“What would Jesus do?” asked a pithy placard at the Occupy the London Stock Exchange protest recently. It seems rather obvious in a way. For some the answer was given in another St Paul’s placard, carried by a man dressed as Jesus “I threw out the money-lenders for a reason”. Of course we’re not in Jerusalem, nor are we technically in a temple.

But according to David Cameron’s speech to mark the anniversary of the King James Bible, we have a dire need to “return to Christian morals”, and we the people should revive “what we stand for” and go back to the Bible to define ”the kind of society we want to build.” Some Occupy supporters may agree with some of these sentiments. We are a ‘broad church’ and the Bible, and the Jesus it portrays does contain a lot of progressive political references. Plus the idea of  reformulating what we are about as a nation sounds quite democratic.

There is, however, a dissonant note associated with a politician – the politician – lecturing the masses on returning to Christian morals. As Luke 16:13 has Jesus himself saying: “No servant can serve two masters.. you cannot serve God and mammon.” Cameron’s economic nationalism should also grate on Christian souls.The world needs international co-operation to solve its many problems, and Christendom was never ‘Little England.’ In fact, for most of its history it was associated with Europe as a whole ,and further afield. Yet Cameron retreats pointlessly from the European project just when we should be pulling together against the dictatorial power of the financial markets.

David Cameron’s visionary idea for Britain was ‘the big society’. Revd Giles Fraser says “one can imagine Jesus being born in the protest camp” and the early Christian movement was one of the biggest ‘big society’ movements in history. In a way those hardy souls camping out, in an effort to transform the system are the closest thing we have to a functioning global – big – society. Yet Cameron’s government has recently legislated to ban political camping!

The energy, practices and idealism Occupy embodies is a potentially huge, productive motor around which to build a new, enlightened economy. Yet no major politician has been willing to engage with the movement on its own terms. All we ever hear from them is words of demonisation or co-option.

However the church is quite a different matter. As Giles Fraser put it recently: “Occupy ..  begins .. with the idea that lasting change is only possible if more people are sucked into the conversation, more of us educate each other as to the workings and effects of a dysfunctional economy… Remember the total non-event that was Tony Blair’s Big Conversation? Well, this is how you do it properly”

Or, as the Archbishop of Canterbury himself put it earlier in the year: “A democracy going beyond populism or majoritarianism but also beyond a Balkanised focus on the local that fixed in stone a variety of postcode lotteries; a democracy capable of real argument about shared needs and hopes and real generosity: any takers?”

It is now commonly agreed that debt-based finance capitalism has failed us, and from within Occupy that we need alternative, civic institutions to develop our collective understanding, and transform society. Unlike the state and the market, civil society does not yet have a recognised political form, but through the promotion of its egalitarian Assembly model of decision-making, that is exactly what many in Occupy are hoping to create.

The roots of organised religion are radical and quite relevant today. The early Church was a decentralised, counter-cultural and international movement in which persecuted Christians promoted forgiveness of sins (including oppressive debts), interest-free lending, mutual support and common ownership. Going back further, the Old Testament refers repeatedly to ideals of economic justice and in particular of debt-cancellation and ‘jubilee’.  So, in the spirit of the recent Christmas season, and right at the start of a new (‘Diamond Jubilee’) year, an interesting question comes to mind. Could Occupy and the church join forces in 2012?

Working together, nationally and internationally could we not make alternative civic institutions to develop, quoting the Archbishop of Canterbury again a conversation about  “who.. we are as a society”  and “a long-term education policy at every level that will deliver the critical tools for democratic involvement, not simply skills that serve the economy” ? On the wider, European level, this would chime with the Chief Rabbi Jonathan Sack’s recent call for European Jews and Christians together to “rediscover .. faith and prophetic voice” and to “recover the Judeo-Christian ethic of human dignity in the image of God. Humanity was not created to serve markets. Markets were created to serve humankind”
In our broken times, with people neglected and the community fabric undone, a well-organised common endeavour between the church, Occupy and other civil society actors could help revitalise the true spirit of our culture, and the church, and transform our ailing European and UK political economy.

Capitalism is a catastrophe for humanity. This is so simple, so obvious that it hardly seems worth repeating – and yet it is important to say it over and over again: capitalism is a catastrophe for humanity.

The way in which our social relations are organised (the way in which human activities are connected) produces a dynamic that nobody controls and which creates injustice, violence and human degradation and now threatens to destroy human life altogether.

In your book you quote Walden Bello as saying: ‘Neoliberalism is like the train conductor who gets shot in an old Western and dies with his hand on the accelerator. He’s dead but speeding the passengers inexorably towards total disaster.’ But it is not just neoliberalism: it is capitalism that is the problem, a system in which the social connections are established through money and the driving force is the psursuit of more money, profit.

How do we stop the train and get off? How do we break the dynamic of capitalist development that is rushing us towards the abyss? That is the problem. That is the question for all anti-capitalists, communists, socialists, anarchists, people, whatever we want to call ourselves.

Your book is about democracy – an excellent, exciting, enjoyable book about democracy. But democracy is not the main issue. As long as capitalism exists, the dead train driver’s hand remains on the accelerator and democracy is effectively reduced to ensuring a more equable distribution of seats within the carriage. This is not unimportant: it may well bring about real improvements in the living conditions of the passengers (as the various examples that you discuss undoubtedly did), but it diverts attention from the fact that the dead driver’s hand continues to rush us towards disaster, and continues to generate injustice and destruction all along the way. In order to remove the driver’s hand, we need to challenge capitalism, the current organisation of human activity – but in your discussion of democracy there is virtually no mention of capitalism.

