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Capitalism
uncovered
Ha-Joon Chang exposes today’s rapacious
capitalism, dominated by finance and driven by short-term profit
maximisation. He provides a devastating critique of the ideology of
‘free-market’ economics. But while pointing to fundamental
contradictions of the system, Chang draws back from a real alternative.
LYNN WALSH reviews 23 Things They Don’t Tell You About Capitalism.
23 Things They Don’t Tell You About Capitalism
By Ha-Joon Chang
Published by Allen Lane, 2010, £20
SINCE 1980, ULTRA-free market (or neoliberal)
policies have been implemented in Britain, the US and other major
capitalist economies basing themselves on the Anglo-American model. More
recently, other countries, such as Germany, Sweden, etc, have turned
down the same path. The basic ingredients of neoliberal policies are
clear: the deregulation of markets, especially the finance sector.
Cutting back the state, through privatisation of state enterprises and
the public sector. Massive tax concessions to big business and the
super-rich. An assault on organised labour and trade union rights. The
justification for these measures is that they lead to a more efficient
use of resources, with higher growth rates and, ultimately, greater
prosperity for all. The reality, as Chang shows, is completely
different.
The main success of neoliberalism has been
increasing profits and the income and wealth of the super-rich
capitalists: "between 1979 and 2006… the top 1% of earners in the US
more than doubled their share of national income, from 10% to 22.9%. The
top 0.1% did even better, increasing their share by more than three
times, from 3.5% in 1979 to 11.6% in 2006". However, this did not lead
to higher growth. "Economic growth has actually slowed down since the
start of the neoliberal pro-rich reform in the 1980s. According to World
Bank data, the world economy used to grow in per capita terms at over 3%
during the 1960s and 1970s, while since the 1980s it has been growing at
a rate of 1.4% per year (1980-2009)".
Moreover, capital investment in new productive
capacity, the key to the development of new technology and future
productivity increases, has actually declined. "Despite rising
inequality since the 1980s, investment as a ratio of national output has
fallen in all G7 economies… and in most developing countries". In the
case of the US, "investment as a share of national output has actually
fallen, rather than risen, from 20.5% in the 1980s to 18.7% since then
(1990-2009)". Moreover, "the growth rate of per capita income in the US
fell from around 2.6% per year in the 1960s and 1970s to 1.6% during
1990-2009, the heyday of shareholder capitalism". In Britain, "per
capita income growth rates fell from 2.4% in the 1960s-70s, when the
country was allegedly suffering from the ‘British disease’, to 1.7%
during 1990-2009".
Chang, however, does not adequately explain the
decline of capital investment. He tends to attribute it to neoliberal
policies, but does not recognise a deep-rooted crisis of
over-accumulation of capital, whereby additional investment in new means
of production no longer produces the level of profit required by
investors, who therefore turn to the finance sector in search of
increased ‘value’.
Finance capital dominates
CAPITALIST GOVERNMENTS accepted the doctrine of
‘shareholder value’, that is, maximising the short-term return to
shareholders (which included the top executives, who are partly paid in
share options). Shareholder value was particularly promoted by the
finance sector, which was less and less concerned with the long-term
prospects of manufacturing corporations. High profits were achieved
through savage cost cutting, especially of jobs and wages. While
enormously boosting the incomes of the shareholders, including the top
executives, it led to the stagnation of working-class and middle-class
incomes.
"Managers", says Chang, "saw their compensation
rising through the roof. Between the 1980s and the recent period, the
compensation (salaries, benefits and stock options) of chief executive
officers rose from 30 to 40 times that of average worker compensation,
which was largely stagnant, to 300 or 400 times".
At the same time, "jobs were ruthlessly cut, many
workers were fired and rehired as non-unionised labour with lower wages
and fewer benefits, and wage increases were suppressed… The average
hourly wage for the US worker in 2007 dollars (that is, adjusted for
inflation) rose from $18.90 in 1973 to $21.34 in 2006, that is a 13%
increase in 33 years, which is around 0.4% growth per year". This
amounts to stagnation.
