What marks Harry Shutt out as an economist is not that he predicted the financial crisis that struck in 2007 (two years before he warned of ‘an unavoidable financial crisis’ on a far greater scale than any previous one). There are any number of sages, saying ‘I told you so’. What distinguishes him as an economist is that he doesn’t think the economy needs to be rebalanced or better regulated. He believes the economic crisis is a sign that a move to ‘post-capitalism’ is urgent and essential, that an enduring return to growth is neither desirable nor possible.
He outlined his ideas in the book, Beyond the Profits System, published last year. Red Pepper talked to him about why capitalism is ‘hopelessly outmoded’, why another financial crisis is imminent, how the left just doesn’t get it, and what lies beyond…
It’s down to a fundamental fault in the design of the economic system, whereby corporations – including banks – are mandated by company law to maximise profits in a competitive market place. Where, as in recent decades, this has been compounded by extreme deregulation and official guarantees against loss – moral hazard – you have what amounts to a positive incitement to greed and recklessness, all too easily tipping over into fraud. Indeed in such an environment it would be virtually impossible, especially in the financial sector, not to succumb to pressures to behave badly, as you’d stand to lose not only your bonus but your job.
The fruits of profit maximisation in the form of accumulated profits, surplus value in Marx-speak, have to be perpetually reinvested at a profit. This age-old bane of capitalism – the basis of the inescapable business cycle – is now compounded by technological change such that decreasing amounts of capital – per unit of output – can be absorbed by needed new investment in fixed capital. Hence, as detailed in all my books, productive investment is perceived as less and less profitable than financial speculation – famously described by Lord Adair Turner as ‘socially useless’.
In summary, it’s a system which, having been designed largely in the 19th century in line with the then prevailing ideology and vested interests, and before the arrival of universal suffrage, has now become hopelessly outmoded and even more damaging to the public interest than it was in Marx’s day.
An equally big failure to learn the lessons of history is that of the ‘Keynesians’ who are still peddling the delusion that growth can be boosted through expansionist fiscal and monetary policy, forgetting the experience of the 1970s, which demonstrated that these mechanisms cannot necessarily generate growth beyond a short period without resulting in inflation. This is not, of course, to argue for fiscal austerity, which the UK and some Eurozone countries are busy demonstrating once again must lead to even greater disaster, confirming that the neo-liberal, monetarist approach is equally unworkable.
It is particularly perverse in present circumstances to argue that a further bout of fiscal expansion – deficit financing – could get us out of the hole we are in. This is because since the start of the credit crunch in 2008 the global economy has been paralysed by a massive burden of debt (public and private) which is largely unpayable; not just sub-prime mortgages.
This debt, increasingly underwritten by the state, has been run up over the last 20 years, particularly during the ‘bubble economy’ of 2003-07, in an effort to keep the economy growing long after it should have suffered the big shake-out that the normal action of market forces would dictate. Because this indebtedness has now surpassed the level of what is sustainable, it is a cruel deception, as I and others have consistently pointed out since the start of the crisis, to suggest that individuals or enterprises can or should be induced to borrow still more. Rather sustainable growth can only be revived at all once this burden is removed, which would require a destruction of capital – involving liquidation of enterprises and elimination of jobs, ven greater than that which occurred in the great depression of the 1930s and probably lasting even longer.
The more fundamental delusion is that high economic growth is attainable in any event, or even desirable. Leaving aside the question of whether it’s environmentally sustainable, the record since the 70s, whether under Keynesian or neoliberal strategies, has shown that growth can’t be maintained at a level high enough to achieve an adequate utilisation of either capital or labour under a market system, and thereby prevent the downswing of the business cycle from bringing about a sustained market contraction. The result has been a resort to ever greater market distortions and imbalances as different interest groups struggle to increase their share of increasingly stagnant markets, including the wasteful subsidisation of activities which either have no lasting benefit or are positively harmful, such as investment in urban regeneration or high-cost sources of alternative energy, and whose only beneficiaries usually turn out to be investors and big corporations.
The weakness of the ‘left alternative’ stems from the failure and/or refusal to grasp the nature of the impasse the global capitalist system has now reached. Rather its advocates, such as Mark Serwotka of the PCS union, are perpetuating the myth so beloved of the more militant unions at least since the 70s, that the capitalist system can always buy off trouble even if that entails borrowing still more. Or, in other words, that money really does grow on trees.
It is, of course, a perfectly correct demand that corporations, bankers and others, who have enjoyed a huge increase in their share of the cake, without adding any real economic value, should be forced to pay more in taxes. What is not defensible is to claim that the ratio of public debt to GDP – or of private debt to income / assets – can be pushed ever higher without regard to the capacity to repay.