I see your protagonist-passengers in a different light. For me they are not just organising to improve the quality of their seat on the train, they are banging on the windows and screaming to get off, or perhaps all running in the wrong direction in the hope that they can force the train into reverse.
You speak, for example, of the Exodus collective in Luton, who start organising free raves in the Marsh Farm estate and then gradually become drawn into the arduous process of applying for and administering a £50 million New Deal for Communities grant for the improvement of the estate. This led to real improvements, as you say, but I cannot help feeling that in the raves there is something more than an attempt to improve life within capitalism.

In the rave there is a scream of refusal, a breaking of windows, a walking in the wrong direction, a creation of social relations on a basis other than money. This is what I call a ‘crack’ in capitalist social relations: a conscious or not-so-conscious misfitting, a refusal-and-creation, a refusal to go with the capitalist flow and an attempt to establish life on a different basis here-and-now.

In the rave there is a contradiction between fitting and misfitting: a tension between ‘let’s get the kids off the streets and give them a good night out’ and ‘let’s explode against a world in which the reality principle is identical to money’. How do we relate to this tension? Which side do we take?
It is very clear from your various accounts that the state in all cases is a (sometimes more, sometimes less responsive) process of taking these situations and making them fit in to the prevailing system. It is not just a question of granting concessions, but of drawing the people into the process of decision-making. Those who were previously excluded are brought in, included. The state is democratised, the state is reclaimed by the people. Those who were previously the objects of policy become its subjects.
Yet the subjects who result from the processes you describe are very limited in their subjectivity. They become (at best) subjects of policy, but not subjects of social determination. The policies that they are allowed to influence are located within an unquestioned and unquestionable context of capitalism, of private property and profit and all that flows from that.
You might say that this could be seen as a first step towards a fully emancipated subjectivity, a real shaping of society from below. This might be so if such advances in democratisation were seen as part of a movement in-against-and-beyond capitalism, in which the issue of rupture remained central. But in your accounts there is no hint that this might be so.
At the end of the book I am left with the feeling of being entrapped: certainly things can be made better, but nobody in your book seems to think that another world might be possible, a world without government grants and bureaucrats, without money and profit, without capital.

My argument is just the opposite. I think there is a profound and growing rage against the rule of money. This can be seen in the student movement of recent months, the refusal to accept that education should be completely determined by money. But the rage is not just expressed on the streets but in the million ways in which people repudiate the shaping of every aspect of their lives by money and try to create or strengthen other ways of doing things, other ways of being with people, other ways of thinking.
These revolts, these refusal-and-creations, are so many cracks in the logic of capitalist cohesion, so many ruptures in the rule of money, so many explosions against a world of destruction. That is the exciting side of the raves on the estate: not that they can be the starting point for a better fitting into the structures of capitalism, but rather their potential as an explosion of misfitting.

To fit in to a society of death is to die ourselves. Let us misfit and grow in our misfittings and let our misfittings flow together. That is surely the only way in which we can pose the question of breaking this world and creating another one.

Rage now, rage against the rule of money!

John

Hilary Wainwright replies…

Dear John,

Thanks for your challenges! First I want to share some thoughts stimulated by your book Crack Capitalism.

One reason I found it so exciting was because we seem to share a common starting point – where we differ is over challenges thrown up by practice. I share your sense of the dangers we face, of walls closing in. At the same time, like you, I can see cracks opening up and being pushed wider.
I agree too that to open and spread the cracks we need to find ways of gathering our combined strengths that don’t presume or aspire to a single unifying centre or totalising vision but instead value the multiplicity of different struggles and initiatives for change. I will put my disagreements in ways that build on the foundations of our agreement.

Running through the book is a fundamental question: is there a way of understanding global capitalism and the millions of revolts against its daily indignities that conceptualises a shared predicament and helps us to converge or connect to create another world?

To answer this question you rightly to go back to Marx’s central thesis that labour, under capitalism, has a dual nature. On the one hand, labour is abstract labour, involved in producing commodities for the market, objectified as value, expressed in the exchange of commodities for money, from which capital extracts profit. On the other hand, is the dimension of labour which you call ‘doing’, the labour involved in the production of use value, concrete and particular, social and individual.

Under capitalism, the two forms of labour are, as you stress, in constant tension with each other: creative, purposeful activity is subordinated to labour disciplined to the maximisation of profits; potentially self-determining activity versus alienated labour.

Turning this latent tension into a revolt and a revolt which over-flows throughout society is, you argue, the impetus shared by contemporary anti-capitalist struggles. As you declare, ‘the future of the world depends on splitting open the unitary character of labour.’ I agree strongly with your argument, perhaps because it reaffirms and takes forward the breaks that we made in 1968 with both the paternalism and the commercialism of the post-war order.

But while one theme of 1968 was the revolt against alienated labour; another, also taken further in today’s struggles, was the revolt against one-dimensional, electoralist citizenship. I was inspired by your development of Marx’s analysis of the dual nature of labour to apply the method to analysing the dual nature of citizenship. This leads to identifying cracks in state institutions that, contrary to what you seem to be arguing, we can and must open up in the process of breaking capitalism.

So here goes: you are right in your analysis of the dominant character of state institutions and their relationship to society: how they separate and fragment economics from politics, community provision from the community, citizens from each other and from their social context.

