THE CRISIS OF FINANCIAL MARKET CAPITALISM – CHALLENGE FOR THE LEFT
By the Institute for Social Analysis of the Rosa Luxemburg foundation
[This study published in March 2009 is translated from the German on the Internet, http://www.rosalux.de/publication/28514/die-krise-des-finanzmarkt-kapitalismus-herausforderung-fuer-die-linke.html.]
1. For the first time in history, a global financial- and economic crisis joined with a global ecological crisis and the crisis of humanity’s most elementary foundations of life. Collapse of states and imperial tendencies lead to wars and increase the danger of nuclear conflicts. Crises are not limited to the inner and outer peripheries. This time the center of neoliberal financial market capitalism itself is hit. The depth of the crisis points to a long-lasting structural crisis.
2. The crisis of neoliberal financial market capitalism broke out in its center and has one central systemic cause. This crisis was triggered by the indebtedness of the financial sphere toward the other economic areas not recognized in the past and the incorporation of all social areas in speculative financial transactions beyond any possibility of social or governmental control.
3. A solidarity mixed economy of cooperatively organized forms of property, a democracy of participation and social security as a condition for freedom and peace through common/shared development are alternatives necessary for survival. Social-ecological reorganization, radical democratization and global solidarity cooperation are crucial challenges in the 21st century.
4. The current block in power has no productive solutions to the erupting crisis phenomenon that considers the interests of subordinate groups and classes and thereby restores the active consensus on the neoliberal project. This block is forced to change past neoliberal strategies.
5. Crises are historical moments of the greatest uncertainty. Their concrete outbreak, their course and their results are not foreseeable. Particular crises of individual sectors can become a general structural crisis. General crises do not end when the problems are solved but when conditions arise where some have no interest in further fundamental changes and others have no power to carry them out. Crises can be answered in reactionary, conservative, progressive or transformational ways.
6. The following tendencies within neoliberalism are developing parallel and point beyond it:
(a) The transition from (state) market radicalism to new state interventionism; (b) the struggle over regulation of international financial markets; (c) the discussion round a New Public Deal; (d) the strategies for a Green New Deal and (e) the struggle around a more just world order in the scope of the millennium goals. (f) The genesis of a breadth of variations and competition of “post-neoliberal” development paths. (g) Strong authoritarian tendencies can be expected in light of the undeniable contradictions and conflicts engendered by all these projects and on the background of the interests of the ruling elites to defend their hegemony at almost any price. Parallel tendencies of autonomous development models with view to the “global South” and international cooperation on one side and deepened forms of neocolonial exploitation with intensified global competition on the other side are also marked out.
7. The depth of the present crisis will not lead to any lasting solution carried out in the short-term. The unbroken hegemony of neoliberal forces of financial market capitalism blocks fundamental alternatives. Different approaches exist side by side. A constellation of openness and transition occurs that may last for a decade. The danger of even worse financial, economic and social crises grows since many problems are not tackled substantively. A real ecological turn is not in sight.
8. The main challenge of a renewed left will be:
- Connecting resistance against the shifting of crisis consequences on wage-earners, the socially weak and the global South by developing a perspective oriented in the values of global solidarity, organizing and linking social battles;
- Creating spaces for cooperation and self-organization of actors who are ready to develop and live alternatives;
- Opposing reactionary answers of continuous dispossession, de-democratization and new wars with all resolution;
- Preventing the conservative continuation of neoliberalism with new methods;
- Supporting progressive forms of state intervention, renewing the public sector, the social-ecological reorganization and solidarity global development;
- And crafting initiatives of transformation beyond capitalism, introducing steps to a social-ecological reorganization and implementing elements of a solidarity society.
9. The left can act on three planes simultaneously: through protest, criticism and enlightenment, struggle around interpretations of the crisis, working out solidarity forms of deconstruction, intervening in decision-making processes and practical organization. The left must stand the test in the strategic triangle of leftist policy of social learning, the broadest alliance policy and changing social relations of property and power. The struggle of unions, social movements, citizen initiatives and concrete leftist gateway projects of solidarity.
10. The left in its minority position is challenged to break neoliberalism’s monopoly on action and show through concrete examples that convincing alternatives are possible and life can be better. The failure of neoliberalism is only the presupposition for another development. The practical success of solidarity alternatives will first break the hegemony of financial market capitalism. The concept of a solidarity society represents another kind of political culture and way of life, not only another kind of economics.
11. Left movements must act where they are strong and above all on local and community planes and in the enterprises. Political actions directed at realizing democratic forms of social regulation and against shifting the crisis consequences to society should be emphasized.
