The economic crisis: Whose fault is it, and how can it be overcome?
By Aleksandr Buzgalin and Andrey Kolganov, translated by Renfrey Clarke for
Links International Journal of Socialist Renewal
March 23, 2009 -- The period at the end of 2008 and the beginning of 2009
was notable for a whole range of developments. Two of them, however, seem to
the authors to be not only closely interconnected, but also of symbolic
importance: a genuinely profound economic crisis broke out, and along with
it, sharply increased interest came to be shown in the works of Karl Marx.
Over many years, various Marxists spoke of the crisis of capitalism at such
length that the great majority of analysts ceased to take them seriously.
The situation thus recalled the old story of the shepherd boy who
continually cried “Wolf! Wolf!” even though there was no wolf there.
But one day, the wolf actually appeared ...
Meanwhile serious Marxists, unlike the party-political propagandists of the
Soviet era, began talking of the threat of a world financial crisis and of
the possibility of its turning into a world economic crisis only relatively
recently, around the turn of the 21st century. This was the point at which
it became obvious that the gap between fictitious financial capital on the
one hand, and human capacities and the requirements of material goods
production on the other, had reached dangerous dimensions.
Drawing out the lessons in 2004 of an analysis of the fictitious, “virtual”
capital of the 21st century, the authors of this article concluded that “the
crisis of the world financial system that is entirely probable in the near
future might act as the detonator for a series of global cataclysms”. In
another text, devoted to an analysis of the macroeconomic dynamic in our
country, Russia, the conclusions was also drawn that in these circumstances,
“growing economic difficulties” would become inevitable around 2008-2010.
This would also be the result of the persistence in Russia of the
state-oligarchic capitalism that had been established since 2000. With the
financial, raw materials and energy-based oligarchic groups still dominant,
there had been an effective refusal to prioritise the development of the
social sectors and to invest in the development of human beings.
The present authors were not alone in making this forecast. Unfortunately,
it has come true. The “wolf” has appeared on the scene. The world crisis has
become a reality.
The wolf appears on the scene: the crisis and its origins, or why the world
has started to take account of Capital
For the first time after a long interval, and despite all the mainstream
arguments about the definitive triumph in the new century of the universally
effective mechanisms of market self-regulation, a world financial crisis has
broken out and has rapidly become social and economic in character. The
crisis has proved to be astonishingly “normal”, very similar in all its main
parameters to the “usual” cyclical crisis described in the textbooks on
economic theory (political economy) back in the 19th century. The
simultaneous appearance of a mass of unsecured (“bad”) debts, panic on the
stock exchanges and falls in share prices, a gradual contraction of consumer
demand and a fall in production, growing unemployment, plus -- and this is
something extremely unusual in modern-day economies -- the threat of
deflation, of a crisis-linked fall in prices. All of this is extremely
similar to the classical picture of a crisis as described (or more
precisely, drawn out of an analysis of the capitalist economic system) by
Karl Marx a century and a half ago.
Amid the events described above, the improbable but vast surge of interest
in Marxist theory in general and in Marx’s Capital in particular is quite
understandable. Throughout the world, it has been reported, this book is
being snapped up by buyers at an astonishing rate.
Marx, it follows, is once again topical. Are we seeing a return to Capital?
Since we are not just self-described Marxists, but Marxists in our very
essence, we are obliged to warn the credulous public and the professionals.
Not everything here is simple. In the past century and a half, Capital has
aged to a significant degree. This confirms the correctness of Marxism; our
theory and methodology have always demanded self-development and
self-criticism in line with the development of life itself. This is fully
borne out with the current crisis, since the “classical” causes of the
crisis have manifested themselves in a new century and in a new form.
Our first thesis is as follows. The precondition for the crisis (not its
cause) is the spontaneous, elemental nature of the development of the market
economy. A year ago, any prediction of the present situation would have
seemed like a hopelessly antiquated delusion. Now, a few months of crisis
have forced many analysts to recognise that a precondition for the crash was
the wave of deregulation and desocialisation of the economy which gave a
“second wind” to a natural, innate feature of capitalism: periodically
repeated crises. Here lies the most profound secret underlying all
anti-crisis regulatory measures: ensuring that the producer has social, not
market-based, guarantees for production (guaranteed investments, cheap
credits, and so forth) and for the sale of the goods produced (state
purchases or the “make-believe” crediting of sales).