If however, we carry out an analysis of the dual nature of citizenship, we see that your description captures only one, albeit the dominant, dimension of citizenship. Such an analysis would lead us to contrast the atomised, abstract nature of citizenship underpinning parliamentarist institutions with the potential of citizens as social subjects.

The latter dimension is illustrated historically by the original struggles for the franchise, by situated subjects, that is propertyless male workers and women fighting for the suffrage to be universal. A contemporary example would be the way that, across the world, people are struggling for the promise of political equality to be realised through opening up narrowly electoral institutions and subjecting public power to direct forms of participation in the political decisions previously the secret domain of deals between the political elite and private business. (This has been the impetus behind many experiments in participatory democracy, especially in Latin America.)

We could talk here about subject citizenship or socialised citizenship versus atomistic citizenship. A very recent example of such socialised citizenship would be the movements, including parts of the trade unions, resisting privatisation across the world, often with alternative proposals for how services should be organised to respond to the diversity of social need.
Here are citizens organised as subjects, opening the crack between the state’s stewardship of public money and capital’s need for new markets and new sources of profit. In many such movements, the assertion of subject or socialised citizenship is fused with the revolt against abstract labour.
How else to understand what is happening when workers link up with communities to defend and improve the public services they deliver against marketisation?
The ways in which these struggles, and also new networks of the digital commons, are often organised leads me to a further area of disagreement. It concerns your dismissal of institutions per se – your apparent unwillingness to consider the possibility and reality of different kinds of institutions.
I’d like to believe, like you, in the flow, the dance, the moving of movements, but I’ve come to believe that flows need foundations and conditions of a more enduring kind. The flow of citizens’ movements against privatisation of public goods, for example, needed the ‘backbone’, as one Uruguayan activist in the movement for public water put it, of the trade union confederation born two decades earlier in the struggle against the dictatorship. Similarly, the flow of relationships in the open software movement is conditional on the institutional framework provided by the GNU General Public License.

I’ll end with a thought that underlies my insistence here on the institutional dimension. It is surely important to distinguish between two levels of social being: enduring social structures on the one hand and social interaction and relationships between individuals on the other.

Whereas the traditional left tended to think only in terms of structures, treating human beings as the carriers or products of social structures, not valuing or even recognising our capacity to act as knowing subjects and alter the structures of which we are part, I feel that you veer in the other direction, presuming only relationships and not taking account of the ways in which structures both pre-exist individuals and depend on them/us for their reproduction.

You have an infectious sense of how we make our own history – since it is ‘we who create this society,’ you rightly insist, ‘we can stop doing it and do something else’. But you don’t take account of the fact that we make history ‘not in conditions of our own making’, as the old man said.

Hilary

John Holloway

Dear Hilary,

Many thanks for your letter, which goes directly to two central points: the state and institutions in general. First the state. There is, as you say, a basic agreement that state institutions in general ‘separate and fragment, economics from politics, community provision from the community, citizens from each other and from their social context.’

And then you say: ‘If however, we carry out an analysis of the dual nature of citizenship, as Marx did on the dual nature of labour, we see that your description captures only one, albeit the dominant, dimension of citizenship. Such an analysis would lead us to contrast the atomised, abstract nature of citizenship underpinning parliamentarist institutions with the potential of citizens as social subjects.’ Here I both agree and disagree.

The state in general is a form of organisation developed over the centuries to exclude, divide and fragment, and to reformulate social discontent in such a way as to reconcile it with the reproduction of capitalism. Within this general framework, there are certainly many who walk in the wrong direction, breaking through these inherited forms, creating different forms of organising and behaving. Many of us who are teachers in state institutions, for example, try to do that: we struggle in-against-and-beyond the state trying open a world beyond capitalism. For me, this is part of the movement of doing against abstract, alienated labour. In your terms, this is the movement of socialised against atomised citizenship: my only problem with this formulation is that the word ‘citizenship’ binds the strugle to the state, which is the form of social relations that we are trying to break – we need to go beyond the state and therefore beyond citizenship.

The constant struggle in-against-and-beyond the state is central to all our lives (even if we are not employed by the state, we come into constant contact with it). In this I see the state as a tremendous sucking: it constantly sucks us back into conformity with a society ruled by money. Or perhaps as a giant fishing net that hauls in our discontents and then subordinates them to the logic of capital: by the language used, the form-filling, the million ways it offers us money if only we formulate what we want in a certain way, and by the cuts in expenditure.

The cuts are not directed against the state but are fundamental to the way that the state works: it hauls us in by promising us resources and then says ‘sorry, the economic situation means that we cannot give you what we promised’, and then we try to defend ourselves, but of course defence, if it is no more than that, means placing ourselves squarely within the logic of the state. The state is this movement of expansion-and-contraction: to defend the state against the cuts makes no sense at all. To fight for doing (or humanity, or communism) from wherever we are, in-against-and-beyond the state, is the anti-capitalist struggle of everyday life.

In this I distinguish between a situational contact with the state, where we try to go beyond the state because we are already in it, as employees or recipients of grants or benefits, and a sought contact with the state, where we try to enter it (as elected representatives, say) and turn it in our direction.
In the first case, the struggle in-against-and-beyond the state is inevitable, that is where we live. In the second case, I feel that the sucking force of the state is so strong that we will not be able to go far in that direction without abandoning our anti-capitalist perspective. It may make sense as a hit-and-run operation, an attempt to achieve something quickly and get out again, but not as a long-term venture, in which case it soon becomes a career option and any anti‑capitalist perspective is suppressed. In all this, it is important to think of our movement as a movement of rupture against capitalism and not just as a movement for democracy.

