Showing posts with label populism. Show all posts
Showing posts with label populism. Show all posts

Wednesday, 19 December 2018

Liberals, the Populist Right & the Politics of Imperialism


Roger Eatwell and Matthew Goodwin, National Populism: The Revolt Against Liberal Democracy, Pelican Books, October 2018

How to respond to the rise of national populism? The phenomenon is evident not only in Trump’s US but throughout Europe, as shown in this book’s comprehensive review of changes in mass opinion. The book also attempts to provide a solution to the problem, one that will defend democracy, but in doing so it inadvertently highlights the bankruptcy of the liberal outlook. They detail how, over the past two decades and more, new political forces have undermined support for the traditional political parties in the West, and especially for the social democratic parties of western Europe. Yet their ‘solution’ is to make concessions to reactionary views in order to ‘engage with’ the concerns people express in opinion polls. Like many liberal commentators, on the face of it they will have no truck with racism. But they seem to be fine with the nationalist mentality and an anti-immigration stance, and they persistently raise the question of ethnicity in national politics.
The book’s real value is in documenting how pervasive are reactionary opinions in the West. They show how the success of Trump, et al, cannot be put down to ‘angry old white men’, who will all die soon anyway, or simply to those who have lost out economically with ‘globalisation’, and who may then be attracted to a left-wing party’s plans for economic reform. The political problem in the West is far deeper, and more depressing. As they put it: ‘people who support national populism are not merely protesting: they are choosing to endorse views that appeal to them’ (p 39).

Four D national populism

Eatwell and Goodwin organise their work along the lines of what they call the Four Ds. This is how the ‘elitist nature of liberal democracy has promoted distrust of politicians and institutions’, how ‘immigration and hyper ethnic change are cultivating strong fears about the possible destruction of the national group’s historic identity and established ways of life’, how ‘neoliberal globalised economics has stoked strong feelings of what psychologists call relative deprivation as a result of rising inequalities of income and wealth in the west and a loss of faith in a better future’, and finally, the ‘weakening bonds between the traditional mainstream parties and the people, or what we refer to as de-alignment’ (pp xxi-xxiii).
If you are already finding your blood beginning to boil with a phrase like ‘immigration and hyper ethnic change’, then I recommend taking a few deep breaths because things get worse. Worse because of the reality they describe, not because the authors are closet racists hiding behind academic language – although in some of the things they write, they will come close to readers interpreting them that way. Towards the end of the book, they sum up the argument as follows:
“The ‘Four Ds’ have left large numbers of people in the West instinctively receptive to the claims being made by national populism: that politicians do not listen to them, even treat them with contempt, that immigrants and ethnic minorities benefit at the expense of ‘natives’, and that hyper ethnic change and in particular Islam pose a new and major threat to the national group, its culture and way of life.” (p 272)
I will deal with these D issues a little later, but first it is worth covering some of the characteristics of voters that the authors set out. In the end, these are the decisive people in a democracy.
Having paid a lot of attention to the social dimensions of voting, they note that the unemployed and those very dependent on welfare payments tend to vote less than average, that the youth vote also tends to be below par and that, at least in the past, white workers without degrees were under-represented in samples taken of popular opinion, which helped lead to the poll surprises of Trump and Brexit. In their view, it is the ‘middle educated’ who are most open to national populism – those who are not uneducated, but who do not have university degrees.
This middle group also tends to feel more vulnerable than others, being above the unemployed but below the middle class economically. In the UK, it was the group focused upon in the Conservative Party’s term ‘just-about-managing families’. However, this is not to say that better off workers did not vote for Trump or Brexit, or for populist causes in general, or that support only came from white (male) workers. They show that national populism also gets significant, if usually minority support from younger people, women and ethnic minorities.
One reason is that the national populists also address welfare issues. This helps undercut the traditional capitalist state-dependent approaches to national politics of more left-wing parties and groups. For example, the leader of the conservative, populist Sweden Democrats argued that ‘The election is a choice between mass immigration and welfare. You choose’ (p71).

