The crisis in thinking about the crisis.
| Author | Chowkwanyun, Merlin |
| Position | Global economic crisis - Essay |
'Is this the end of neo-liberalism?' I still remember when my colleagues and friends, a little more than a year ago, began asking the question--and, for the first time, in a way that sounded like the answer might actually be yes.
It started with the first reports of the sub-prime debacle and really ramped up with the Bear Stearns restructuring and Lehman Brothers collapse in the summer and early fall of 2008. The stock market crash (alongside that of Wall Street's biggest investment houses), bank failures, and the acceleration of ongoing foreclosures and layoffs made us ask the question still more seriously. Was this it? Was this finally what would bring to a close more than three decades of rapid marketisation, deregulation, anti-unionism, and economic austerity (to list just some of the pathologies) around the world?
Respectable opinion certainly accompanied the casual chatter. Joseph Stiglitz, for example, declared that
neo-liberal market fundamentalism was always a political doctrine serving certain interests. It was never supported by economic theory. Nor, it should now be clear, is it supported by historical experience. (Stiglitz, 2008) I recall a number of voices, left and mainstream, declaring that neo-liberalism as doctrine and as policy was 'discredited' or a 'failure'. 'The promises of neo-liberalism are revealed for what they were: a sham', wrote one writer (Wilby, 2008). He then concluded that 'an ideology that seduced most of the population is broken'. I count myself a member of the bearish left but will admit readily to entertaining these thoughts myself; given the context, it was hard not to do so on some level.
A year has now passed. It is clear the logic of neo-liberalism is still with us, albeit in modified form, and that those who pronounced its failure or the end of the era probably did so prematurely. As I write this, the state of California is implementing a devastating austerity regime. Having been rebuffed for federal bailout funds, its new budget will cut or eliminate many essential social services: education at all levels and public health clinics, to name just two. (For the details, consult Avi Lewis's recent California-themed instalment of his television series Fault Lines, first shown in June 2009).
Meanwhile, even at their most expansive, the various health insurance proposals working their way through the United States Congress all fail to confront the growing inadequacies of employer-based private insurance head-on by creating a truly universal, government-run pool of participants.
On financial regulation, a recent Wall Street Journal article described President Obama hearing a pitch for a return to a modernised Glass-Steagall-type regulatory regime--only to reject it (King and Weisman, 2009). No less a mainstream figure than Simon Johnson, in a series of hard-hitting website posts and magazine articles, has criticised the Administration for the tepid regulatory reform that it has offered instead, writing recently: 'Our financial sector has become very powerful politically--and these proposals are a further sad reminder of that fact' (Johnson, 2009a).
Elsewhere, Johnson has slammed the implementation of the TARP bank bailouts (necessary as they were), and early on, he aired concerns over whether they effectively amounted to an undemocratic few-strings-attached giveaway for the politically well-connected. As he wrote in a widely read piece for The Atlantic published in May 2009:
The response so far is perhaps best described as 'policy by deal': when a major financial institution gets into trouble, the Treasury Department and the Federal Reserve engineer a bailout over the weekend and announce on Monday that everything is fine. In March 2008, Bear Stearns was sold to JP Morgan Chase in what looked to many like a gift to JP Morgan. (Jamie Dimon, JP Morgan's CEO, sits on the board of directors of the Federal Reserve Bank of New York, which, along with the Treasury Department, brokered the deal.) In September, we saw the sale of Merrill Lynch to Bank of America, the first bailout of AIG, and the takeover and immediate sale of Washington Mutual to JP Morgan--all of which were brokered by the government. In October, nine large banks were recapitalised on the same day behind closed doors in Washington. This, in turn, was followed by additional bailouts for Citigroup, AIG, Bank of America, Citigroup (again), and AIG (again). Some of these deals may have been reasonable responses to the immediate situation. But it was never clear (and still isn't) what combination of interests was being served, and how. Treasury and the Fed did not act according to any publicly articulated principles, but just worked out a transaction and claimed it was the best that could be done under the circumstances. This was late-night, backroom dealing, pure and simple. (Johnson, 2009b) More recently, Johnson has warned that the bailouts, when coupled with inadequate regulatory reform and generous subsidies and credit engineered by the Treasury Department and Federal Reserve for large institutions, may well set us up for another bubble (Johnson, 2009c). Increasingly, others have echoed these concerns, most notably Elizabeth Warren, the dedicated chair of the Congressional Oversight Panel for TARP (who with each public appearance seems increasingly exasperated at what she discovers).
As I watched Warren's testimonies and interviews and read about the ins-and-outs of the bailout, I returned repeatedly to that original question. Far from breaking with neo-liberalism, at least one of its key (self-contradictory) tenets seems to have endured: its proponents' advocacy for minimising the state, even as they selectively invoke its powers to suit their interests, whether to create 'free markets' abroad via the cross-national lending agencies (World Bank, IMF), or in this case, to rescue them from financial havoc they wreaked. An early rehearsal of this, of course, took place in 1998 with the bailout of Long Term Capital Management, and a decade later, it is happening again on a much larger and more complex scale.
The above list could go on much longer. I write it not simply to recite robotically a left bill of sins against Obama or to argue that nothing has changed since 2008. The flurry of emergency actions from the federal government in a number of economic sectors obviously has little precedent in contemporary American history, and much of the stimulus is directed towards heretofore neglected and necessary endeavours, like renewable energy research. Still, the overall thrust of these actions seem much more modest than one might have expected given the magnitude of the cataclysm, which continues to unfold with unemployment in some American states now in the double digits.
These days, the initial question--'is this the end of neo-liberalism?'--seems to have morphed into two related ones. One asks why the economic backdrop has failed to generate proportionate public anger and political mobilisation. The other asks, critically, why the federal government is not enacting much bolder policies given Obama's political capital and the potential public support, given the depth of the crisis. Central to all the above questions is a misplaced faith in the ability of some deus ex machina event to reverse the past two decades of left fortunes, and more generally, to 'wake up' politically a swath of the larger...
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