Briefly on the second point, the question of institutions. You say that you too like movement, flowing, dance but that in practice we need an institutional backbone. Perhaps, rather, we are now cripples who need institutional crutches, but learning to walk properly is a throwing off of our crutches.
Our moving is an anti-institutional moving. Possibly we need to create institutions (or habits) along the way, but if we do not subvert those institutions in the moment of creating them, they are likely to turn into their opposite. The flow of rebellion is a moving one no one controls: if we try to establish rules to direct it, we are likely to find that the movement itself breaks those rules.

John

Hilary Wainwright

Dear John,

Thanks for pushing me further on the relation between struggling against what I would call ‘alienated politics’ – the state, including elected, institutions – and the struggle against alienated labour.

We both agree that the struggle in-against-and-beyond the state is about trying open a world beyond capitalism. Our disagreements are about to what extent the sucking or alienating character of state institutions can be resisted and state institutions used, warily, in the struggle for a world beyond capitalism.

First, I’d make a general point about citizenship, the state and politics. Citizenship is about rights in a shared community – initially a city, then a nation-state, now possibly international institutions. If – and just now it looks like a pretty big ‘if’ – there is the possibility of a world without states, and ‘the state withers away’ – that surely is not the end of politics? Of collective decision-making about resources, priorities, rules, laws, standards, and so on that inevitably involves relations of power? It would be the end of the state as a separate, dominating power, but there would still be politics and therefore citizenship of some kind.

In the forms of organisation and – I insist – self‑determined institutions that we create to resist alienation in all its forms, aren’t we aiming to pre-figure in our own organisations a different kind of citizenship? A citizenship where when we elect people (and we will needs forms of both representation and delegations) who don’t then turn that very power we lent them back against us – who won’t, in other words, present politics as an alienated form.
In talking of the organisations that we create now, I’d like to bring in the issue of autonomy and kind of institutions we create to achieve that autonomy. Autonomous organisations – from the state and from capital – are a condition for the possibility of struggling to control and go beyond the state.
Marx illustrated this in his analysis of the struggle for the eight-hour day in late 19th century Britain. He showed how workers’ organisational capacity – driven by their shared interest, cohesion, numbers, the dependence of the ruling class on their votes and their labour – enabled them to develop an autonomous source of political power in both the workplaces and the wider society. This power was used to divide employers and political parties and win legislation that reduced hours of alienated labour.

This was a legislative gain: a gain in and against and potentially beyond the state, not only in terms of improving the lives of working people, but, more important for our argument, for enhancing their autonomous political capacity – giving them more time to communicate, debate, read, think and organise.

This brings me to the struggles that have been taking place on Marsh Farm estate: from the raves struggling with the police, the breweries and the council to provide an alternative to the commercial rip-offs of Luton town centre, through the occupied empty hospice as an autonomous housing action zone, to ‘occupying the rhetoric’ of New Labour’s New Deal for Communities to ensure resident control of public money allocated to the ‘regeneration’ of the estate. In this latter struggle they sought to engage with the state on their own terms.

After 18 years of being in-against-and-beyond the state, the community activists of Marsh Farm don’t see themselves as ‘sucked in’, as you imply. On the contrary, they see themselves as, in their own words, ‘reclaiming public resources from these top‑down bandits, putting them to use to replace the capitalist structures which dominate our community with far more effective and socially useful ones’. A key condition of this has been constantly developing an autonomous organisation, vigilantly resisting all pressures to ‘mimic the oppressor’, in the words of Paulo Freire, someone the community cite as a guide. Like you, they insist on ‘learning by doing’. You should meet them!

What you’d see is that crucial to their modest transformative power, as with the historic case of the workers fighting for the eight-hour day, has been the link between the bargaining power of the franchise, the minimally democratic element in the state and the autonomous organisation, values and perspectives of people struggling for social justice in their workplaces and communities.

One of the reasons why the traditional social democratic approach to socialism – gaining state power and then controlling capital – always fails is because in the end social democratic governments, when it comes to the production of wealth, have always depended on capital. And a crucial reason for this is that they never recognise their own allies – working people – as knowing, self-determining subjects with the capacity to be producers and organise a different kind of economy.

This view, embedded in the institutions of social democratic parties and trade unions as they are presently organised, places working class people as simply voters, sources of support, wage earners. The idea that they should share power or link with people or organisations outside of parliament is therefore precluded; they, the politicians, are the engineers of change, and everyone else is excluded from the process.

We can’t stand by and leave political institutions to those who want to be free of the pressures of the power of self‑determining citizens. We need to occupy those institutions where we can while at the same time organising to transform them.

Hilary

Read a response to this essay: ‘A constructive dialogue for change’ by Ted Benton

Capital is a relation of domination. The crisis of capital is a crisis of domination. The dominators are not able to dominate efficiently. And then we go into the streets and tell them that it is their fault! What are we saying, that they should dominate us more effectively?

It is better to take the simpler explanation and say that if the relation of domination is in crisis, it is because the dominated are not prostrating themselves sufficiently. The inadequacy of our subordination is the cause of the crisis.

Faster, faster, faster

This is Marx’s argument in his analysis of the tendency for the rate of profit to fall in Capital. The law of value is the rule of faster, faster, faster. The value of a commodity is determined by the labour time socially necessary to produce it, and this is constantly being reduced. To produce value, workers must work faster and faster, or else (or additionally) the same effect can be achieved by the introduction of machinery. If machinery is introduced, workers must in any case work faster and faster to offset the costs of the machinery.