Clearly, the stagnation of workers’ incomes
undermined the demand for goods and services – except in so far as
falling incomes were compensated for by ever growing levels of debt,
which reached unsustainable levels.
Chang shows the growing domination of finance
capital over the capitalist economy as a whole. "The ratio of the stock
of financial assets to world output rose from 1:2 to 4:4 between 1980
and 2007. The relative size of the financial sector was even greater in
many rich countries… The ratio of financial assets to GDP in the UK
reached 700% in 2007". Free-market policies were outstandingly
successful in boosting the profits of the financial sector. But this did
not improve overall growth, or productivity, let alone the living
standards of the majority. Low inflation benefitted the moneylenders but
(as Chang shows) actually held back growth of manufacturing. Despite the
growth of ‘financial innovations’, especially derivatives of one kind
and another (which were supposed to minimise or even eliminate risk),
there was increased instability, with a series of major financial crises
going back to the 1997 Asian debt crisis and culminating in the 2007-09
crisis.
Chang demonstrates the failure of so-called
free-market capitalism, even according to its own claims. Each chapter
begins with ‘What they tell you’, a brief synopsis of neoliberal
doctrine, which is then answered with ‘What they don’t tell you’,
analysing the reality of today’s global capitalism. His arguments are
succinct, backed up with well-chosen figures, and he raises fundamental
issues about the contradictions of capitalism and about economic
planning. Chang, a native of South Korea who is now professor of
economics at Cambridge, challenges the prevailing economic orthodoxy.
Unfortunately, however, he does not step beyond the limits of
capitalism.
An ideological offensive
CHANG RECOGNISES THE important role played by
free-market ideology. National governments of the advanced capitalist
countries have used their economic and political power to carry through
neoliberal policies. International agencies, like the IMF, World Bank,
the World Trade Organisation (backed by the weight of global financial
markets), have used their power to impose the ‘Washington consensus’
(the neoliberal policy package) on the semi-developed and poor
countries. But Chang rightly points to the part played by "ideological
influence… exercise[d] through intellectual dominance". With the
undermining of the post-war upswing after the late 1960s, Keynesian
economics, which had provided the theoretical rationale for post-war
capitalism (state intervention, high social expenditure, and attempted
management of national economies), was rapidly discredited among
capitalist leaders and hired policy-makers.
Keynesianism was replaced by ‘monetarism’, advocated
by Milton Friedman and the ‘Chicago school’ of economists, and
subsequently by a much broader neoliberal agenda. As Chang says, the
‘managerial classes’ (more accurately, the capitalist business elite and
their political allies) "have used their economic and political
influence to spread the free-market ideology that says that whatever
exists must be there because it is the most efficient". This stance, a
carte blanche for speculators, was exemplified by Alan Greenspan, head
of the US Federal Reserve, who supplied the super-credit that fuelled a
series of asset bubbles. After the financial meltdown in 2008 he
belatedly confessed that he had been mistaken in believing that markets
are always self-correcting.
‘Ideology’ can be used as a neutral description of a
body of ideas or an intellectual trend. But in this context, ideology
refers to ideas (in this case neoliberalism) that are presented as an
accurate, even scientific representation of socio-economic reality, but
are a completely one-sided, distorted representation of reality.
Moreover, these pseudo-objective ideas conceal the interests of
particular social groups, in this case the big capitalists of the
advanced capitalist countries, especially the finance capitalists. It
seems as clear as daylight that the extension of market relations
benefits those who play the markets, the big financial institutions and
wealthy speculators. To counter this politically inconvenient
‘impression’, armies of economists are drafted in to show that the
market is the best way – in fact, the only way – of organising the
economy. The basic tenet of mainstream economics is that ‘there is no
alternative’ (Tina).
Chang makes this point very forcefully: "The
free-market policy package, often known as the neoliberal policy
package, emphasises lower inflation, greater capital mobility and
greater job insecurity (euphemistically called greater labour market
flexibility), essentially because it is mainly geared towards the
interests of the holders of financial assets".