Immigration, racism and nationalism

The authors are clear about their perspectives, which should help readers also to clarify what they think about these issues. Take the question of racism. I raise this question, because, when the authors do talk about racism, they appear to cross the line into endorsing what a United Nations Convention would call ‘racial discrimination’.[1] The UN defines such discrimination as being on the basis of ‘race, colour, descent, or national or ethnic origin’ and, in discussing popular political views, the authors write:
“We do not think that the term ‘racism’ should be applied solely because people seek to retain the broad parameters of the ethnic base of a country and its national identity, even though this can involve discriminating against outside groups” (p 75).
Unless the word ‘broad’ somehow lets them off, ‘retaining the broad parameters of the ethnic base of a country’ would indeed be racial discrimination according to the UN!
Are they only describing how such views exist, rather than endorsing or advocating them? I found the focus on ethnicity to be a strange one for these UK academics to spend much time on since, in the Brexit debate, for example, it was clear that race and ethnicity had little or nothing to do with the anti-EU case. Instead, popular views were much more concerned about competition in the jobs market from low wage, white East European workers – the ‘Polish plumber’. Of course, the coverage in this book is not just of the UK, and not just of Brexit. But the authors are not just describing how there is opposition to other ethnic groups. While they do not explicitly share these concerns themselves, they go out of their way to say that these are valid. For example:
“Too often the left view this immigration angst solely as a byproduct of objective economic grievances when it is in fact a legitimate concern in its own right and … is rooted in broader subjective worries about loss and relative deprivation.” (p 222)
and, on popular anxiety about immigration and ethnic change:
“While many of these fears are exaggerated – especially in the case of Muslims, who as a group are often damned for the sins of a very small minority of Islamists – we need to appreciate how people feel. Given ongoing immigration and rapidly rising rates of ethnic, cultural and religious change, it seems to us unlikely that these anxieties will fade.”
“It is important to try to engage with their concerns, particularly for those on the centre-left who, to avoid further losses, will need to make short-term concessions. Meeting the demand for tighter borders or modifying the type of immigration … is compatible with progressive politics.” (pp 281-2)
Basing their stand on the evidence from numerous opinion polls, they can correctly dismiss as mistaken the views of the established political parties and of the left that if workers can be given ‘more jobs, more growth and less austerity, then their support will return’. Yet that leads them to argue that policies should be adopted to address and deal with ‘people’s concerns about immigration and rapid ethnic change’ (p 261).
If the authors escape the charge of endorsing racism, they still remain guilty of accepting and working within a framework of nationalistic politics. The irony running throughout this book is that they have set up national populism as a political challenge to liberal democracy and then have taken on board the concerns of the national populists.

Imperial politics

The authors do not ignore capitalism in their analysis, or the wider political trends. They cover quite a lot of ground in a summary historical review of how capitalism has developed, the different forms of politics that emerged in the West that helped to endorse the system in the eyes of the population, and of earlier forms of populism. They also note the different phases of immigration into the US and the UK over the past hundred years or so, and the more recent trends in a wide range of European countries.
I was pleasantly surprised to find some brief mentions of the term ‘social imperialism’, describing how capitalist parties and governments in the late 19th and early 20th century countered the appeal of socialism and attracted support from workers by ‘a combination of welfare measures to help poorer people, such as the introduction of old-age pensions, and the celebration of national greatness and expanding Empire’ (p 228). But this remained only part of their historical review and did not seem to have much implication for their discussion of more contemporary trends.
It would have been more consistent for them to spell out how masses of people in the richer countries remain wedded to the social imperialist outlook. Welfare provision by governments in rich countries has grown far beyond what it was in the early 20th century, and it has been a key pillar of what is effectively a ‘social contract’ between the national working class and the capitalist state. In other words, workers will remain loyal to the capitalist system and the national state, including support in wars, as long as the state provides some basic economic security.
That deal has now been undermined by two important developments. Firstly, the growth of the global market, aside from its dysfunction and destructive tendencies, has also shown for capitalist business that there are cheaper ways to get things produced than depending upon welfare-supported workers in the richer countries. Employment conditions have been undermined by outsourcing, supply chains and worse labour contracts, with only some privileged areas remaining relatively unscathed, in high level engineering, technology and some other monopolistic sectors. Secondly, more stagnant economies over the past decade or so have thrown into sharper relief the accumulation of debts, and state spending deficits in particular. Accentuated by problems of an ageing population in many countries and capitalist pandemics like obesity, welfare provision is under pressure.
But these developments have not led the mass of people in richer countries to realise that the game is up and capitalism no longer works for them. Instead, they have turned towards reactionary politics. This can hardly be much of a surprise, since, as the authors themselves note, there have been longstanding racist and nationalist opinions. Liberal views were often more supported by the social strata that were made comfortable by the system, while the remainder kept relatively quiet as long as things were ticking over for them. Now that the capitalist markets supported by the working class have come back to bite them, they have spoken out.
This is the relevant background to the authors’ focus on ‘hyper ethnic change’. The popular reaction to a rapid influx of immigrants seen over the past few decades, and especially in the past 10-20 years (after 2004 in the case of the EU, following the accession of several new Eastern European members), reflects the worry of the ‘native’ masses about their social and economic welfare. They don’t stop for a moment to consider the many fires that their governments have started in and the destruction they have brought upon countries in the Middle East, Africa and Latin America, nor of the collapse of living standards in many East European countries when they were incorporated into the western capitalist markets.