In other words, if the rate of exploitation remains constant, the rate of profit will tend to fall as the organic composition of capital rises, corresponding to the rise in the relative importance of machinery in the process of production. The only way for capital to avoid the fall in the rate of profit is by constantly increasing exploitation.

Exploitation cannot be regarded as something static. There is a constant drive to go faster, a constant transformation of what capitalist labour means. This means not only the intensification of labour in the factories but the ever-increasing subordination of all aspects of life to the logic of capital.

The very existence of capital is a constant turning of the screw. Crisis is quite simply the manifestation of the fact that the screw is not being tightened fast enough. Somewhere it is meeting resistance: resistance on the streets perhaps, organised resistance perhaps, but not necessarily – it may just be the resistance of parents who want to play with their children, lovers who want to spend an extra hour in bed, students who think they can take time to criticise, humans who still dream of being human. We are the crisis of capital, we who do not bow low enough.

In this situation there are really only two solutions. The first is to say sorry, apologise for our lack of subordination and call for more employment: ‘More jobs, please exploit us more and we shall work much harder and faster, we shall subordinate every aspect of our lives to capital, we shall forget all this childish nonsense about playing and loving and thinking.’ This is the logic of abstract labour, the ineffective logic of the struggle of and by labour against capital.

The problem with this solution is that not only do we lose our humanity but we reproduce the system that is destroying us. If we are successful in helping capital to overcome its crisis, the ‘faster-faster-faster’ will continue, the subordination of all life, human and non-human, to the requirements of value production will be intensified. And then there will be the next crisis and so on until all humanity (and probably a lot of plant and animal life) is extinguished.

Refusal to bow

The alternative is to abandon the struggle of labour and declare openly that the struggle against capital is inevitably a struggle against labour, against the abstract labour that creates capital, against the faster-faster-faster of value production. In this case, we do not apologise, but rather take pride in our lack of subordination, in our refusal to bow to the capitalist logic of destruction. We are proud to be the crisis of the system that is killing us.

The latter option is more difficult. In capitalism, material survival depends on subordinating ourselves to the logic of capital. If we do not do that, how are we going to live? Without a material foundation, autonomy from capital is very difficult. It seems a logical impossibility, and yet this is the impossibility in which we live, the impossibility with which we constantly grapple.

Every day we try to reconcile our opposition to capital with the need to survive. Some of us do it in a relatively comfortable way, by finding employment (in the universities, for example) that allows us to create spaces in which we can fight against capital while receiving a salary at the same time. Others play for higher stakes, foregoing (by choice or necessity) any form of employment and devoting all their energies to activities that go against and beyond the logic of capital, surviving as best they can, by squatting or by occupying land and cultivating it, or by selling anti-capitalist books, by creating alternative structures of material support, or whatever.

In one way or another, but always in a contradictory manner, we try to create cracks in capitalist domination, spaces or moments in which we live out our dream of being human, spaces or moments in which we say to capital, ‘No, here you do not rule: here we shall act and live according to our own decisions, according to what we consider necessary or desirable.’

There is nothing unusual about that. We nearly all do it: not just lefties, not just readers of Red Pepper, but anyone who devotes energy to creating social relations on a different basis, on the basis of love, friendship, solidarity, collaboration, fun. That is our humanity, that is our sanity (or our madness). We all do it all the time, and yet we are always on the brink of failure, on the edge of collapse.

That is in the nature of the struggle: we run counter to the flow of capital. We are never far from despair, but that is where hope lives: next door to despair. This is a world without answers, a world of asking-we-walk, a world of experiment.

Crisis confronts us with these two options. Either we take the highway of subordination to the logic of capital, in the clear knowledge now that this leads directly to the self-annihilation of humanity; or else we take the hazardous paths of inventing different worlds, here and now and through the cracks we create in capitalist domination. And as we invent new worlds, we sing loud and clear that we are the crisis of capital, we are the crisis of the race towards human destruction, and proud of it.

The idea of creating cracks in the domination of capital is developed in John Holloway’s new book, Crack Capitalism, published by Pluto Press

Globalisation predicated on unfettered markets is going awry. The housing bubbles were not an accident, spawned simply by careless regulatory oversight. They were a necessary component of the incessant drive to expand free trade at all costs. Dominant corporate power became the primary driving force for economic expansion. Profits were allowed to soar. A growing share of the national income was absorbed by companies at the expense of workers. And the record borrowing provided a short term panacea, to bridge the yawning wage gap that ineluctably followed. Governments fostered housing bubbles to stay in power. Consumers were encouraged to borrow, to ensure there would be enough economic growth.

With the US housing market in freefall and the UK suffering its first bank run since 1878, the mainstream financial press has been turning in on itself, searching for scapegoats. Regulators, central banks and management at the more reckless banks have been selectively targeted and criticised for their lack of due diligence. The opprobrium heaped on chosen culprits sanctifies and provides redemption for those that failed to spot the inherent dangers in allowing economic growth to be financed by untrammelled borrowing.

But there is no mention of the underlying causes of this explosion in debt. These commentators dare not venture there, out of fear that the contradictions and flaws with the economic philosophy they have espoused will be exposed. Greed is good, but some just got a little carried away. Rap a few knuckles, offer a few sacrificial lambs and let the party recommence.