Chang explains why these policies favour finance
capitalists: "Inflation control is emphasised because many financial
assets have nominally fixed rates of return, so inflation reduces their
real returns. Greater capital mobility is promoted because the main
source of the ability for the holders of financial assets to reap higher
returns than the holders of other (physical and human) assets is their
ability to move around their assets more quickly. Greater labour market
flexibility is demanded because, from the point of view of financial
investors, making hiring and firing of the workers easier allows
companies to be restructured more quickly, which means that they can be
sold and bought more readily with better short-term balance sheets,
bringing higher financial returns".
Neoliberal economics reflect these economic
relations, which developed apace after the Thatcher-Reagan ‘revolution’
(in reality, counter-revolution) of the early 1980s. Before that time,
the monetarist ideas of academics like Friedman were viewed as merely
the cranky notions of a minority of right-wing economists. But with the
return of major capitalist economies to more brutal market policies
(with the rolling back of state social spending), monetarism and allied
doctrines began to flourish. By providing theoretical justification,
ultra-free-market economics played a part in reinforcing market
policies, and providing legitimacy.
This is not to say that neoliberal ideology played a
merely passive role, providing intellectual support only after the new
relations had developed. Neoliberal ideology was used as a political
weapon by the ruling class, especially the Anglo-American ruling class
and especially after the collapse of the Stalinist regimes, to extend
and deepen market relations on a global scale. In the absence of any
ideological alternative from the leaders of the traditional workers’
parties, neoliberal ideas swayed big sections of public opinion and
helped create electoral support for out-and-out pro-market policies.
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The role of neoliberal economists
CHANG LEVELS A series of searing criticism against
free-market economists – who now dominate the profession – which add up
to a devastating indictment. "During the last three decades", he writes,
"the increasing influence of free-market economists has resulted in
poorer economic performance all over the world". He notes that during
their periods of ‘miracle’ growth, economies like Japan, South Korea,
Taiwan and, more recently, China, were run mainly by lawyers and
engineers, not economists. Where free-market economists intervened in
semi-developed economies, like Chile, where the monetarist ‘Chicago
boys’ advised the Pinochet dictatorship, accelerated economic growth was
based on the savage driving down of workers’ living standards and the
systematic suppression of democratic rights. "There are reasons to
think", Chang says, "that economists may be positively harmful for the
economy" and "for most people".
Chang refers to the incident when the queen visited
the London School of Economics in June 2009. It was as if the fable of
the emperor’s new clothes was reversed. Referring to the great crash, a
naïve monarch asked the assembled economists: ‘How come nobody could
foresee it?’ (If the queen had been reading Socialism Today over recent
years, she would not have been surprised by the crisis, which we clearly
predicted.) On behalf of their embarrassed colleagues, two professors,
Tim Besley and Peter Hennessy, tried to provide an answer (Letter, 22
July 2010). Individually, they claimed, economists were all doing a good
job. But there was a "failure of the collective imagination of many
bright people… to understand the risks to the system as a whole".
Chang contemptuously dismisses any suggestion that
economists are merely ‘innocent technicians’ who were all doing a good
job until they were hit by an unpredictable crisis. Over three decades,
"economists played an important role in creating the conditions of the
2008 crisis… by providing theoretical justifications for financial
deregulation and the unrestrained pursuit of short-term profits". They
advanced theories which justified policies that led to slower growth,
greater inequality, job insecurity, etc, and the intensified
exploitation of underdeveloped countries.
However, Chang’s explanation of the role of
free-market economists is weak, to say the least. "It may be", he says,
"that the economics taught in university classrooms is too detached from
reality to be of practical use". He believes, "we need different kinds
of economics from free-market economists".
In effect, Chang is arguing that the ‘wrong’ kind of
economists should be replaced by the ‘right’ kind. Good economists would
promote long-term investment and technological innovation. They would
base themselves on a "nuanced view of capitalism, not the simplistic
free-market view". A nuanced view would embrace a complex mixture of
"markets (public and private), bureaucracies and networks".
Chang suggests that good economists would draw their
ideas from an eclectic mix of economists: Karl Marx, Friedrich List (a
conservative nationalist), John Maynard Keynes, Joseph Schumpeter (who
advanced a theory of long waves punctuated by episodes of ‘creative
destruction’), Hyman Minsky (who developed a Keynesian theory of
financial crisis), and other Keynesians.