Culture and privilege

Privileges enjoyed by the mass of people in the rich countries are being taken away, so they blame Mexican or East European workers, Chinese and Asian goods, and they wrap that up in moans about the threat to their ‘way of life’ and culture, especially from the Muslim community. As the authors put it, using apologetic brackets to distance themselves: ‘most national populists see the quest for lower immigration and slower ethnic change as an attempt to stem the dwindling size of their group, to advance its interests and (in their eyes) avoid the destruction of their culture and identity’ (p 162). Let us consider this culture question for a moment.
I do not know whether any of the myriads of opinion polls cited by the authors have ever asked the question of whether Muslims, or other groups considered unwelcome in these polls, are believed to have a stronger sense of community than the anti-immigration respondent. The ‘native’ reaction is to a different group, whether that distinction is made visible by them using a different language, religion or something else. But it raises the question of what they are really protesting about.
‘Native’ working class culture has been disintegrating for the past 40 years or more in many western countries. Even before, it was nothing to brag about, and the latest decline has nothing to do with immigration, ‘hyper’ or otherwise. The protracted crises of the 1970s and 1980s dealt a blow to many traditional industries and forms of employment that were the centre of settled working class communities, from mining to manufacturing, from steel making to shipyards and transport, and the hollowing out of jobs in many areas. There have also been changes in technology and work practices, a reduction of trade union membership and the creation of many new service sector jobs less covered by trade unions. These and other, more recent developments, sometimes labelled the ‘gig economy’, did not come from immigration. Popular sentiment has nevertheless found immigration as something to focus on, since it was never far from a nationalistic and sometimes racist mindset in any case.
What is it about ‘culture and identity’ that popular sentiment wishes to save from ‘destruction’? The population has done little or nothing done to combat the capitalist market trends that have undermined them, and instead it has been absorbed by mass consumer culture. It is only now, when the economic foundations of an acceptable life are being taken away, that the pro-imperialist working class protests. It fights back by demanding that the capitalist state cuts or stops immigration. The authors say that even if more ‘jobs and growth’ were created then ‘tensions over perceived differences in culture and values will remain’ (p 152). But that is because a large section of the working class has chosen to try and defend itself by relying on ‘its’ state to take action against foreigners. The truth is that it is in no position to hold up anything in its own culture worthy of respect.

Political climate

This book gives a systematic overview of contemporary political opinion, especially that underlying the support for national populism. It helps to clarify the depth of the political problems faced by those who do not like what is going on, but the solutions offered by the authors end up endorsing the concerns of the reactionary populists! When the capitalist system is pissing down on everyone from a great height, they join in the argument about the distribution of umbrellas and raincoats, and wonder if immigrants should be given any if that risks the ‘native’ workers going without.

Tony Norfield, 19 December 2018


[1] The United Nations International Convention on the Elimination of All Forms of Racial Discrimination in 1966, of which Article 1 of the Convention defines racial discrimination as: ‘... any distinction, exclusion, restriction or preference based on race, colour, descent, or national or ethnic origin which has the purpose or effect of nullifying or impairing the recognition, enjoyment or exercise, on an equal footing, of human rights and fundamental freedoms in the political, economic, social, cultural or any other field of public life’.