Financial markets have been bailed out before, there is no reason to stop and take a hard look at how we arrived here. That would be too painful and would force recognition of the brutal truth: such an uneven society breeds asset bubbles. Rising inequality explicitly leads to extreme house price cycles. If we want to get off this destructive rollercoaster, the limits to unbridled trade need to be acknowledged. The case for a more even distribution of income has to be accepted too.

In a bid to preserve a status quo, few meaningful policy changes of substance have been mooted or advocated, far less promoted. The collapse of the dotcom bubble saw a mere tweaking of regulation, a few token limited fines, and the next wave of speculation was fermented to drive economic growth. Under government sanction, central banks stepped back from the plate and facilitated a cataclysmic accumulation of debt.

With companies given such free rein to drive wage costs down, creating property inflation became a necessary stimulus for economic growth in the industrialised west. After the precipitous meltdown in high-tech share prices during the early part of this decade, few governments complained when strong consumer borrowing and a proliferation of debt provided the fuel for economic recovery. And few objected as an explosion in credit trading buried in a blizzard of abbreviations – MBS (mortgage-backed securities), CDOs (collateralised debt obligations), CDS (credit default swaps) or SIVs (structured investment vehicles) – allowed banks to conceal the inevitable risks from an unsuspecting and pliant public.

Money illusion

Indeed, rising house prices became symbolic, a modern era indicator of wealth and success. House prices were soaring, we must all be better off. Never mind that debt was rising too. Never mind that house price inflation is a zero sum game. Society as a whole does not benefit from a rise in house prices. Those already on the ladder can only gain at the expense of a growing number unable to reach the first rung.

In the short run, housing bubbles can provide a stimulus to economic growth if they hoodwink people into believing they are wealthier. And governments that have been promoting the free trade and profi ts fi rst agenda are content to foster the delusion. Indeed, governments rely upon money illusion, hoping homeowners will take a myopic view of their record debts. Witness New Labour’s boast – ‘ten years of GDP growth, the longest for 300 years’. Growth was everything, it told the electorate. Runaway house prices were a function of the strong economy and a shortage of properties. A similar refrain was widely uttered in Japan during the late 1980s. Record debt levels did not matter, it was claimed, because property prices were soaring. Just focus on the asset side of the balance sheet. Eighteen years on, Japan is still suffering from that disastrous miscalculation.

Therein lie the dangers facing governments today. Japan struggled to defy the march of asset deflation, slashing interest rates to zero, pushing all the fiscal levers available and running up record budget deficits. For more than a decade, it did not work. Finally, the Bank of Japan resorted to extreme measures, printing money and buying government debt in one last desperate bid to reflate. It succeeded for a short while, but only because Japan was able to ride the crest of a boom in China and other emerging market economies.

But the curse of deflation soon returned, led by another onslaught on the incomes of Japanese workers. Wages started to contract again – in both nominal and real terms – even as company profits soared to record highs. Japan had tried to model itself on the Anglo-Saxon way of doing business, restructuring, rationalising and putting the pursuit of profits first. However, that simply pushed the economy back into the deflation quagmire, which first snared Japan following the stock market peak on 31 December 1989. Even the Bank of Japan now admits globalisation and competition from low-cost foreign producers has broken the transmission mechanism, with profits rising but wages falling.

Growing income inequalities are an affliction for the entire industrialised world, not just Japan. But Japan’s experience should be salutary. Successive Japanese governments have responded to deflation by introducing aggressive pro-market policies, and the country has become more competitive. Labour costs have now fallen for eight consecutive years and its exports have soared. But it has still failed to shake off deflation as consumer confidence plummeted again in 2007, threatening to send the economy back into recession.

US – heading into a debt trap?

For the US, the stakes are already high. A two-and-a-half year downturn in the housing market is in danger of spiralling out of control despite the Federal Reserve’s belated decision to cut interest rates in the autumn of 2007. The US authorities lost valuable time. Federal Reserve officials were sidetracked by numerous voices claiming inflation would continue to accelerate.

Inflation is not the primary issue, precisely because of the free market policies that feed and nourish property bubbles in the first place. Just as Japan overestimated inflation pressures at the top of its housing boom in the late 1980s, the US and UK are also exaggerating the risks. The same downward pressure on wages, the income inequalities and the rise in profit ratios that have driven asset prices, will ensure that any pick-up in inflation will be constrained.

Oil and food are a problem. Climate change and peak oil constitute fundamental costs that will have to be borne by producers and consumers alike. Nevertheless, a closer examination of the consumer prices indices suggests that by the beginning of 2008, the underlying inflation rate was running at little more than 2 per cent in the US and 1 per cent in the UK. In Euroland, it was just over 1.5 per cent. The bigger secular threat for all these industrialised nations imitating Japan may well prove to be one of falling asset prices leading to a debt trap – or debt deflation. And the theory of debt deflation, first put forward by US economist Irving Fisher in response to the depression of the 1930s, now provides a key template for the risks facing all industrialised economies. An aggressive free market response to a debt crisis could easily serve to make the problem worse and any collapse in asset prices more entrenched. Many of the same commentators who underestimated the debt risks now claim ‘markets will have to clear’. This, they argue, can only happen by allowing lenders to fail. Miscreants have to go under, to teach others a lesson. Capitalism purges itself by the economic equivalent of natural selection.

But a policy of tough love only works if central banks are alert to the dangers. Too often these voices drown out the counter arguments predicated on historical experience. And they illustrate the folly of allowing the market to operate unchecked. Attempts to dispose of bad debts and repossess properties may lead to more deflation and push more lenders into trouble. The debt burden may go up in real terms, not down. And the cycle may just repeat itself until such point that a systemic financial crisis signals the need for a change of policy. Even then critics will claim there is no other way, arguing that one more round of bank failures will soon bring the debt trap to a close. Instead, it may simply prolong the fallout.

