The political intrigue behind the scenes of America’s latest financial crisis teems with the usual suspects. As credit tightens and stocks yo-yo wildly, neoliberal fundamentalists in the Republican Party who cannot, for ideological reasons, come to terms with the idea of imperfect markets have tried to blame their abandonment of the Bush bailout on the Democratic Speaker’s pointed criticism. Meanwhile the Democrats – in many ways as complicit as their Republican counterparts in the orgy of corporate greed that is now unravelling so destructively – have boldly announced the end of the “era of golden parachutes for high-flying Wall Street operators” – while quietly agreeing to leave intact any deals that have already been made. Washington’s disingenuousness has left CNN unsure as to whether it is witnessing the prelude to “a financial Pearl Harbor” and the “greatest crisis since the Great Depression” or just another shameful instance of politicians coddling Wall Street while Main Street fends for itself. This, in turn, has left both McCain and Obama wary of being too closely involved with whatever plan finally emerges, lest its failure hurt their chances in November. Since neither campaign wants to seem too detached either, both have taken to encouraging Congress from afar with platitudes about the need to “step up to the plate” and “act in a bipartisan manner.”
In the political crossfire, many Congressional representatives simply don’t know what to do – especially since a large number of them face difficult re-election campaigns in the next few weeks. But even if they had a clear answer to the crisis, effective compromise will remain elusive. Democrats are generally in favour of government intervention in the markets and want greater regulation and oversight, and more tangible benefits for middle-class homeowners caught up in the mortgage crisis. Diehard market fundamentalists in the GOP are essentially committed to the exact opposite of this. The stalemate so far has left the economic future of the country in the hands of nervous investors and an administration that is increasingly irrelevant and out of touch.
Will the projected bailouts and interventions – in both Europe and America – amount, as some commentators have argued, to the end of capitalism? Surely not. But they may well turn out to be an epitaph on neoliberalism. The economist Joseph Stiglitz recently observed 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. Learning this lesson may be the silver lining in the cloud now hanging over the global economy.”
Neoliberalism effectively began with the presidency of Ronald Reagan. It enshrined a fanatical belief in laissez-faire capitalism and self-correcting markets. From the outset it had utopian ambitions. In his introduction to A Brief History of Neoliberalism, David Harvey observes that “The process of neoliberalization has… entailed much ‘creative destruction,’ not only of prior institutional frameworks and powers… but also of divisions of labour, social relations, welfare provisions, technological mixes, ways of life and thought, reproductive activities, attachments to the land and habits of the heart… It holds that the social good will be maximized by maximizing the reach and frequency of market transactions, and it seeks to bring all human action into the domain of the market.” Once the theory took hold in Reagan’s America and Thatcher’s Britain there was no looking back. Clear evidence of widespread hardship, both domestically and in the developing economies that were overwhelmed by its dictates, did little to soften true believers’ contempt for any oversight or regulations that might lessen the full force of their rapacious theory.
The neoliberal philosophy also underwrote a new level of financial recklessness, especially in the arcane world of credit derivatives. Earlier this year, Philip Blond pointed out in the Independent that “before 1973 the ratio of investment to speculative capital was 9:1; since 1973, these proportions have reversed. So huge have the numbers, leverage and derivative instruments become that their value now far exceeds the total economic value of the planet… [I]n 2003 the value of all derivative trading was $85 trillion, while the size of the world economy was only $49 trillion.” As markets became ever more intertwined via information technology it was increasingly likely that the whole system could be thrown into chaos by a single significant miscalculation. The colossal international gamble on the mortgage-backed securities used to inflate America’s housing bubble just happened to fit the bill perfectly.
Neoliberalism fathered other nightmares too. Within the US the culture of unfettered capitalism produced a new kind of CEO, willing to manipulate accounts and declare inflated profits, or to bribe financial analysts for higher ratings.
Enron and Worldcom are the most recent examples of the syndrome, but the sleaziness was evident as far back as the savings and loans crisis in the 1980s. Over time these men undermined the basic trust that any genuine market needs to function efficiently. Wall Street’s current volatility and the credit freeze that has so many banks across the world teetering at the brink of insolvency both have their origins in this erosion of trust.
The journalist Will Hutton argues that the current imbroglio isn’t a crisis of capitalism so much as “a crisis of a particular capitalism [one] that has set aside respect for trust, integrity and fairness as fuddy-duddy obstacles to ‘wealth generation.’ What we are relearning is that without trust and fairness, capitalism risks its own sustainability, even while it unleashes forces that undermine those self-same values.”
Have two decades of neoliberalism − and eight years of its first cousin, neoconservatism − eroded public trust and hardened ideological intransigence in the United States to a point at which not even the threat of a global recession can restore it? Hopefully not. For if the US economy goes under so will Europe’s and if that happens Latin America and the Caribbean won’t be far behind.