Friday, 19 January 2018

Worse Than You Think


Michael Wolff, Fire and Fury: Inside the Trump White House, Little Brown, 2018

This book is fun to read and a best seller. Everyone loves a gossipy book about someone they dislike. Fluently written, although not well written, it is built mainly on interviews with those in and around the Trump White House. Wolff takes us through the plots and screw-ups of this double-dealing menagerie with relish.
Much of what the book says will not be new to those following The Donald. Probably the most striking new point Wolff makes is that part of the reason for the political and administrative chaos is that Trump was not expecting to win the presidential election and become POTUS #45. The insiders on Team Trump were perfectly happy to lose, as long as the margin was not too big. Up to the last minute that was what they were betting on. Losing like that would have been a ‘victory’, especially because it would do wonders for the Trump family brand name. Winning for real would carry the risk of a closer examination of the Trump family’s finances and put all their schemes in the public spotlight.
However, Wolff’s journalistic approach does not get to grips with some fundamental issues. Wolff gives many amusing stories of Trump’s egotistical self-deception, mind-boggling inconsistencies and shameless invention of ‘facts’. Trump may think he is multi-tasking, but sitting on his bed eating a cheeseburger, watching three cable TV channels at once while making phone calls is more a signal of not being able to concentrate on anything at all. Such character traits have recently led to questions about Trump’s mental health, and also the hope in liberal quarters that this might be a means of getting him to resign. Yet these factors, while important features of his presidency, do not give the proper context for what is going on.
Trump is not the only president to have been a few sandwiches short of a picnic. In recent history, just consider Ronald Reagan and George ‘Dubya’ Bush. Or what about Barack Obama, the great black hope of liberal America, who in eight years failed to close Guantanamo Bay concentration camp and instead became drone-killer in chief, a Nobel Peace Prize winner up to his neck in covert operations? The point to recognise is that it does not matter much who is the president, the imperial machine grinds on.
Where Trump has been an anomaly is that he came from outside the political establishment. This meant that there were fewer pre-arranged ties into the networks of political force and influence, from Congressional interest groups and big business, to the CIA and the military. That Trump has been reliant upon a small group of trusted acolytes and chancers is not so unusual. That these have been made up largely from his family is more so, since with Ivanka Trump and Jared Kushner he has gone several steps beyond Bill Clinton’s promotion of Hillary. This anomalous regime has produced some embarrassments for America’s self-image. Apart from the stream of reactionary consciousness tweets, there is the border wall with Mexico, pulling out of the Paris Climate Accord and much else besides.
The question is then: how could this have happened? Of course, Wolff recognises that Trump is an outsider. But he does not dwell upon how such an outsider could win the presidency, except to review the events in the 2016 election campaign. In other words, what were the social forces behind this anomaly occurring? Wolff’s coverage of the alt-right pundit and Trump ideas man Steve Bannon notes his financial backing from the billionaire Robert Mercer, but he does not discuss why the America First, anti-immigrant, anti-Muslim, racist policies Bannon supports gained so many votes for Trump in the US electorate.
It remains uncomfortable for Trump’s critics that resurgent nationalism in an imperialist country looks so ugly when spewing unfiltered from Trump’s mouth. That is part of the reason to blame Russia for Trump’s election victory – if it was the Commies evil Russkies, then they can avoid facing the problem that a large part of the US electorate agrees with these policies.
It is depressing fact that in imperialist countries a squeeze on the economic lives of people usually results in political reaction. There may be brave dissidents and protests, but these are outweighed by mass opinion that calls upon the state to punish foreigners and any others they see as responsible for undermining their privileges. What has emerged from this cauldron of discontent is Trump, not a radical current that challenges imperialism.
For now, Trump’s sociopathic tweetarama will continue. But it is only a matter of time before the imperial machine takes back full control to limit disruption to the way US imperialism presents itself to the world, which can also have a big impact on business. In the interim, Trump’s tax cuts for the rich and for corporations are not a problem, and in late December the US Congress passed these plans.

Tony Norfield, 19 January 2018

Wednesday, 9 November 2016

Regime Change


A friend pointed out to me today that the main benefit of the Trump victory in the US presidential election is that the left will no longer be able to blame ‘the media’ for its lack of support in the main imperialist countries. Despite near universal ridicule and rejection by the established pundits, especially those outside the US, The Donald has won. More importantly, the result reflects broader developments.
Even before the election result, Trump was seen as having voiced the concerns of the (white working class) mass of the electorate in the US, and of taking votes from those who were understandably less than enthused by Madame Clinton. But for him to claim basically half the electoral vote on a programme that was fronted by building a wall on the Mexican border, protecting US jobs against the nefarious schemes of domestic capitalists and foreign countries, and to ‘Make America Great Again’, reveals more than a little about the political outlook of the voters. More than half of the voters, one would have to say, given that Clinton also felt the need to shadow some of Trump’s policies. It is an outlook that will support the revival of economic nationalism by the US as an imperialist power, and it will encourage others to do the same.
In that respect, the US election has similarities with the Brexit vote in the UK. It is not so much that the incumbent political class has ‘lost touch’ with the masses, and must move aside or reconnect, although this view is supported by the presence of dumb elites who have still not really figured out that their comfortable maxims no longer work as the capitalist crisis becomes entrenched. It is more that a political system only works if votes can be accumulated to support particular policies. But maintaining the previous policies has less and less political support. In north-west Europe and in the US, the masses are revolting – in both senses of the term, as far as the elites are concerned. The politicians must, and will, adapt. Yet, they will be adapting not to a burgeoning protest about the evils of capitalism, but to a demand that privileges must be protected in a stagnant world economy. In other words, they will respond to reactionary popular sentiment.
It should be little surprise that the Brexit vote is seen as a marker by many commentators. After all, Britain is a key part of the existing structure of world power – of trade, financial and security arrangements – despite weighing far below the US. Another interesting, historically more distant, marker is the devaluation of sterling on 18 November 1967, an event that was a watershed in the later collapse of the Bretton Woods world financial system of fixed exchange rates. Ironically, the 14% or so devaluation then is similar to the devaluation of sterling after the 23 June 2016 Brexit vote! This also reflects the pressures on the system of world power and the trouble faced by the Anglosphere today.

