It's the end of an era. Things will never be the same again. The age of neoliberalism is dead. How many times have we heard those pat phrases these past 18 months or so as what started as a little local difficulty in the US housing market developed into the biggest financial crisis since the Great Depression. There are certainly good reasons for the left to believe that the tide has at last turned after three decades in which the right has been in the ascendancy. As Paul Mason illustrates in this excellent account of the humbling of the former masters of the universe, the crash was the consequence of 'giant hubris and the untrammelled power of a financial elite'.
The events of 2007-09 have been big finance's equivalent of the British labour movement's 'winter of discontent' 30 years previously. Public disgust at the excesses and incompetence of the bankers has meant there has rarely been a better time for a radical shift leftwards in politics. But it is one thing saying the conditions are ripe for change, another thing altogether bringing that change about.
Think about it for a second. Ever since the crisis began, the prime aim of governments - most notably Gordon Brown's - has been to put the genie back in the bottle. There is nothing the prime minister would like more than to return to life as it was in June 2007, when, on the eve of moving into 10 Downing Street, he used his Mansion House speech to praise the 'ingenuity and creativity' of the City, contrasting Britain's light-touch regulation with the heavy-handed approach favoured by the Americans.
As a result, the government went to extraordinary lengths to avoid nationalising Northern Rock and has taken other parts of the financial sector into part or full state ownership only with extreme reluctance. It is even ploughing on with the deeply unpopular part-privatisation of the Royal Mail.
Good old days
This was not, some of us can recall, the approach favoured by Margaret Thatcher in the aftermath of the original winter of discontent. The Conservatives did not pine for the good old days of Butskellite consensus and warn that over-hasty regulation of the trade unions might risk throwing the baby out with the bathwater; instead, they set about neutering organised labour with determination and relish.
There was a crucial difference, though. Thatcher had a fully-thought out plan of action. It involved settling markets free, shifting the balance of power in the workplace in favour of capital; using macro-economic policy to combat inflation rather than to ensure full employment; and rolling back the state through curbs on public spending and tax cuts. More than that, Thatcher sensed that the collectivist spirit that had underpinned the post-war political settlement had been weakened by affluence and individualism.
In Meltdown, Paul Mason notes, rightly, that neoliberalism fought its way to dominance by confronting the Keynesian establishment head on and winning the battle of ideas. 'The problem for neoliberalism's critics, for now, is that they have no coherent world-view to take its place,' he writes.
True, there has been a revival of interest in Keynes; and there has been plenty of 'we told you so' from the Marxists and the anti-globalisation left. Yet it is hard to disagree with Mason when he concludes that 'so far these forces have failed to coalesce around any concrete programme in the face of the crisis. Indeed, two decades of powerlessness have inculcated a profound lack of ambition upon capitalism's critics.'
The danger - a real and present danger - is that a surfeit of wishful thinking will result in the moment being missed. Industrial capitalism has survived its many crises of the past 250 years because it has been willing to bow to the prevailing wind. It adapted to the controls that were imposed after the Wall Street crash and the slump of the 1930s and it will have no trouble making temporary accommodation with the much less determined reformers of 2009. But in the absence of a more telling critique than we have seen so far, any retreat will be tactical rather than strategic.
What then should be done? The priority is to situate any specific policy recommendations within an intellectual framework. That means turning the current ideological orthodoxy on its head to argue that markets work best - and for far more of us - when they are fettered. That is particularly true of financial markets, which have a tendency towards wild and highly damaging boom-bust cycles when left to their own devices.
Nothing natural about laissez-faire
Keynes is, of course, worth re-visiting in this respect, but so is the work of one of his contemporaries, Karl Polanyi. In his seminal work, The Great Transformation, Polanyi argued: 'There was nothing natural about laissez-faire; free markets could never have come into being merely by allowing things to take their course ... laissez-faire was enforced by the state.' Polanyi was writing about the economy that existed in the first half of the 19th century but he could just as easily have been describing the attempt to enshrine laissez-faire globally over the past 30 years.
What's more, Polanyi questioned whether the free-market economy of the early 19th century was sustainable. He suggested that the 'self-regulating market', far from ensuring prosperity and stability, would in fact sow the seeds of upheaval.
This was a theme taken up by a more modern thinker, Hyman Minsky, who showed that speculative bubbles and financial collapses are not acts of god but inherent to a de-regulated form of capitalism. Mason is a big fan of Minsky and notes in Meltdown: 'That is, they are not the result of accidents or poor decision-making, but a fundamental and recurrent feature of economic life once you deregulate the financial system.'
Between 1850 and 1950, policy makers moved gradually in the direction proposed by Polanyi and Minsky. Progressive taxation, old age pensions, the extension of the franchise, the legal protection for trade unions, controls on the movement of capital, the splitting of banks to prevent those dealing with retail customers becoming vehicles for speculation - these all put the brakes on market capitalism. It is no mistake that the period between the late 1940s and the early 1970s saw the fastest growth the world economy has ever seen; the lessons, though, were unlearnt in the 1970s and 1980s.
Common ground for reform
Mason says one way forward would be to marry Minsky's belief in a socialised banking system with redistribution so that the re-regulators can find common ground with the social justice activists. That's fine as far as it goes, but its does leave to one side another important constituency: the greens.
In economic terms, it is unlikely that this downturn will be anywhere near as damaging as that of the 1930s. But the looming energy crisis and the threat to the planet from climate change mean that the old Keynesian solution - growth at all costs - has to be adapted for an age in which fossil fuels are running out and the temperature is going up. We need a different form of economics. Some of us think that is possible through a green new deal that would use financial controls to push low-cost investment into environmental technologies and renewable energy. Others believe the limits to growth of any form have already been reached.
Mason ends his book by saying that the events of 2008 'must never be forgotten'. The sad fact, though, is that they will be unless three things happen. First, there needs to be some new thinking. Second, the new thinking must deliver policy change in key areas - finance, housing, the environment and pensions spring to mind immediately. Third, it needs to happen fast.
Meltdown: the end of the age of greed by Paul Mason is published by Verso