The second thesis is that the possibility of crisis is linked to a rupture
between the acts of sale and purchase and the relatively independent
movement of money. This classical 19th-century theme has taken on a new
resonance in the 21st century. A particular type of fictitious capital
(money seemingly made out of money -- shares, debt obligations, futures and
so forth) has emerged. Virtual (that is, existing in computer networks) and
footloose, this capital has become radically dissociated from the real
sector. In recent decades this dissociation has become glaring. Twenty years
ago world share values were roughly equal to gross world product, but on the
eve of the crisis they exceeded it by a factor of 3.5, while the volume of
derivatives (which can be equated in very crude fashion with the volume of
financial speculation) exceeded it by a factor of 12. A gigantic bubble had
emerged. It had to burst, and it did.
The third thesis is that the cause of the crisis was an overaccumulation of
capital, which could not be profitably employed. In the new century it was
intensified by the growth of the fictitious sector -- a sector in which the
output was of products and services useless for the development of
production and for the progress of human capabilities. These ranged from
financial speculation to mass culture and symbolic (over)consumption. The
economy, as it were, came more and more to create simulacra of money and
commodities: derivatives of all types that were quasi-money (before the
crisis hit, these represented a liquid resource, afterwards, merely paper);
brand names (these inflated the capitalisation of well-known firms,
capitalisation which swiftly vanished in the conditions of the crisis); and
prestige goods which were in essence useless, and which both oligarchs and
the “middle class” have now been forced to renounce.
The fourth thesis is that the material basis of the crisis was the cyclical
nature of the renewal of basic capital, that is, technological cycles.
Toward the end of the first decade of the new century, the world was having
to contend with the fact that the information technology boom was drawing to
a close. This was principally because the information revolution had
finished up in a dead end, with computers used mainly for office plankton
and by adolescents playing computer games, while the internet in more than
two-thirds of cases was a means of keyhole-gazing (porno sites) and
simulated socialising with former classmates.
Such a trajectory of development of the economy and society, we wrote long
ago, would lead to a crisis. But we were not believed.
The most comic aspect is the fact that many people refuse to believe this
even now, arguing that the way out of the crisis lies along the road of
reviving the very causes that got us into it.
How, and at whose cost, we can get out of the crisis
This is how socially aware Marxism poses the question of what needs to be
done to overcome the crisis. We should stress to begin with that three
solutions are possible.
The first of these is the one urged by George Bush and Vladimir Putin not
quite six months ago: take taxpayers’ money and save the financial
speculators! This was the aim of the Olsen plan in the US (more than US$700
billion) and of Putin’s first suggestions (more than $100 billion) -- to buy
up the bad debts, supporting the crisis-wracked private financial
institutions and giving cheap (unsecured!) loans to the commercial banks.
All this was argued on the basis of the need to support the financial sector
of the economy with the aim (naturally!) of ensuring the stability of the
financial system so as to avert the crisis, as was needed to protect the
interests of all the country’s citizens (avoiding the devaluation of
savings, preserving jobs, and so forth). The fact that this would require
supporting the owners of financial capital and compensating them for their
losses from failed speculation was a “technical” question, a question of the
means through which the crisis was to be overcome, not of social (and still
less of class) priorities. From the point of view of supporters of this
decision, there was simply no other way out of the crisis. In one sense,
amusingly enough, they were correct; so long as their rules were abided by,
it was impossible to escape the crisis except through pouring “new wine”
(vast sums obtained from taxpayers) into the “old bottles” of financial
corporations on the verge of bankruptcy.
The fact that the rules can be changed is something else entirely.