Chang’s criticism of free-market economists is
correct, as far as it goes. But he fails to understand why they came to
dominate. It was not because bad economists ousted good ones. The rise
of neoliberal economics reflected deep-seated changes in the advanced
capitalist countries, with the emergence of new economic forces – which
found enthusiastic allies among the economists. After all, huge armies
of economists are employed (on huge salaries and bonuses) by the big
financial institutions, mainly to assess the short-term profitability of
investments, while academic economists provide the theoretical rationale
for the ultra-free market drive for profits. Economists like Chang, who
tenaciously challenges the neoliberal orthodoxy, are a rare breed in
academic circles.
The case for planning
REFERRING TO KARL MARX, Chang points to the
fundamental contradiction of capitalism: the production process is
socialised while ownership of the means of production is private. He
very clearly shows that production under advanced capitalism depends on
a high level of social organisation and cooperation. But his main
purpose in taking up this argument is to use it against the false idea
of neoliberal economics, according to which success under capitalism
depends on visionary entrepreneurs competing as individuals in a free
market that is merely an arena for competition. Chang recognises that
Marx argued that private ownership rules out planning and gives rise to
a mismatch between supply and demand, resulting in periodic crises.
However, he rejects Marx’s solution, central planning, which he
dismisses as a failure.
"With economic development… the division of labour
between firms develops further and as a result the firms become
increasingly more dependent on each other – or the social nature of the
production process is intensified". Chang points out that giant firms
can undertake massive investments and pursue their profit-making
activities on a global scale only because they are supported by a range
of public institutions, such as a legal system, education and training
for workers, public subsidies for research and development, and so on.
However, private ownership of competing firms makes
it "impossible to coordinate the actions of those independent firms".
Chang correctly refers to the impossibility of coordinated production as
a source of periodic economic crisis. He does not, however, refer to the
exploitation at the heart of the capitalist system: the expropriation by
the capitalists of surplus value (in the form of profit) which
represents the wealth produced by workers’ labour power over and above
what they are paid in wages. Nevertheless, Chang appears to sympathise
with Marx’s argument that "with the development of capitalism… this
systemic contradiction would become larger and consequently economic
crises would become more and more violent, finally bringing the whole
system down".
Chang goes on to summarise Marx’s case for central
planning. "All means of production are owned by the whole of society and
as a result the activities of interdependent production units can be
coordinated ex ante [in advance] through a unified plan. As any
potential coordination failure is resolved before it happens, the
economy does not have to go through those periodic crises in order to
balance supply and demand. Under central planning, the economy will
produce only exactly what is needed. No resource will lie idle at any
time, since there will be no economic crisis. Therefore, the central
planning system, it was argued, will manage the economy much more
efficiently than the market system".
But that, says Chang, was theory: "unfortunately,
central planning did not work very well in practice". Chang bases his
rejection of central planning as an alternative to capitalism on the
failure of planning in the Soviet Union and Eastern Europe. Clearly, the
writing off of economic planning is one of the main effects of the
collapse of the so-called ‘communist’ or, in reality, Stalinist regimes,
in Eastern Europe after 1989/90. Like most critics, including those on
the left, Chang makes no distinction at all between the kind of planning
envisioned by Marx and the reality of planning under a Stalinist
dictatorship. The failure of Stalinist planning was rooted in the
conditions under which it arose, and does not prove that planning will
never work.
Why Stalinist planning failed
CHANG’S EXPLANATION FOR the failure of Soviet
planning is inadequate, lacking historical perspective. He makes no
reference to the fact that at the beginning of the 20th century Russia
was an economically and culturally backward country, where the working
class was a small minority of the population, though politically
powerful. The leaders of the Russian revolution, Vladimir Lenin and Leon
Trotsky, did not believe that they could build socialism in Russia in
isolation, apart from the development of socialist revolution in the
more advanced capitalist countries. For various reasons, the revolution
was isolated, and backwardness gave rise to the development of a
bureaucratic layer which began to dominate society. Stalin, the
political representative of the bureaucracy, carried out a political
counter-revolution, wiping out the elements of workers’ democracy
established in 1917, and installing a totalitarian regime.