Japan’s experience also highlights the dangers that many economies in the Industrialised West may yet slip into a Keynesian liquidity trap. The attempts to reflate may not succeed if investors take fright at a perceived inflation threat. The economist John Maynard Keynes was quite clear in his prognosis: interest rates had to come down quickly in a housing bust. If that did not work then there would be a clear case for government intervention to correct the market’s failings.

If the authorities bail out lenders too early, mistakes will be repeated. It is a fine line between going too early and leaving it too late – the moral hazard argument. In the UK, the housing market started slowing sharply from the summer of 2004 onwards. At the turn of 2005, fears of a property crash were widespread. But just one rate cut by the Monetary Policy Committee in August of that year was enough to convince legions of buy-to-let ‘investors’ and other speculators that property remained a one-way bet to riches. A new wave of landlords succeeded in crowding out first-time buyers and driving homeownership down.

In a similar vein, cutting interest rates to 1 per cent in 2003 has widely been cited as the primary cause of the US housing bubble. But the Federal Reserve had little choice. Recent housing bubbles have not been the fault of central banks per se, but of governments allowing corporate power to exploit wage differentials in the pursuit of higher profit margins. As a result, overinvestment in high technology during the dotcom boom was quickly followed by a precipitous decline in pricing power that threatened deflation and a steep recession. Unemployment was heading up, and as it was, the jobless total still climbed by nearly four million even with the deep rate cuts.

Free and easy credit was widely held responsible for Japan’s property bubble and subsequent collapse. Frustrated by the rising trade imbalance between the two countries and a subsequent slide in the dollar, the US administration put pressure on the Japanese Ministry of Finance and Bank of Japan to slash borrowing costs. During the summer of 1987, interest rates fell to an unthinkable 2.5 per cent. But at this early stage, Japan was already gripped by endemic overinvestment and a squeeze on wages that would consume the rest of the West two decades later. That was the fundamental imbalance which led inexorably to Japan’s housing bubble.

Unbalanced globalisation

Cutting interest rates aggressively during an economic downturn triggered by a housing collapse is never a complete solution. An easier monetary policy does not cure the roots of a speculative mania. That way lies a revaluation of the political economy that begets asset inflation in the first place. Indeed, should central banks get their timing right and succeed in reflating the economy, that may simply allow governments to deflect any searching examination of the inequities that presaged overinvestment and excessive borrowing in the first place.

And one of the key inequities that must be addressed is the galloping pace of globalisation with inadequate checks and balances to corporate power. The rapid growth in world trade has been trumpeted as one of the key economic triumphs of a free market. It seems churlish to quibble when world GDP growth has been unrelentingly strong over the past four years.

But dig a little below the surface and the picture is not quite so benign. The systematic tearing down of trade barriers in the absence of appropriate protection and rights for ordinary workers accelerated a two-decade trend towards higher profit ratios in the west. That was unsustainable. Profit ratios can only continue to rise at the expense of a further decline in the share of national income taken by labour income, or wages. And such a divergence will increase the tendency and political pressure for consumer borrowing and house price inflation to fill the gap, between overinvestment and inadequate demand.

And this dichotomy will ultimately trigger a financial crisis that will lead to a sudden reversal in profit margins. Ironically, and perhaps unwittingly, the point was made eloquently by the current Federal Reserve chairman, Ben Bernanke, in January 2004. He endorsed a key tenet from overinvestment theories, the ‘tendency of the rate of profit to fall’, which explains much of the lurch from boom to bust in today’s deregulated markets. By deduction, profit ratios can only increase ad infinitum by heightening the long-term threat of debt deflation.

We should draw a distinction between rising profit ratios and high profit levels. The latter may occur in a more sustainable direction if free trade is matched by appropriate labour rights, so that consumption can rise without governments having to foster asset inflation as a substitute for economic growth. Hence, it is in the long term interests of free trade advocates to allow a greater share of the spoils to accrue to workers. It is also in their interest to permit a more even distribution of wages given the clear differences in marginal propensity to consume between income groups.

Relocation, relocation

But emboldened by their success in pushing profit ratios up to a four-decade high, they remain unwilling to temper their unquenchable enthusiasm for raw, free trade. Each and every company has the incentive to push the boundary of globalisation to its limit. If my competitor can relocate from low-cost China to an even cheaper Vietnam, so should I. Indeed, if I do not, my competitor will drive me out of business. Out of a naked self-interest, companies will never voluntarily agree to partake in a less uneven and destabilising mode of globalisation.

Similarly, left to their own devices, multinational corporations will have little incentive to prevent global warming, inflicting irreparable damage upon the climate. Food shortages are already appearing and prices are climbing. Climate change may ostensibly appear to heighten the risks of inflation. But instead, it will aggravate the threat of debt deflation in the west due to the very dominance companies enjoy over workers. Debt deflation – a cycle of falling asset prices pushing up the real debt burden and defaults – can and will coexist with persistently high headline inflation. Indeed, the inability of workers to match rising food prices with higher wages implies climate change will simply squeeze real incomes, making it harder for consumers to spend on other goods and services.