Tony Norfield, 9 November 2016

Tuesday, 5 July 2011

Anti-Bank Populism in the Imperial Heartland

‘Inside Job’, Charles Ferguson’s Oscar winning documentary, is that rare thing: a popular movie about banks and the financial system. Based on interviews with the key players, mainly in the US, it shows how politicians, academics, lobby groups, credit ratings agencies and government officials promoted the banks in the speculative bubble and covered up for them after the 2007-08 financial crash. Yet, despite its many achievements – the viewer is often amazed at the lies, fraud and self-serving delusions – and despite Charles Ferguson’s accomplished efforts in taking us to the heart of the beast, ‘Inside Job’ is only a very limited guide to the financial crisis.

The documentary leaves out two key factors in the real story. One omission plays well for people who want to be seen as victims of a crime, not as willing participants: why did people take on the mortgages in the first place? The other works well for those who do not want to look too carefully at the capitalist system, but only to complain about its excesses: did the overpaid Wall Street cocaine addicts cause the crisis, or were there more fundamental reasons for it?

1. Ninja or speculator?


Did American banks and mortgage brokers trick poor people into taking on debt, lie about the servicing costs and then ramp up the interest rate? Yes they did, but that was not the reason for the financial meltdown. The ‘sub-prime’ fiasco – mortgage lending to those with no income, jobs or assets to repay the loan (dubbed ‘Ninjas’) - was in the latter stages of the US housing bubble, from 2005. A big rise in mortgage debt in the US had already occurred, nearly doubling between 2000 and 2005 to $8,848 billion.[1] Furthermore, even at their peak in 2006, sub-prime loans were only 20% of total mortgages taken out.[2] This was up from 9% a decade before, but by far the biggest increase in US mortgage debt did not come from sub-prime borrowers. The inability of poorer people to pay their mortgage bills was a trigger for the bubble to burst, but the bubble was inflated by the better off: from 1997 to 2004, US home prices increased by more than 10% per year.[3]

One telling detail is that in 2005 and 2006 close to 40% of US homes purchased were not bought as residences, but as ‘investments’ or vacation homes.[4] This was at the peak of the market, which has since seen average prices fall by one-third. So the picture of predatory lenders fooling the innocent poor is one that conceals a more substantial fact: middle class borrowers were the main players in the mortgage credit boom and were then caught out by the downturn.

A similar pattern has been true for other countries that experienced housing market bubbles, particularly in Ireland, Spain and the UK. In each case, wider and wider sections of the relatively well off got into the dream of easy money as credit was cheap and house prices were rising. Perhaps a second home would be an investment for their children – a rising asset too. Or they could ‘buy-to-let’ and live off the rental income. Or they could buy a property, renovate it and sell again later at a much higher price.[5] The banks financing the purchases, the construction companies building the homes and the speculators bidding up the properties were all parts of the same game.

If somebody fell victim to an internet scam, one would probably have some sympathy. But what if the scam was where the victim was promised a fee of $10,000 to help an indisposed notable to transfer $1m via his bank account?[6] If he then found that his bank account had been cleaned out, then most people would judge that the guy had been a complete fool, letting his greed get the better of any common sense. This kind of judgement does not seem to apply to victims of the housing crash.

2. Financial form of the crisis


The latest crisis took on a dramatic financial form. Major banks and other institutions became insolvent, money markets seized up and governments abandoned their free market rhetoric to bail out the financial system. Emergency policies, including near-zero interest rates in many countries, have now managed to turn GDP growth figures from big minus to just-about-plus. But the huge debts incurred during the boom have not disappeared. Debt liabilities of banks and other financial institution have instead been taken on by the state, while state tax revenues have been hit by their weak economies. This has led to a very big rise in public sector deficits and debt in many countries. Even the US government, normally treated with deference by the US-based credit ratings agencies, is being threatened with a rating downgrade unless the debts are reduced.[7] The UK government is in the same position. As a result, government policy in these countries is to cut spending and raise tax revenues. Austerity beckons.