In the early period, as Chang notes, the bureaucracy
was able to develop basic industries on the basis of a central plan.
However, as the economy developed there was more and more distortion,
waste and mismanagement. Chang attributes this to the increasing
‘complexity’ of the economy. This is valid as far as it goes, but misses
the fundamental point: that under the Stalinist regime there was no
democracy, the working class was politically disenfranchised and allowed
to play no role in the management of the economy. There was no feedback
from below to check and refine the plan. Local managers were
bureaucrats, agents of the central bureaucracy.
Through planning, the Soviet Union was able to lay
the foundations of a modern industrial economy, though at enormous cost
to the working class. Moreover, planning enabled the Soviet Union to
defeat the barbaric onslaught of Nazi Germany during the second world
war, and subsequently to provide significant social gains for the
population in terms of employment, housing, healthcare and education.
However, the quality of consumer goods, in particular, was very poor. In
the 1970s, when microelectronic technology began to develop
internationally, it became increasingly apparent that the bureaucracy
was incapable of systematically applying new technology to the
development of production and planning. The incompetence and corruption
of the bureaucracy, with increasing dislocation of central planning, led
to the implosion of the Stalinist economies in the early 1990s.
Undoubtedly, this had a massive ideological impact.
The capitalist class launched an unparalleled ideological offensive to
prove that ‘communism’, ‘socialism’, and central planning would not
work, were inherently impossible. However, the failure of planning under
specific historical conditions does not prove that planning will never
work. The failure of Stalinism, moreover, certainly does not prove that
capitalism is a viable system with no possible alternative.
Socialist economic planning today, in economically
developed countries, would be very different from Stalinist planning in
the Soviet Union (which was replicated in Eastern Europe, China, Cuba,
etc). First, there is the economic, technical and cultural basis for a
much more developed form of economy, which did not exist in the Soviet
Union after 1917. At the same time, a dominant working class, mobilised
to carry through a socialist transformation, would ensure that both the
new socialist state and the economy were subject to democratic control.
Democratically elected planning bodies would draw up
an economic plan, which would be continually checked and modified by
local bodies. The plan would be based on the nationalisation of the
‘commanding heights’ of the economy, the major manufacturing industries,
banks, and infrastructure. Not every small business would be
nationalised, but would operate within the framework of a plan. There
would also be planning bodies to oversee the development and production
of consumer goods, to ensure their high quality and that they met the
real needs of the population. This is not a utopian project. As Chang
himself shows, all the elements of planning already exist within
capitalism. However, they are currently trapped within the limits of the
drive for profit, the anarchy of the market, and rival nation states.
Elements of planning within capitalism
WHILE DISMISSING CENTRAL planning, Chang, like Marx,
nevertheless points to the elements of planning within capitalism. Marx
did not dream up central planning out of the blue, but based his ideas
on real tendencies within capitalism: the increasing tendency of the
state to intervene to regulate the economy and take over major
industries, such as utilities; and the elements of planning within
capitalist firms, in contrast to the anarchic competition between
firms competing in the market. Chang gives more up-to-date examples, but
again only as a counter to neoliberalism, not as an alternative to
capitalism.
Chang refers to the fact that in times of war, both
during the first and second world wars, the state in the major
capitalist economies in effect introduced big elements of central
planning for the duration of the conflicts, in order to ensure the
supply of munitions and industrial materials. Of course, ownership was
left in the hands of the capitalists, who later took back control of
industries (apart from those that virtually collapsed, like coal, iron
and steel, etc). Moreover, Chang refers to the interventionist role
played by the state in countries like Japan, South Korea, Taiwan, etc,
that experienced rapid economic growth during the post-war economic
upswing.
Most importantly, however, Chang points to the
planning that takes place within capitalist corporations. "Modern
capitalist economies are made up of large, hierarchical corporations
that plan their activities in great detail, even across national
borders". Many also suffer from the same kind of bureaucratic
distortions that existed in the former Stalinist states.