12. The struggle against poverty, the redistribution from top to bottom and from private to public, nationalization of the financial sector, economic democracy and democratization of democracy, development of free local transportation, an active peace policy, engagement for a solidarity renewal of the European Union and global solidarity development are basic elements of left policy.
13. It is time to set the goal of a solidarity society, the perspective of a transformation that points beyond capitalism, on the agenda.
A NEW HISTORICAL SITUATION
The brave new world of neoliberalism is lying in ruins. Its riches proved to be robbery, appearance and fraud. The promised freedom has become general insecurity and widespread poverty. Neoliberalism’s wars are lost. Hunger in the world increases while global warming happens faster and faster.
There is no alternative to this. Neoliberalism must disappear in the hurricane of history. Its henchmen must be called to account. Two answers are discussed – the answer of the World Economic Forum of the elites of the global financial market on one side and the answer of the World Social Forum in Brazil on the other side. The former discuss how functional security for global financial capital can be restored to continue the transformation of the world into a commodity. In contrast, the participants at the World Social Forum discuss how they can introduce social-political alternatives with their resistance to shifting crisis effects on the majority of the population, especially on the socially weakest. How can a fundamental change of course occur to a world in which income can live out self-determined solidarity coexistence and intact nature through redistribution from top to bottom, private to public and through democratization of finances, economy and society by regionalization and local governments. For some, there is only the concrete form of capitalist globalization in crisis. For others, this globalization itself is the crisis.
The thirty-year triumphant advance of neoliberalism was at the same time a chain of defeats of the left. The few attempts at adjustment to social developments and social change failed in the structural conservatism of its own organizations. Self-image and identity were far removed from the real differentiated and individualized ways of life and work and blocked processes of real change. Therefore the hour of the crisis of neoliberalism is not the hour of a strong renewed left in Germany, Europe or worldwide.
In the past, the left was not capable of social leadership. It has only developed common shared capacity in rare moments beyond the social, political and cultural differences. No force arose out of the struggles against the Iraq war, the neoliberal orientation of the EU constitution or the WTO that could realize a global change of direction of politics by the left. How can this weakness be overcome?
The left sees itself as outmoded since there is no business-as-usual for the ruling class. The ruling class adopts some demands of the left and fits them in its strategies – investment programs, nationalization and state controls and expansion of minimum wages. The goal of the governing neoliberal elites is to continue financial market capitalism with other means than in the past.
Against this, the analysis of the crisis and the criticism of the dominant crisis policy must make clear the profound political differences and develop action possibilities of the left in a serious crisis situation. The left finds itself in a new situation. Without its personal change and production of a contemporary action capacity, it will lose for a long time every possibility of becoming a force of social, ecological, democratic and peacemaking social transformation beyond capitalism.
This study should help in the discussion process on the strategies of a new left in the crisis of neoliberalism.
NEOLIBERALISM IN CRISIS
The god of neoliberalism is dead.
The “god among the commodities,” Karl Marx said, financial capital, calls for the state as rescuer in its most extreme distress and deepest crisis since 1929 and drives it to the verge of bankruptcy or directly in bankruptcy. The distressed, alarmed and plundered community should pay the bill for an orgy of redistribution from bottom to top and from public to private. That orgy went on for more than thirty years. Millions lost their work, their homes and pensions.
In the last thirty years, advances in political democratization were made in many states. Racial and gender barriers lost significance in many countries. Billions of people could improve their lives. The global social product quadrupled since 1980. Human rights became more important as a standard of politics. Global communication reaches every point of the world today. Goods can be exchanged globally at a trifling cost.
On the basis of neoliberal policy, these developments are used to transform the world into a global casino practicing wage- and social-dumping worldwide, dividing societies and implementing a policy of rearmament and global wars and propagating a parasitic consumerism and egoism as well as unbridled self-enrichment.
Neoliberalism regarded the deregulated blind financial markets as the highest form of rationality and efficiency and redistributed more and more power and wealth to financial funds and banks. Fast profit, the higher short-term stock price of the corporation, the most risky speculation with debts, food, raw materials and currencies, was the measure of all things. In December 2007 the financial derivatives eluding controls and trading off the stock exchange amounted to nearly 0 trillion, more than ten times the global gross social product.
The house of cards collapsed and the king was naked with the bankruptcy of the US investment bank Lehman Brothers on September 15, 2008. While individual billionaires can lose billions, the power of the capital elites never ends.