But that is not for companies to fret over. If they pay any more than lip service to the damage their trading practices inflict on the environment, in today’s global economy they will suffer a competitive disadvantage. The only resolution can come from governments acting in unity to ensure an orderly rebalancing of worker and environmental rights vis-à-vis the all pervading dominance of corporations. It can not happen in isolation. France has tried it with attempts to limit the working week, but its efforts were undercut by European neighbours and other competitors, who remained engaged in a race to drive down labour costs. Real wage rates in Germany have experienced their longest period of contraction in modern times, and they are still going down. Their export industries may have outperformed their French counterparts. But wage growth across Euroland has been too weak in the past five years to sustain domestic growth. And consumer spending has slumped, both in Germany and countries that had ridden high on housing bubbles. The collapse of the property market was hitting the once high-flying Spanish economy hard, with a vicious downturn in consumption.

Here again, governments have thus resorted to house price bubbles to drive economic recovery and bring unemployment down. The strategy has not worked in the US, and it is coming unhinged in Euroland as well as the UK. Indeed, governments today behave no differently from the typical self-interested multinational corporation, vying for the most competitive edge – not just on labour rights but also on taxes and the environment – in a short term bid for growth. But they have only secured growth by deliberately creating credit booms.

Cross-border labour unions are an obvious riposte to overarching corporations. But here again, the real impact of globalisation is thrown into stark relief. Even if unions in the steel sector, for example, were to unite across a hundred countries – a tall order indeed – there would still be many more countries where producers could choose to relocate. Companies that are now bigger than many small and medium countries can play one off against the other. Wal-Mart is now China’s eighth biggest trading partner. And it is the threat of relocation that proves just as powerful as the reality of a transfer somewhere cheaper. Accept more flexible terms, or we will walk. This is arguably the overriding and most significant point of globalisation that led to rising profit ratios and housing bubbles. It is the stick for companies to beat workers into accepting a smaller share of the national income pie.

Free trade falls short

Proponents of free trade claim the growth of emerging markets and the rise in demand for ‘high value exports’ from the industrialised west will more than compensate for the loss of lower skilled jobs. However, the argument is falling short on two counts. For the two-way transfer to succeed, exchange rates have to be allowed to reflect the new equilibrium offered by reduced barriers and increased trade flows. A failure of this rebalancing to occur anywhere near enough has accentuated the risks of debt deflation in the west.

China is a key example. Chinese workers are not necessarily more productive than their western counterparts. They are just cheaper, more abundant and receive fewer labour rights. Their average incomes may have risen over the past decade, but not enough to compensate for the loss of earnings in the west. As a result, China over-invests and under-consumes, and at current exchange rates, there can be no realignment of supply and demand. Chinese import demand will remain woefully inadequate, precisely because the economy is deliberately structured to underpin the corporate-led model driving the industrialised west. Exchange rates will have to adjust sharply, but in the short run, that may aggravate the fallout.

The accumulation of trade surpluses in emerging markets and huge foreign exchange reserves mirrored the explosion of consumer debt in the west. Governments in industrialised economies have appeased the process, because it fits neatly with their avowed strategy of promoting free trade irrespective of the costs. And the asset bubbles that fill the gap in demand allow them to deceive their citizens into believing that globalisation in its current format works. Developing countries hardly dare challenge the rules of the game, lest it should jeopardise their place at the world trading table. Western companies are not in a rush to challenge the status quo either. They benefit from the increased leverage over workers in their domestic markets, but profit from their overseas operations too. Hence, China is now a major profit source for many western companies. A growing share of UK and US companies’ profits are derived from abroad. As these returns flow to shareholders, that further exacerbates income inequalities at home.

This is only one part of the story. The free trade argument falls down in its current guise because it makes no allowance for the increased income inequality that it drives intra-country, i.e., between a nation’s citizens. Trade flows may have flourished since the creation of the World Trade Organisation in 1995. That is not in dispute. The argument is not about reactivating trade barriers per se, but creating a more even balance of power between omnipotent capital and weak labour, and not just in the industrialised west.

China is growing rapidly, not through its own innovation, but simply because it provides multinationals with the opportunity to cut costs, and with huge consequences for the environment and income distribution. Even supporters of free trade have looked on in horror, as the growth of multi-billionaires in developing economies and plutocracy endangers the legitimacy of globalisation. There are other ways to foster free trade that do not depend simply upon driving profit ratios up and labour incomes down, with the attendant fallout for debt and inequality. But a rebalancing of corporate versus labour rights can also be achieved by reversing policies that have allowed companies to become dominant.

The easy lending fostered by western governments has fuelled mergers, takeovers and acquisitions by private equity funds that concentrates corporate power, underpinning the fundamental forces that create asset bubbles. Tighter lending restrictions are critical to restoring the imbalance between corporate and labour power. Mergers that create corporate monoliths and increase market dominance need to be resisted. More appropriate tariffs and constraints need to be applied to trade in goods and services where the price mechanism fails to reflect the environmental costs. And such a tariff may be necessary where increased trade is no longer a reflection of any comparative advantage, but simply a means to exploit wage differentials.

Only time will tell whether governments and central banks can prevent the inherent flaws of rising profit ratios and over accumulation of capital tipping countries into debt deflation. The omens are not encouraging. The US is certainly the major, pivotal risk in the decade-long experiment with corporate-led globalisation. The US authorities are running out of time. A backlash against the shortcomings of today’s unregulated free trade model is gathering momentum. And the country is sinking deeper into a Japanese-style debt trap that could take years to unwind.

Extract from The Credit Crunch: Housing Bubbles, Globalisation and the Worldwide Economic Crisis by Graham Turner, published by Pluto Press (20 Jun 2008)