Chang follows Marx’s line of argument: "When [Marx]
talked about planning, there was in fact no real life government that
was practising planning. At the time, only firms planned. What Marx
predicted was that the ‘rational’ planning approach of the capitalist
firms would eventually prove superior to the wasteful anarchy of the
market and thus eventually be extended to the whole economy. To be sure,
he criticised planning within the firm as despotism by capitalists…".
Chang points out that the "area of the capitalist
economy that is covered by planning has in fact grown". For instance, it
is estimated that "between one third and one half of international trade
consists of transfers among different units within transnational
corporations".
"Between the planning that is going on within
corporations and various types of planning by government, modern
capitalist economies are planned to a very high degree". This is true.
However, big corporations still compete with one another in pursuit of
profit, and there is particularly intense competition on international
financial markets. It is still the case, despite the planning within big
corporations that, ultimately, the irrational element of competition
through the market still predominates over the elements of rational
planning within corporations and through state intervention. That is why
capitalism has again plunged into a global crisis, the worst since the
1930s.
Chang recognises the elements of planning within
capitalism, but he mistakenly believes that there can be a major shift
towards planning in the system as a whole, without fundamental change.
Chang draws on Marxist ideas to criticise contemporary,
ultra-free-market capitalism. But on every major issue, he stops short,
draws back, and reverts to the idea that somehow an ideal capitalism can
emerge. He favours a "modern economy in which government policy,
corporate planning and market relationships are all vital and interact
in a complex way".
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A ‘better’ capitalism?
CHANG REJECTS THE free-market model of capitalism,
which led to the catastrophe of the 2008 financial crisis and plunged
the world economy into depression. "The last three decades have shown
that, contrary to the claims of its proponents, [free-market capitalism]
slows down the economy, increases inequality and insecurity, and leads
to more frequent (and sometimes massive) financial crashes". Therefore,
he concludes: "The daunting task ahead of us is to completely rebuild
the world economy". Moreover, "nothing short of a total re-envisaging of
the way we organise our economy and society will do". This sounds
revolutionary! However, Chang makes it clear: "My criticism is of
free-market capitalism, and not all kinds of capitalism".
"There is no one ideal model". So Chang sets about
creating – or at least imagining – a new model of capitalism. Like an
enthusiastic shopper going round a supermarket, he picks different
components off the shelves of the global superstore.
In his model he would include elements of the Nordic
economies, with highly developed welfare systems (at least, until
recently). Figures presented in his book show that for a long period
they had higher growth rates than the US and most economies based on
free-market policies. Chang also selects some components from the
Southeast and East Asian model, having noted with approval the role that
the state played in laying the foundations of modern industrial
economies in Japan, South Korea, Taiwan and other economies in the
region. There is room in his model for some of the ‘indicative planning’
used by countries like France, where the government has used subsidies
and tax incentives to stimulate (and protect) key industrial sectors.
There is also a role for the market in Chang’s scheme, but it would be
much more regulated than now.
Based on this model, there would be – in his scheme
of things – a return to Keynesian-type economic policies. Social
spending would be protected, while home manufacturing would be
encouraged. There would be a return to the (attempted) macroeconomic
management of national economies (which implies some kind of protection
from short-term capital flows across borders). Governments would invest
heavily in research and development, and encourage long-term investment
in new technology. Poor and semi-developed countries would be allowed to
protect their home industries until they could stand on their own feet
(as the advanced capitalist countries did in the past). Enlightened
self-interest, based on recognition of longer-term objectives and social
needs, would replace the ruthless pursuit of short-term profit
maximisation. The market would play a role, but it would be controlled,
just one component of the economy.
In other words, Chang is advocating a ‘better
capitalism’. This has recently become a familiar theme among left
reformists internationally, and they will no doubt draw on Chang’s
arguments. But how could this new model capitalism come about? Chang’s
approach is completely a-historical, utopian. The components he selects
for his model were the products of particular historical conditions in
particular countries, and developed on the basis of real economic forces
and world relations as they existed at the time.