A downward spiral of fear, insecurity and mistrust began. Credits were refused, investments cancelled, demand collapsed, four million jobs and arduously gained security were lost. Credits are no longer available. Social and territorial divisions grow. Unparalleled since 1945, all large and small national economies are simultaneously pulled down.
The financial crisis is connected with a cyclical economic crisis and the exhaustion of past growth fields of an auto-centered society and the information technology revolution. At the same time the costs of global warming explode and take away the foundations of life from hundreds of millions of people. A food crisis occurs, spurred on by the monopolization of seed and the use of arable lands for the production of feed and bio-fuels. In the long term, the wasteful economy leads to an increasing scarcity of raw materials and ultimately to their exhaustion. This strengthens the tendency to higher prices. Slums spread in which every sixth person lives. The planet and its world oceans become a waste-dump.
In September 2008 the UN agricultural and food organization (FAO) reported an increase of the number of hungry people worldwide from 854 to 923 million people. Financial speculation had its share in this plight. Experts refer 20 to 40 percent of the price explosion in foods like corn, rice and wheat since the spring of 2008 to speculation. The costs through the financial crisis of the last 25 years for developing countries are estimated at one-third of their gross domestic product and their tax losses through capital transfers to offshore centers and tax havens at 0 billion annually.
For the first time in history, a global financial- and economic crisis is joined with a global ecological crisis and the crisis of the most elementary life foundations of humanity. The interwoven economic crises may lead to pressures of repression and competition and become levers of a perfected system of neocolonial exploitation.
FINANCIAL MARKET CAPITALISM – RESULT OF THE NEOLIBERAL SOLUTION OF THE CRISIS OF POSTWAR CAPITALISM
The experiences of the crisis of 1929, the existential threat through two world wars and fascism, the struggles of workers, employees and many social movements and the challenge by state socialism and its spreading after 1945 led to rulers putting chains on capitalism. At the same time they saw a source of new wealth in the consumption of the working class and accepted the social- and welfare state as a guarantor of a social integration and capitalist accumulation. The progenitor of neoliberalism, Friedrich August von Hayek, criticized these measures in 1944 as socialism’s “way into serfdom.”
This class consciousness of capitalism after the Second World War was struck under the hegemony of the US and with the goal of maintaining the domination of the capitalist class. The world currency proposed by John Maynard Keynes to prevent currency speculations and new global imbalances in world trade was turned in favor of the power of the dollar. Economic democracy and the social state remain tied to the dominance of the sponsors and paid labor.
The American way of life of consumerism and productivism under the priority of capital accumulation, the rise of Western Europe and Japan, an ever-stronger over-accumulation of capital and the shifting of class forces set the points in the 1970s: unchaining of capitalism or steps to its mastery. At the end, neoliberalism prevailed – with the putsch against Chilean president Allende, the indebtedness policy toward countries of the South, prevention of the employee fund in Sweden, pulling down the bastions of Bretton Woods, the limitation of economic democracy to mere joint-determination in Germany, the integration of the 1968 revolts, the blocking of far-reaching projects of democratizing enterprises in France and Italy, e.g. radical reduction of working hours and the social-ecological reorganization and disarmament with a radical market reform after the end of Soviet state socialism. The structures of neoliberalism stand in a cemetery of social, democratic, ecological and peace-promoting alternatives.
After the end of state socialism, a market-radical neoliberalism was enforced in the core capitalist countries and many developing countries. The transformation to financial market-driven capitalism began with the liberalization of the financial markets since the beginning of the 1980s and numerous “financial derivatives” (derivatives, mortgage policy etc).
NEOLIBERAL ANSWERS TO THE OVER-ACCUMULATION CRISIS
The crisis of neoliberal financial market capitalism broke out in its center and has a central systemic cause. This crisis was triggered by an unparalleled independence of the financial sphere over against the other economic areas and the incorporation of all social areas in speculative financial dealings beyond any possibility of control by social or state organizations.
Since neoliberalism blocked the future-friendly way of a real socialization of the economy, a strengthening of the public sector, radical redistribution from North to South and from top to bottom and the rearrangement of lifestyles by an extensive reduction of working hours, it also hit on the way of removing the central causes of the over-accumulation of capital.
The limitation of wages, salaries and state spending and the blockade on all attempts at nationalizing capital profits created a situation in which growth declined in the traditional structures and according to conventional assessments. Profits fell in the areas of production and human-oriented services and capital was accumulated that sought new places of investment with higher profits.