Given the financial form of the crisis and the consequences now seen for people’s living standards, it is not surprising that there has been a popular reaction against banks. Banks are seen as the cause of the crisis, and in the US there has been a revival of the 1930s term ‘bankster’ to summarise the merger of the criminal and the financier. ‘Bankster’ is an evocative term, but, to continue the gangster metaphor, would it be a successful fight against crime if the cops only got the well-paid hitman and left the big boss untouched? This is the substance of the anti-bank rhetoric today: rail against the excesses of capitalism, but leave the basic mechanism in place.

Speculative bubbles, banking crises and crashes have characterised the history of capitalism. A recent historical study showed that the incidence of banking crises has risen since the 1970s, when the US and the UK relaxed controls on financial markets and demanded that others do so too. The study’s authors remarked that “the tally of crises is particularly high for the world’s financial centers: the United Kingdom, the United States, and France.”[8] This fact should lead to the conclusion that something systematic is going on. It is not just one damn ‘accident’ after another.

As far back as 1848, the political economist and philosopher John Stuart Mill made an observation that is relevant today:

“Such vicissitudes, beginning with irrational speculation and ending with a commercial crisis, have not hitherto become less frequent or less violent with the growth of capital and the extension of industry. Rather they may be said to have become more so: in consequence, it is often said of increased competition; but, as I prefer to say, of a low rate of profit and interest, which makes the capitalists dissatisfied with the ordinary course of safe mercantile gains.”[9]

This early statement of the reason behind speculation in the capitalist economy – a low rate of profit - was developed by Marx in his analysis of capitalism. Those who separate the financial crisis from the development of capitalism have taken a step back from the insight of John Stuart Mill. They are further still behind Marx’s analysis of how a fundamental feature of capital investment is the long-term tendency of the rate of profit on investment to fall. This tendency prompts capital to search for other means of gaining revenue, to depend more on the expansion of credit and to move into speculative activities.

Economic growth may be boosted by these actions for a while, but the system grows ever more vulnerable. A blip in the system, a loan that does not get repaid as expected, can then trigger a financial collapse as it calls into question the assumptions behind a myriad of other deals.[10] This is what is really meant by a ‘lack of confidence’ in financial markets: a fear that the expected gains are illusory. A financial collapse will then have an impact on the ‘real’ economy, as credit is withdrawn and the funds lent by banks dry up, even to previously viable companies.

What can appear to be a purely financial crisis is really the end result of a series of developments emanating from the problem capitalism has to produce enough profit. The origins of the financial form of the crisis we see today lie in the promotion of finance, particularly by American and British imperialism, and especially from the late-1970s.[11] Just to cite the promotion of finance, however, is only to describe policy measures and developments since the 1970s, it does not explain why the policy measures were undertaken. Without such an explanation, the policies might seem simply to be ‘misguided’, or the result of one faction of the ruling class gaining control of state policy, ie the bankers or financiers. However, the fact that the so-called neo-liberal policies have persisted under administration after administration, Republican or Democrat (in the US) and Conservative or Labour (in the UK) – with versions of these in other countries - shows the degree to which the financial policies are embedded in the core of the system. The origin of these systematic policies can only properly be explained by capitalism’s crisis of profitability.

3. Low profits led the switch to finance


US data show that there was some recovery of the corporate rate of profit in the decade from the mid-1980s, after the lows seen in the previous years. However, this still left the rate of profit below the crisis-inducing levels that were seen during the 1970s.[12] (See Chart 1) After falling back again in the late-1990s, prompted mainly by the Asian and Russian financial crises, the rate of profit rose once more from 2001 to 2006. This time, there was a sharp spike in the reported profit rate to higher levels. But this was due to the biggest credit-fuelled speculative bubble in US history! Much of the apparent ‘profit’ will either have been a result of the excesses of spending at the time, or will have reflected transient gains in financial market values that companies reported as income. Not surprisingly, the profit rate fell back quickly after 2006 when the bubble burst.[13]

Data to calculate a rate of profit for 2010 are not yet available, but may well show a higher rate than for 2009. This ‘recovery’ (if it does appear from the data) should be seen in the context of huge US government indebtedness as it has taken on private sector liabilities, and on the policy-driven bounce back in equity prices that has followed zero interest rate levels. This is not a sign of flourishing capitalism, more a ‘dead cat bounce’.