This, nevertheless, is the gist of the second group of solutions, which
presuppose a more or less radical (depending on the objective preconditions
and subjective factors) change in the existing financial system. This would
allow an exit from the crisis through reducing not only the incomes but also
the wealth (property) of all those who have actively invested in financial
speculation during recent decades. The people who took part in the games of
chance of 21st century casino capitalism should (as in the rules of any
private casino) pay their debts not only out of their current income, but
from their assets as a whole. If they cannot pay, they should descend into
the pit of indebtedness. Society should not have to compensate anyone for
their losses in the financial casino; these are the rules of the market, to
say nothing of social justice. In this scenario, the funds of state budgets
would go not to commercial banks, but directly to support production, public
works and the solving of social problems, without any mediation by private
financial institutions (an example of such a solution is the direct
allocation in China of more than $550 billion to developing infrastructure
and construction, and to solving social and environmental problems).
The third solution (which is the most radical available within the framework
of the capitalist mode of production, at a time when the preconditions for
socialist revolution are not sufficient either in Russia or the US), is the
socialisation of finance. In essence, this amounts to surgical intervention
in the sphere of finance -- the removal of a cancerous tumour (the financial
bubbles) while retaining the socially useful functions of this system. In
particular (but not only), these measures presuppose the nationalisation of
the largest banking institutions, while guaranteeing deposits and providing
bank shareholders with gradual compensation for their shareholdings to the
degree that these retained value after the crisis hit (responsibility for
failed speculation must lie with the speculator, not with society); the
compulsory merger of small and medium banks into a few large structures and
their transfer to public control; and so forth. Guarantees of deposits can
and should be provided in full measure only in the case of small and
middling sums associated with the receipt of wages, pension savings, and so
on. Guaranteeing the deposits of people who sought to grow rich from the
speculative financial boom, investing large amounts of capital at high
interest rates, is illogical. When people enter a casino, they have to know
that they could lose their money, and that society is not obliged to provide
compensation for such calamities.
To support the production of material goods and services, mechanisms of
direct state finance and credit can be employed, tied strictly to the
implementation of production programs.
The recommendations set out here are not only those of the authors. In
recent months experts working with international NGOs (in particular, with
the international ATTAC network, which since the early 1990s has set itself
the goal of limiting financial speculation) and with social movements (such
as the international networks Intellectuals and Artists for Humanism, the
World Alternatives Forum and others) have repeatedly demanded that the
solution to the crisis should not be at the expense of the mass of citizens.
Here, we shall mention just two aspects.
Demand no. 1: The people who should answer for the crisis -- and not just
with their incomes, but also with their capital, property and positions --
are those who are guilty of having initiated it. Those at fault here are, in
the first place, all the initiators and participants in the unrestrained
expansion of virtual fictitious financial capital (in highly simplified
fashion, they could be termed financial speculators in the broadest sense of
the word); that is, all the people who “inflated” the huge bubble of
fictitious financial resources. Second, those responsible are all the
members of political structures (from presidents and governments to the
parties which approved and supported this policy, including their
ideologues, experts and similar people), who in essence pursued a monetarist
policy of boundless trust in the “invisible hand” of the market. Over recent
decades, such a policy has been characteristic of most countries and of the
“unholy trinity” of the World Trade Organisation, the World Bank and the
International Monetary Fund. Accordingly, the crisis can and should be
overcome through a sharp reduction of the incomes and property of these
people and organisations (the already mentioned socialisation and
nationalisation of banks, but not of deposits), and through a broadening and
tightening of public and state control over the finance industry. This
should be accompanied by complete transparency of financial transactions,
the closure of offshore zones and so forth; by the social restriction of
investments in financial speculation; and by forcing capital out of this
area through direct institutional restrictions, special tax increases, and
so on.
Demand no. 2 is for discussion and decision making in the developing,
adopting and implementing of anti-crisis programs to be open, frank and
transparent. It is true that finance is a matter for professionals, but
professionals have already brought the world economy into a thoroughly
“professional” crisis. In any case, various professionals are urging
different models for overcoming the crisis.