To find new investment fields for excess capital, neoliberalism privatized the social security systems (pensions, health care and so on) and allowed private capital accumulation to explode. Liquid assets were thrown into new financial transactions without productive goals. One speculative bubble chased another – until the global financial market came to the verge of collapse and needed the rescuing visible hand of the state long scolded as unnecessary and annoying.
The center of global financial market capitalism was the US – economically, politically, culturally and militarily. The US financed its hegemony through gigantic indebtedness with China, Japan and the oil-exporting states of the Middle East. The world was bound with that money lent to the US.
If the reforms in capitalism previously created a strong public sector, a tremendous push of dispossession followed: privatization of public goods and necessities, public enterprises, public spaces and communication. Foreign policy and wars became fields of privatization.
Neoliberalism changed social security systems (pensions, health care and so forth), natural goods and intellectual production into a revaluation process to open up vast new fields of profits and speculation. Privatization and commodification exploded capital accumulation since the 1980s. Three decades of rapidly growing inequality of incomes and assets followed. Here neoliberalism was more successful than anywhere else. It bound millions of dependent workers and members of the middle class as investors and small entrepreneurs, owners, debtors, private pensioners and savers to the financial markets that were a main factor for assuring precarious living standards. Liquid assets were thrown in constantly new financial transactions beyond productive goals – until the speculative bubbles burst first on the US real estate market and then on the whole global financial market.
Excess capital was offered to developing countries and former countries of state socialism at low interests to be demanded back with interest and compound interest in times of high interest policy so a global capital transfer arose from South to North. Many states of the South were plundered in the scope of neocolonial exploitation. Hunger, inadequate drinking water, epidemics, mother- and child-mortality, homelessness, illiteracy and the premature death of millions of people are the continuing consequences.
The unscrupulous greed for ever-higher profits and incomes was system-conditioned. On Wall Street, billion of bonuses was poured out in 2007. In 2008, .124 trillion was shelled out worldwide. The 25 richest Americans have an income equal to two billion people. The top one percent of the world population has an income equal to 57 percent of humanity. This financial oligarchy in alliance with those hoping to prevail through their market performance made possible by financial market capitalism.
Given the real hierarchy of power, different ways to overcome the present economic crisis are conceivable and possible from an historical perspective. Each of these ways is political and does not arise spontaneously from the economy. They all assume an active state. A catastrophe would occur if economic crisis and collapse of the state combine.
The following functions of the state in crisis should be underlined: firstly, securing the political stability (its original comprehensive political function); secondly, an organized process of devaluation of excess capital (with the lowest possible losses for capital owners) and thirdly, strengthening the economic branch and businesses that will foreseeably survive in the next round.
The over-accumulation crisis can be worked out through different strategies of more or less productive and more or less consensual or confrontational solution of the crisis. The excess capital could be steered to new investment fields. One immediate possibility that cannot be excluded is an inflation policy joined with extreme social and international tensions. The opening of new accumulation fields and the inflationary devaluation of capital go hand in hand. If the present tendency of the over-accumulation of capital is not stopped, the explosive material of a much greater financial-, economic- and social crisis piles up. In the past, there were time and again these cycles of problem-intensification that could have catastrophic characteristics.
THE SOCIAL CAUSES OF FINANCIAL MARKET CAPITALISM AND THE NECESSITY OF SYSTEM ALTERNATIVES
The present crisis is more than a financial crisis and also more than a normal cyclical-economic crisis. Whether the immediate crisis becomes a systemic crisis is open. As a structural crisis of capitalism, it is a social crisis of capitalism in many regards.
Firstly, the ideology of neoliberalism is shaken with the crisis of the market-radical mode of regulation manifest in the financial crisis. The new state interventionism unmasks the dogma of the market mechanism creating prosperity and balance as a failed myth. The policy of deregulation, liberalization and privatization has thoroughly foundered. However alternatives of a solidarity society have not permeated public opinion. A paradox appears again. In crisis, many people gain security and life perspectives by clinging to what seemed indisputably valid for a long time.
The crisis of neoliberalism that it unleashed globally is a crisis of capitalism. The subordination of societies, human life and relations to nature under the maxim of profit maximization has proven to be a crisis-promotion principle. Growth as the life elixir of capitalism in the neoliberal interpretation is regarded as the best approach to solving problems but has become a problem and hits its systemic and natural limits. The prosperity gain through growth is often displaced by losses in prosperity and security – in environmental-, climate- and energy-crises, food crises, war consequences and state collapse in many lands. In China, India and other great countries in Asia and Latin America, the majority of the world population, sets out on the way of catch-up capitalist modernization. However this way of growth cannot be generalized since it entails a new globalization of social and economic inequality that has formally exploded in the US and in the core states of European capitalism in the last decades. While poverty classes over generations arose on one side in practically all these countries, wealth- and money-classes on the other side established themselves that call to mind the capital nobility of the late 19th century. These are not sustainable or desirable social structures.