The latest speculative financial bubble began in the early years of the new millennium, in response to the previous drop in profitability. Interest rates fell in major countries and central banks expanded credit because growth and investment were very weak.[14] This low growth and low profitability led banks and other corporations to try and find other sources of profit. The result was to boost more speculative forms of activity.[15]

Chart 1: US corporate profit rate, 1945-2009 *





Source: US Bureau of Economic Affairs. Calculated from NIPA Tables 6.17 and 6.19 for profits and Fixed Asset Table 6.3 for fixed assets.
Note: * Corporate profits in the current year are divided by the average of the fixed asset stocks in the previous year and the current year. Fixed assets are measured at historical cost. The profits are of both non-financial and financial corporations in the US.


Pension funds got into commodity futures investments to try and get better returns on their assets, industrial and commercial corporations and banks expanded their dealing in futures, options and swaps to try and gain more revenues from financial dealing. This was also the era of ‘financial innovation’ and a swirling alphabet soup of acronyms: ABS, CDO, CDO-squared, CDS, CPDO – and that is only a sample of the ones up to letter C.

Alongside the innovation – and the spur to such innovation - was a determined effort to find gaps in company laws and rules that could be used to increase profits. The revenue gains may simply have been through establishing ‘special purpose vehicles’ separate from the main company, so that it faced less regulation, or where the law said it needed fewer assets to hold in reserve. Or it was through other means of legally transferring business to avoid taxation. Or it was to buy derivatives ‘protection’ so that a risky business was made to look more solidly based. Or it was a mix of many of these. Corporations – banks, industrial and commercial companies - did not invest in productive activities that offered few returns and would not excite shareholders. Instead, they turned to financial ‘engineering’ and ‘produced’ much more money that way. All went well, and, for a while, extremely well. Then, after 2006, the stretched elastic of financial and credit expansion snapped back. Asset values collapsed, but the bills still had to be paid.

I have focused on the US, but similar patterns were seen elsewhere, particularly in the UK where the financial sector is even more prominent. The data covered have also been for the domestic US economy, but it is important to recognise that both the US and the UK get significant profits from other countries.[16] The expansion of the financial sector was an important lever for them (especially the UK) to compensate for weakening industrial competitiveness and to take advantage of their privileged positions in the global economy. For example, a key objective of US political delegations to China has been to encourage the Chinese authorities to open up their financial markets to US financial companies!

4. Reactions to speculative boom and bust


The financial speculation started with the capitalists and then drew in that section of the population who could participate: the middle class. Dealing in financial and commodity derivatives grew tenfold between 1998 and 2008.[17] Financial, commercial and industrial companies boosted their dealings and found a willing market. Equity index values also jumped dramatically from 2003 to the end of 2007: by around 80% in the US, by 90% in the UK, by 130% in France and by 200% in Germany. This well-publicised example of ‘money for nothing’, on every evening news channel, helped set the consensus that there was indeed a way to get rich quick, or to take advantage of the expanding financial system. Another sign of this was that by 2008 the typical US household had 13 credit cards.

The middle class put up with the excesses of finance and banking in the boom period, because most of them also gained to some extent, or at least they felt better off. In the bust, the recriminations are bitter. Few question what role they played in the bubble, or how they may have benefited from it. Hands up the buy-to-let speculators! Hands up those who ‘released the equity’ from the rising value of their homes and used the money to buy holidays and cars! Hands up those who gained from the excessive spending, with jobs as personal assistants, gym trainers, financial consultants or whatever else! Hands up those who were funded by state or private grants – made possible because the financial boom generated extra revenues! Many hands should be seen, because the financial boom benefited a broad section of the population. My point is not to condemn those who got jobs in the boom period. The point is that if you drink capital’s moonshine, you have no right to complain about a hangover.

5. Conclusion


Popular reactions to the financial crisis ignore how its evolution was a response to the more fundamental problems capitalism has faced in maintaining profitability. It is true that the speculative bubble was inflated by banks, and that a crisis was triggered when it burst. However, the banks and other capitalist corporations were looking for ways to boost profits. Insufficient profitability was the main reason they moved into financial speculation. Furthermore, it would not have been possible for the bubble to have been blown to such an extreme were it not for the willing participation of many in the build up to the débâcle. This analysis has shown that the US middle class was heavily involved in the financial boom, especially through speculating on property.

Unless there is opposition to the capitalism that caused the crisis, an attack on the banks will only be a self-serving moan. But the political consequences of this deep crisis are far more serious. The reality of popular capitalism is that the populace is now going to foot the bill for the crisis. Austerity will lead to a search for scapegoats, and capital has a way of presenting many for slaughter instead of itself.


