Illustration: Luke Carter
The Bank of England has shelled out £375 billion in ‘quantitative easing’ since the 2008 crash. It has, quite literally, created electronic money out of nowhere and used it to buy up financial assets held by the banks. The idea has been to pump ‘liquidity’ – lendable money – into the economy.
But the financial system is loaded with debt, austerity has deflated demand, and the real economy is stagnant. So instead of lending, the banks have used the new government money to pay down debt and fund a new round of speculation.
Jeremy Corbyn, John McDonnell, Ken Livingstone and others are proposing ‘people’s quantitative easing’. In this case, instead of using public money to re-finance casino banks, the idea is for the government to create money for direct investment in jobs, homes, and public services.
The problems being raised with this have nothing to do with economics. People’s QE is eminently sensible and do-able. The problem is political: it poses a clear and present danger to the wealth and power of the 1%.
Let’s have a go at unpicking some of the complexities.
The Greek economic crisis is no longer headline news. It should be. The destruction by European finance-capital of the Syriza government in the first six months of last year – a triumph of debt over democracy, of profit over people – has plunged the country into an economic death-spiral.
Unemployment stands at one in four. Among the young, it is one in two. Wages have fallen by about a third. So has employment in education, health, and other public services. Overall, the economy has contracted by about 25 per cent since the 2008 crash.
As a direct consequence, the Greek debt burden has increased from about 130 per cent of GDP to about 180 per cent. Deflation is choking off revenue flows and reducing the country’s ability to pay its way, forcing it to take out new loans to roll over old debts. Greece is trapped in an austerity-induced depression from which escape seems ever more hopeless.
The raw statistics represent untold human suffering. Yet the Greek economic crisis – unlike the Greek refugee crisis – has dropped from view. The reason is simple: it is the elite that decides what counts as a ‘crisis’, not the poor.
When the Syriza government was challenging the wealth of the 1%, it was a ‘crisis’. Not any more: democracy has been trampled, the rule of the bankers restored, and the rich are again sucking the lifeblood out of the Greek people to sustain their parasitic existence.
And here we approach the kernel of the economic crisis that confronts humanity in the early 21st century.
Economics is not neutral. It is inseparable from questions of class and power. We live in a class society ruled by the 1%. The banks and the corporations are run by a small class of the super-rich. In the end, the reason banks are bailed out, public services privatised and the poor screwed is very simple: it makes the rich richer.
All the bad things – monopoly prices, zero-hours contracts, Wonga-type loan sharks, the bedroom tax, the refugee children teargassed by riot police, the hospitals sold to profiteers, unaffordable rents, incarcerated asylum-seekers, student fees, the bullying supervisor, the tears in the toilet, the fear, the stress, the despair – all of it is happening to make the rich richer.
The class interest of the 1% forms the hard-wiring of the political response to the crisis. A pathological form of neoliberal capitalism based on debt has imploded, and it is the greed of the rich that drives every attempt to shore it up. These efforts are contradictory and self-defeating. But they cannot contemplate the only rational alternative: public ownership of banks and money, and the dispossession of the global financial elite.
The lesson of Greece is that half-measures will not do. Either we end the rule of the 1% and the corporations, or they will crush us. To understand why, we have to grasp the inner logic of early 21st century capitalism. And in this respect, much of the left is woefully behind the curve.
One part of the left is trapped in a 1970s sectarian time-warp. I have heard people argue that finance does not really matter – it is just ‘froth’ on the surface – and that what is happening in production remains decisive. These are usually the people who also argue that exploitation is always rooted in the workplace, and that ‘real’ class struggle must always be union-based.The challenge is nothing less than to begin the dismantling of the bank-run, debt-based, hyper-exploitative system of neoliberal capitalism
On the other hand, there are people on the soft left who kowtow to bogus Tory economic arguments because they feel under pressure from New Labour spivs and the Daily Mail. The result is a half-baked commitment to anti-austerity economics without the understanding, policies, and boldness to give us even a fighting chance of avoiding a Syriza-style car crash.
The challenge posed by the economic crisis does not boil down to simply putting right ‘ideological’ distortions, correcting ‘imbalances’, and injecting some ‘demand’ into the economy. The challenge is nothing less than this: to stop the current process of capital accumulation in its tracks; to begin the dismantling of the bank-run, debt-based, hyper-exploitative system of neoliberal capitalism that has us in its coils; and thus to begin confiscating and redistributing the wealth of the speculators and oligarchs. Here’s why it is that serious.
We haven’t tumbled into a world of growing corporate power and social inequality by accident. We’ve arrived here because the system was remodelled in the great crisis of the 1970s and 1980s. The result is best described as ‘global financialised monopoly-capitalism’. This is a mouthful, but it captures what has happened.
On the one hand, we have the rise of the corporations to the point where they burst the national shell and, operating globally, are able to dictate terms to nation-states. Take the example of Walmart. By 2014, with annual revenues approaching half a trillion dollars, it was bigger than Greece; in fact, had it been a country, Walmart would have ranked as 25th largest in the world, ahead of 157 smaller countries.
Among the other giants in the 2014 top 25 list were oil majors like Exxon Mobil and Chevron, banks like Bank of America and JP Morgan Chase, motor manufacturers like Ford and GM, electronics firms like General Electric and IBM, and the private health conglomerate UnitedHealth Group. All these had annual revenues above those of Iraq (about $80 billion).
These corporate giants manage the market, create the demand, and set the price. Their power in relation to workers, consumers, and nation-states is at an unprecedented level. The result has been a massive shift of surplus – thanks to reduced wages, rip-off prices, and soaring profits – in favour of capital.