The other major flaw in their analysis is their insistence on targeting job creation, whether in pursuit of green energy production, clearly a desirable goal in itself, or any other supposedly employment generating activity. Our own experience and that of other countries, notably the US since the credit crunch of 2008, shows conclusively that, thanks to a continued transformation of the labour market driven to a great extent by technological change, we cannot conceivably restore anything close to full employment as traditionally understood.
First of all, it involves recognising that maximising the growth of output is not a valid guiding principle of economic management in a modern society. While in pre-industrial societies, where scarcity and famine always threatened, a tendency to produce as much as possible may have been an understandable default position, it is no longer justified in an era when the production problem has effectively been solved, i.e. we have the technical capacity to produce far beyond our capacity or need to consume.
But if we have solved the production problem, we clearly haven’t solved that of distribution; hence the phenomenon of mass global poverty amid plenty. At the same time we face a new scarcity in the shape of such vital productive factors as land and water, though not in relation to food production for the most part, on a finite planet as a consequence of our very success in expanding output and population.
It should be obvious that a competitive, capitalist market system is singularly ill-suited to enable us to cope with these new imbalances. This is because it depends on perpetual growth, facilitating the redeployment of surplus profits, to maintain its stability and it inevitably leads to a skewed distribution of income, particularly as technological change leads to ever greater structural unemployment. The latter problem points to the need to overthrow another fetish – that of maximising employment, or indeed of ‘work’ itself – in a world where productive capacity is shown to be surplus to requirements.
If growth is no longer to be considered the principal public good, what should be the overriding aim of economic policy? Reverting to first principles it seems obvious that, in an age of democracy and universal human rights, it should be to provide people with what they need and want to the maximum extent possible with the available resources.
Of course this begs a number of questions about how to determine people’s wants and public priorities for investment, service provision etc. Yet while markets will have a role in this process, experience has shown that the traditional reliance on supposedly free competition by profit-maximising companies – who claim to be driven by a belief that ‘the customer is king’ but are really the slaves of their shareholders – is no longer good enough. Rather resource allocation decisions will have to be made on a collective basis at local, national or international level. It makes little sense to try to anticipate what new models of economic organisation will emerge. All that can be hoped – if not predicted – is that they will be run on the basis of democratic accountability and transparency. To improve the chances of this happening, it will be vital to institute reforms to the political process such that it cannot be bought by those with the deepest pockets, as is currently the case everywhere, including the UK and, most egregiously, the US.
Given the ever growing global surplus of labour noted above, it is no longer possible to pretend, if it ever was, that full employment is a realistic goal. This is already widely understood, though not explicitly recognised, across the political spectrum in the UK, where attempts to devise a welfare system that encourages people to work while ensuring they avoid deprivation have proved futile over the years – as illustrated by New Labour’s attempt to cajole single mothers to take menial or non-jobs on the basis that they could then afford to hire a child minder. This points to the necessity of devising a system of income distribution which incentivises people to undertake only work which is necessary – including caring activities which at present are largely unpaid – and does not penalise people for being unemployed.
The most obvious benefits of a basic or citizen’s income, paid at a flat rate to every adult irrespective of their income or employment status, would be that every individual would be assured of basic subsistence without the need for means testing. The administrative costs of means testing would be saved, as would the personal irritation and humiliation.
People could undertake paid work or start small businesses without losing any benefit, while at the same time they could afford to undertake unpaid work of value to the community – including as carers – which might otherwise not be done.
No. It needs to be remembered that the revival of global growth in 2010, to the extent that it’s genuine, has been achieved on the back of ‘extraordinary measures’ – rises in fiscal deficits and debt, rock bottom interest rates and ‘quantitative easing’ (money printing) – which cannot be sustained beyond the short term. In any case, this has not prevented unemployment from rising in many countries, most notably the US.
Given the abject failure of the left in Europe or anywhere to develop a radical alternative in spite of all that has happened in the last decade or more, it seems clear there will have to be an even greater disaster before any such ideas as those outlined in the book can start to be taken seriously. The good news is that just such an event, in the form of a renewed financial crisis, seems imminent. The bad news is that the mainstream left remains hopelessly ill-prepared for it, stuck in their Keynesian fantasy world. In contrast the right (Murdoch, Fox News, the Tea Party etc) have a much clearer grasp of what’s at stake and are evidently prepared for all-out class war. Another disturbing factor, though potentially positive in the long-term, is the political and economic breakdown of the Arab world, also tending to spread to other ‘developing’ regions, even including China. In the absence of any coherent analysis from right or left of what is happening, this would seem as likely to lead to prolonged conflict in much of the world as to any rational solution.
Beyond the Profits System: possibilities for a post-capitalist era is published by Zed Books
#232: Rue Britannia ● The legacy of the British Empire ● An interview with Priyamvada Gopal ● The People’s Olympics ● An interview with Neville Southall ● Agribusiness in India ● Deliveroo’s disastrous IPO ● Latest book reviews ● And much more!
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