Tony Norfield, 5 July 2011


[1] See Table 1170 on the US census website, http://www.census.gov/compendia/statab/
[2] See http://www.npr.org/templates/story/story.php?storyId=12561184. This figure tallies with US government statistical data showing that only half the families at the bottom 20% of the income distribution had any debt at all. In the top 60% of the income distribution, more like 80-90% of families had taken on debt (mainly related to housing).
[3] Figures on US house prices are taken from the Case-Shiller composite national index.
[5] The housing market is different in each country. Not all had a speculative boom, so the opportunity for such dealings outside the US, UK, Ireland and Spain was limited. The points here are not an attack on anyone who buys a property, but on the protestations of victimhood from those whose rationale in doing so was to speculate on the property market.
[6] A common internet scam of a few years ago, mainly sourced from Nigeria.
[7] The three main ratings agencies Moody’s, Standard & Poor’s and Fitch Ratings have 95% of the global market. The accuracy of their views has been justly ridiculed, but that has not (yet) reduced their importance. Up to now, they have always given the US government the top, triple-A rating, which reduces its cost of borrowing. However, this is more a reflection of US imperial power than an assessment of the US economy. The scale of US indebtedness is now so huge that even the compliant ratings agencies can no longer pretend it is not a (‘potential’) credit risk.
[8] See Kenneth Rogoff and Carmen Reinhart, ‘Banking Crises: An Equal Opportunity Menace’, NBER paper, December 2008.
[9] John Stuart Mill, Principles of Political Economy, 1848. Cited in Charles P Kindleberger, Manias, Panics and Crashes, A History of Financial Crises, 4th edition 2000, p34.
[10] The most systematic account of Marx’s theory of the falling rate of profit and the relationship to speculation and crisis, including an assessment of ‘counteracting tendencies’, is to be found in Henryk Grossmann’s The Law of Accumulation and Breakdown of the Capitalist System. This was first published in Leipzig in 1929, and was reprinted in English (in abridged form) by Pluto Press from a translation by Jairus Banaji in 1979. The abridged English translation is available on the following site: http://www.marxists.org/archive/grossman/1929/breakdown/index.htm. The German edition, much longer, includes a final chapter that puts paid to any notion that Grossmann’s analysis was mechanistic, or that he expected an automatic collapse of the capitalist system.
[11] A rejection of previous so-called ‘Keynesian’ economic policies and the promotion of finance started before the Thatcher and Reagan years, though it accelerated after 1979. Some UK-related examples are given in my previous article on this blog, ‘The economics of British imperialism’, 22 May 2011.
[12] I have been guided in the use of US economic statistics by the valuable work of Andrew Kliman and Alan Freeman, who have covered the question of the long-term decline in the US rate of profit in detail. The calculations here are my own. US domestic profits will have been boosted to some extent by from expanded trade with China and other countries from the early1980s, aside from an attack on working class living standards, but this impact is difficult to estimate.
[13] There were also profit gains on the post-tax measure resulting from corporate tax cuts. The measured rate of profit here is based on corporate profits divided by fixed capital assets. Strictly speaking, the values of wages advanced and raw materials should also be included in the denominator to get a better measure of the rate of profit, but this is not possible to calculate. Many other adjustments to the data should be made to better approximate a ‘Marxist rate of profit’, but these involve progressively more arguable assumptions, and the data do not exist to make such adjustments. I do not argue that a fall in the rate of profit in one year produces a crisis in the next. The point is that the overall downtrend creates conditions for speculative activity to flourish, since more productive forms of capital investment are unattractive.
[14] In 2001-2003, economic growth in the OECD area as a whole was less than 2% compared to an average 3% in the previous 15 years. US growth was close to these averages; German and Japanese growth fell even more sharply to weaker levels. See the OECD ‘Economic Outlook’, May 2010, Annex Table 1.
[15] My view is that the overall rate of profit on capitalist investment tends to fall over time. It will move in cycles, depending on a wide range of factors, but the long-term downtrend will remain in place unless brought to a halt by a destruction of capital in war and a revaluation of investment assets that boosts the rate of profit. The chart does not show the pre-1945 data, but in the early 1930s, before World War 2, the US rate of profit ranged from –2% to +5%!
[16] The UK financial relationship with the rest of the world is discussed in detail in my article ‘The Economics of British Imperialism’, 22 May 2011, on this blog.
[17] Data taken from the Bank for International Settlements Quarterly Review, December 2010.