A solidarity mixed economy of cooperatively organized forms of ownership, a democracy of participation, social security as a condition of freedom and peace through common development are alternatives necessary for survival.
Secondly, neoliberalism has produced structures that are not capable of surviving. The most important goods of a life befitting human beings are produced completely inadequately while new and expensive luxury goods are offered. The irrational excessive consumption in the consumer society of the North and its southern enclaves faces the bitter deficiency of large parts of the world population. Six hundred million cars jam the cities. Air conditioners are used to cool wrongly built houses and office buildings while CO2 emissions increase three percent annually. Public necessities of life are underdeveloped. At the same time, a new wave of rearmament for the global war is underway. These structures of production and consumption will not stand the test. However new forms were hardly developed in the past.
Initiatives of another mode of development that can turn from this growth of material- and energy-consumption have become stronger in many countries although the time periods become increasingly tight. 10 to 15 years remain to avert a global climate catastrophe. Without a fundamental turn, 20 percent of the global social product will soon be lost through environmental damage. Higher earth temperatures, repeated natural disasters, hunger and water shortage through forest destruction, floods, droughts, accelerated desertification, over-fishing of the oceans and destruction of species threaten hundreds of millions of people.
Social-ecological reorganization of society or destruction of the natural foundations of life is one of the central challenges of the 21st century.
Thirdly, democratic forms of government have gained acceptance in the last twenty years in many countries. Simultaneously the social, economic and cultural basis of democracy is undermined. Never before were so many elected and citi8zens hardly accomplish anything while decisions are made against them again and again. The institutions of global neoliberalism and the power of its oligarchy opposed the realization of their interests. Trust in the economic and political power elites is shattered and partly broken down. There is a deep crisis of the legitimation of political power and its institutions. Democracy is undermined by decisions in the headquarters of transnational corporations and international institutions, in national parliaments and civil society. For a long while, the rulers in many countries reacted to the crisis of their legitimation with steps to the preventive surveillance state.
For years, the possibilities of citizens and their representatives to effectively influence social developments have dwindled. Political decisions are largely withdrawn from parliamentary influence and are increasingly centralized. Coping with the consequences is delegated downwards. Thus the treasuries in many communities and regions are becoming increasingly empty and bear the consequences of unemployment, poverty and social exclusion. This is flanked by growing social repressions, more and more controls and surveillance. Neoliberal economic policy goes along with privatization and deregulation and has political significance in important elections.
Political democratization is the politically decisive key to emancipator and social ecological change.
Fourthly, neoliberal capitalism has lost its legitimation in the areas of domestic and foreign security. The Iraq war cost the Iraqi people 654,965 “additional deaths” according to the “New England Journal of Medicine,” January 31, 2008
In the Iraq war, the imperial claim to determine the order in every region of the earth according to the western model with military force and to keep the natural resources under control of the US and its allies broke down. These resources are becoming increasingly scarce as part of the environmental crisis. When the IMF in October 2008 estimated the losses through the international financial crisis at .4 trillion, bankers, government, media and the public seemed shocked and nearly in panic – with good reason. However the total costs of the war will be much greater according to calculations of the Nobel Prize winner and former chief economist of the World Bank, Joseph Stiglitz. These costs will reach three to five trillion dollars for the US alone. This is more than the economic aid of .3 trillion to all developing countries in the past 60 years.
The spending for armaments and war “are lacking to finance developments in the South and the public necessit6ies of life in the rich countries. For a long time, the World Bank estimated the income loss of a “typical” civil war at 15 percent of its gross domestic product. This raises the share of the population living in absolute poverty around 30 percent. A “typical” civil war contributes to state collapse – present5ly a fifth of all countries of the earth – so that economic cycles are swallowed up in war economies with disastrous effects.
Global cooperation in peace or a world of continuing wars at the edge of nuclear catastrophe is a fundamental challenge of our century. Peace is one of the public goods of the highest rank that are either produced socially or put in question.
“Final Report of the Financial Crisis Inquiry Commission,” January 27, 2011
Video: “Final Report of the Financial Crisis Inquiry Commission,” C-Span January 27, 2011, 1hr 10 min
The 4th Media: Imperial Decline: Multi-Billion-Dollar Terrorists & Disappearing Middle Class, July 13, 2011