The system has therefore faced a widening ‘scissors’ crisis, with ‘over-accumulation’ by capital on one side, ‘under-consumption’ by labour on the other. In other words, the corporations are awash with profit-seeking capital, while union-busting, rising unemployment, the squeeze on wages, and falling public and welfare spending have drained the economy of demand.
This has strengthened the inherent tendency of big capital to be risk-averse. Faced with a choice between building a new global-scale production facility – a risky long-term investment – and fast profits in the money markets, the industrial corporations have turned to financial speculation.
So financialisation is not just to do with banks. The whole capitalist system has become a debt junkie, since debt offers a ready solution to the twin problems of over-accumulation and under-consumption. Capitalists can make money out of trading debt, and workers can compensate for falling wages by borrowing against future earnings.
This is not ‘froth’. The circuit of industrial capital accumulation has been superseded by the circuit of financial capital accumulation.
Karl Marx defined capitalism as ‘the self-expansion of value’, expressed by the circuit of exchange M – C – M+, where M is the money invested, C are the commodities required in the production process (raw materials, energy, plant, labour-power, etc), and M+ is the money recouped with a profit.
But there is another way of making money. It is through ‘the self-expansion of money’, or M – (M) – M+, where the M is the money invested, the (M) is a monetary asset, and M+ is the original money recouped with a profit when the asset delivers a return (interest on debt) or is sold on at a higher price.
Some people argue that, since no value is created by the second circuit, it cannot have the significance of the first. This is false: it is to attribute an underlying rationality to a system that is inherently contradictory. The circuit M – (M) – M+ is wholly rational from the point-of-view of an individual capitalist. And it is now the dominant circuit. Here are some figures – taken from Andrew Fisher’s highly recommended book The Failed Experiment – to illustrate the point. At the end of the 1980s, total UK debt – personal, corporate, government – stood at about 200 per cent of GDP (what the country produces in a year). By 2010, it had risen to 540 per cent of GDP. In that time, the aggregate asset-value of the financial sector is estimated to have risen from 46 per cent of GDP in 1987 to 245 per cent in 2009.
This is pathological economics – though, to repeat, it is not a matter of ‘froth’. The dominant form of capital accumulation in the modern economy is money-market operations. The source of the surplus is exploitation, both at ‘the point of production’ (of workers in the workplace) and at ‘the point of consumption’ (in the form of rents, rip-off prices, mortgage debt, card debt, Wonga debt, and so on).
Surplus is also being accumulated by a plundering of public wealth. Existing assets – and associated or potential revenue streams – are sold off to profiteers in a rolling wave of privatisations. Again, this is the circuit M – (M) – M+ at work, as no new value is being created. All that is happening is that public assets and revenue streams are being gobbled up by private corporations.
What is true, of course, is that the financial circuit inflates asset prices without any corresponding increase in the real wealth of society. The debt economy is therefore highly unstable: an economy of boom, bubble, and bust.
This is clear as soon as you look at underlying growth rates. Take the example of the US. The growth rate was 5.9 per cent during the Second World War, 4.4 per cent during the Cold War, 3.1 per cent in the in the 1980s and 1990s, and has been around 2.6 per cent in the years since. In other words, the real economy stagnates as capital flows into a succession of speculative bubbles.
What powers financialisation is that it has become the principal mechanism whereby wealth is redistributed from labour to capital, from people to corporations, from poor to rich. It is the economic explanation for the growing and grotesque inequalities all around us.Since the 2008 crash, across the world, the hoovering of wealth to the top has accelerated
An Oxfam study has shown that the richest 63 people – the occupants of a double-decker bus – now control as much wealth as the poorest 50 per cent of humanity (3.5 billion people). The richest 1 per cent control more wealth than the remaining 99 per cent.
Social inequality has increased sharply throughout the neoliberal era. In 1990, in Britain, the average chief executive earned 25 times the pay of the average worker. By 2008, this had risen to 150 times as much. Since the 2008 crash, across the world, the hoovering of wealth to the top has accelerated. In 2010, the richest 388 people owned the same as the poorest 50 per cent. Four years later, just 85 people had this much wealth, and now it is down to that gold-plated 63 – who between them are worth $1.76 trillion.
This wealth is hoarded in tax havens. Oxfam reckons the global rich have $7.6 trillion stashed out of reach of government taxation. Who out there believes that these people will surrender their wealth in obedience to a democratic mandate? Before the Syriza debacle, there may have been some excuse for thinking it possible. Not any more.
To make a difference, we are going to have to nationalise the banks, cancel the speculators’ debts, ratchet up taxation on the corporations and the rich, and begin a massive programme of public spending to build a million green homes, create a million climate jobs, and double the pensions, benefits, and wages of the poor.
The rich have been waging a class war against the rest of society for a generation. They have created a deeply dysfunctional economy of debt, stagnation, and obscene social inequality. The Corbyn leadership of the Labour Party has created an opening on our side. It is no more than that. What happens now depends on whether or not the left builds a mass movement for radical change that can burst through that opening, take over the banks, end the rule of the 1 per cent, and begin the process of building a new economy based on equality, democracy, and sustainability.
That is the historical challenge for the present generation, situated, as we are, in the midst of the greatest crisis in the history of the capitalist system.
Red Pepper is supporting the new Brick Lane Debates Corbynomics course at the Bussey Building/CLF Art Café, 133 Rye Lane, London SE15 4ST (near Peckham Rye Station), starting 7pm, Monday 14 March, with ‘The Rise and Rise of the Corporations’.
Neil Faulkner is the author of A Marxist History of the World: from Neanderthals to Neoliberals (Pluto).
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