Finally, people, the civil society of each of the various countries along
with world civil society, will have to know and understand who will pay for
overcoming the crisis, and what price; what will be done, how, and in whose
interests (and at whose expense); and who will take what specific
responsibility on themselves.
These suggestions are not new. The experts and intellectuals who number
among the opponents of neoliberal monetarist policies in Russia and beyond
its borders have long since set out these alternatives in detail. Well over
a decade ago they showed that in conditions of unrestrained
“financialisation”, a financial crisis was possible at any moment.
Consequently, we now have ample grounds for demanding that those who
implemented “realistic policies” should listen to those who, by contrast,
showed how and why a crisis might occur, and who long ago suggested ways out
of it -- at the expense of those who gave rise to it, not of those who have
suffered, and continue to suffer, from the results of financial speculation.
By itself, however, this appeal is a voice crying out in the wilderness.
Scenarios for post-crisis development as a field of social and political
struggle
We shall begin with an assertion: if the relationship of social and economic
forces does not turn out to favour the majority of citizens, the exit from
the crisis will be according to a scenario that sees an increased
concentration of capital and a further strengthening of a few large
financial institutions (some of them, of course, will lose out), along with
a deterioration of the position of most entrepreneurs in the real sector and
a dramatic worsening of the quality of life of practically all layers of
hired workers (including the “professional” financiers who before the crisis
were in a clearly privileged position). This scenario is for the present the
most likely one, to judge from the measures to “heal” the economy which the
governments of leading countries are adopting.
If this scenario comes to pass, we can expect a new twist in the path of
late capitalism, one that will set it on a course that is regressive even
compared to the neoliberal model of the past few decades. This will allow an
escape from the dead end in which global capitalism has once again finished
up (and the crisis is testimony to this dead end). But it is an escape to
the rear and to one side.
Even before the crisis we predicted the features of this post-crisis model,
and now these traits are standing out in ever-bolder relief. To replace the
outward triumph in the economy of the free global market, there will
increasingly be imperial protectionism: an intertwining of the power of
world mega-corporations (with capital measured not just in hundreds of
billions, but trillions of dollars) with state empires carrying out a
recolonisation of the rest of the world. The relations between capital and
hired labour will be characterised by a further weakening of trade unions,
by a growing differentiation of incomes within the social stratum of hired
workers (less and less resembling the classic model of a homogeneous “middle
class”), and by a divergence within this stratum into a narrow layer of
highly paid “professionals” and a majority of industrial and pre-industrial
proletarians leading precarious lives.
To ensure the viability of such an economic model will require pro-imperial
geopolitics and an increasingly manipulative political and ideological
system, which at best retains only the appearance of democracy.
For the countries of the periphery there will remain the scenario of a
semi-colonial existence, while for the countries of the semi-periphery,
there will be the status of “peripheral mini-empires”. Another possibility
is the formation of powerful anti-imperial unions (though also of a
relatively reactionary type).
In ideological terms, all this will be accompanied by a powerful wave of
right-wing neo-conservatism.
There is also a somewhat different scenario in the spirit of the
“Roosevelt-21” plan. This would involve, let us say, a new global economic
network with rules analogous to those which now apply in Norway or
Venezuela: priority for social-ecological goals, restrictions on big
business, and the socialisation of education, health care and finance. The
likelihood of this scenario unfolding depends on whether the potential of
world civil society and of a number of states now implementing such policies
proves sufficiently powerful.
In our view this scenario is unlikely to play out, though we think it is
important to give it all the support possible. This is in order to signify
that a theoretical and ideological alternative exists, and also to mount a
struggle for a compromise, or at least, a contest in the near future between
the two counterposed scenarios for post-crisis evolution/development that
have been suggested above.
In strategic terms, overcoming the crisis is only possible if a
qualitatively different approach is adopted -- one that involves going
outside the framework of the capitalist system. But that is a topic that
lies outside the bounds of the present article.
[Aleksandr Buzgalin and Andrey Kolganov teach in the economics faculty at
Moscow State University.]
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Received on Mon Mar 30 08:14:21 2009
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