disadvantages faced by Wall Street. For example, the calls for reform in settlement and clearing are obviously a response to the growing consolidation in European settlement and clearing in which the United States is purchasing a growing interest, especially since the New York Stock Exchange acquired the pan-European stock exchange Euronext. And - I simply assume - these proposals have been written in cooperation and following extensive consultation with 'industry leaders'. It has certainly been welcomed by America's leading capitalists. There is zero probability that the regulatory framework of the Glass-Steagall Act, repealed by the Clinton administration in 1999, will be resuscitated in any form; there is no plan for improved welfare or reversing long term privatisation trends; and Bush's stimulus package was "too little, too late" according to Joseph Stiglitz.

The European Union, for its part, is still pushing the agenda it decided upon in Lisbon in 2000 at the height of the boom, when it declared that thriving financial markets were the best source of a dynamic knowledge-based economy, the best way to allocate resources efficiently and thus the best way to promote the entrepreneurial spirit. Rapid deregulation was accompanied by reduced labour productivity for several years, but recent improvements are now being cited as the basis for continuing the reforms, even though it isn't evident that these have anything to do with what are temporary gains. The EU's internal competitiveness rules continue to be used to erode workers' protections and welfare systems, and the European Commission under the influence of right-wing Irish Fianna Fail politician and internal markets commissioner Charlie McCreevy - a lover of horses, markets, and all things American - is sticking to a 'non-interventionist' orthodoxy (which means intervening on behalf of investors). McCreevy's response to the Northern Rock disaster was to blame excessive transparency in the banking industry. The commissioner is currently considering a complaint by the postal firm TNT against Germany's minimum wage laws, which the company says violates fair competition rules, and at the same time lodging complaints with six EU states over the lack of competition (ie, efficient public sector monopolies) in postal services. There is of course a cleavage in European finance-capital between those who seek to create a pan-European economy with a Franco-German hub, and those Atlanticists who want to gravitate toward Washington via London. This was given recent expression by the announcement that Deutsche Boerse (the operator of the Frankfurt Stock Exchange, and providor of transaction services) and six other European companies that handle post-trade transactions will be setting up a joint exchange, which will exclude NYSE Euronext and the London Stock Exchange. But they all agree on the need to continue the 'liberalisation' process.

Even if the crisis deepens radically, we will not see any fundamental departures from the orthodoxy unless there is a concomitant rise in class struggle and a rapid revival in the fortunes of the global Left. Those would in principle be likely outcomes. At the moment, however, the big hope for the American liberal-left is a candidate who has done many favours for Wall Street, including voting to limit class action suits against corporations. And the other two candidates are just as bad, and nuts to boot.