In the case of Sweden, for instance,
social-democratic governments came to power in the pre-second world war
period, because of the strength of the workers’ movement. With
relatively favourable conditions for Swedish capitalism during the
second world war and the post-war upswing, Sweden developed a highly
advanced welfare state. In contrast, Japanese capitalism, as well as
South Korean, Taiwanese, etc, developed in the post-war period under the
umbrella of US imperialism, which provided economic support for those
countries as a strategic buffer against China, that was transformed by
the revolution of 1949.
For historical reasons, the state had always played
a major role in the Japanese economy. However, Chang notes that there
has been a very limited development of social provision in Japan. The
manufacturing base in South Korea, as Chang notes, was developed under
the vicious dictatorship of Park Chung-hee, again with almost no social
provision for the working class or poor farmers. Recently, however, both
Japan and South Korea have entered a period of weak growth or
stagnation. South Korea, in particular, has turned towards the
implementation of free-market policies. Moreover, under both
social-democratic and right-wing governments, Sweden has begun to unwind
the welfare state, turning sharply towards the marketisation of the
economy and society.
Britain, the US and other advanced capitalist
countries turned to neoliberalism after 1980. This was not merely a
policy change, but reflected an underlying change in economic relations.
During the late 1960s there was a breakdown of the post-war economic
relations which supported the long upswing in western capitalism. After
the period of ‘stagflation’ (feeble growth combined with high
inflation), capitalist governments, beginning with Thatcher and Reagan,
concluded that they had to adopt a new approach. A key feature of the
crisis was the decline in profitability, and there was a turn by the
capitalists towards the finance sector as a source of profits.
The ‘big bang’ deregulation of financial markets,
first in Britain and the US but then in other major economies, opened
the door to ultra-free-market financial speculation. This led to the
dominance of finance capital described by Chang. This dominance was not
just the result of false ideology, or policy mistakes. It reflected a
deep-rooted crisis of over-accumulation within capitalism. This meant
that new investment in the development of the means of production no
longer produced the levels of profit required by the capitalist class.
The turn towards the finance sector, which accelerated in the mid-1990s,
reflected this underlying crisis.
The necessity of a socialist alternative
FREE-MARKET, NEOLIBERAL capitalism is not just a
mistake, or a harmful fashion that will pass given time. It reflects the
fundamental character of capitalism in this period. Chang says he
accepts the profit motive and the market. But he mistakenly believes
that they can be controlled and directed according to some political
scheme. For instance, Chang believes there should be a return to
long-term investment, based on the development of new technology. But
the capitalists largely abandoned that approach, which prevailed in the
early period of the post-war upswing, because they were no longer
reaping the profit returns that they required.
The market is not just a machine, a neutral
mechanism, that can be harnessed by enlightened governments to produce
greater prosperity for everyone. The market is an arena for competitive
struggle between the big corporations and financial institutions, whose
drive to intensify the exploitation of the working class and increase
their profitability inevitably leads to growing social polarisation
between rich and poor in society, and increased inequality
internationally.
It is not possible to ‘completely rebuild’ the world
economy on the basis of a rational appeal to the enlightened
self-interest of capitalists. Fundamental change will come about only
through the mobilisation of powerful social forces, primarily the
working class. Change, moreover, would have to be on the basis of a
change of ownership of the commanding heights of the economy, the big
corporations and financial institutions. This would precisely require
the economic planning envisaged by Marx, both on a national and
international basis.
Chang hesitates to take this step. He believes that
the predatory neoliberal capitalism of today can be changed into a
benign, people-friendly capitalism run by enlightened leaders. But his
project is doomed to failure. Capitalism faces a period of depression,
with the possibility at any time of further, even deeper crises. The
consequences internationally for the working class, the exploited rural
labourers, and the dispossessed will be catastrophic. The effective
defence of workers’ living standards and democratic rights will only be
possible through a struggle against capitalism and for an alternative
socialist society. Mass prosperity, greater equality, social welfare,
enlightened mass education, technological advance – all the things which
Chang clearly values – will become possible only on the basis of
socialist economic planning, which for Chang is unfortunately a step too
far. |