Michael Taft’s 10 point plan for addressing the profound problems which face the Irish economy is an excellent starting place for discussion of the response of the left. Its major strength is that it recognizes that we cannot get beyond the current impasse without a comprehensive list of separate but intimately related changes in the way we do things. More than ever the policies of the left must constitute an integrated programme of change. What I would like to do in this response is flesh out why this is so by looking at the nature of the current crisis before returning to Michael’s proposals.
The current crisis creates great opportunities for the left not only because it is a crisis of capitalism but because it is the crisis of the kind of capitalism most dear to the hearts of the right. This kind of capitalism is characterized by the unleashing of minimally regulated markets in goods, labour, and finance. What we are witnessing today is the collapse of a version of this kind of capitalism, the global neoliberal order. This order was a new stage of capitalism put in place as a response to the stagflationary crisis of the 1970’s. We are not yet at the end of global neoliberalism. It will not disappear until something else takes its place. But we are at the beginning of the end. If we want to understand the current moment, it is essential to understand the nature of the order which is now breaking down.
Following the defeat of the left in the late 70’s and early 80’s, a complex of new institutions was inaugurated whose purpose was the restoration of profitability. Two of these institutions were the most prominent. The first was neoliberalism, consisting of an ideology and a set of policies implemented through a number of institutions. The second institution was globalization. The disintegration of production to multiple locations worldwide and its reintegration through free trade was actively promoted through state policies and international treaties. Globalization was a policy, not an inevitability. While these two institutions were the most prominent, a number of other institutions were also integral to the new order. The domestic state was hollowed out through a process of de-regulation, privatization and tax-cutting. Social security programmes were cut and ‘competitiveness’ became the touchstone of all government policy. Neoliberal state policy combined with the threat of job loss through globalization decisively weakened labour and other popular forces. This led to rising inequality. It also led to the implementation of lean production principles within enterprises.
Neolberalism, the minimal state, globalization, stagnant wages and lean production all led to a recovery of profitability and a level of economic growth. But there were problems waiting in the wings. Global competition combined with stagnant wages and therefore lower levels of demand led to sluggish growth. Higher profits combined with lower levels of real investment led to an explosion of financial activity. This was encouraged by the neoliberal deregulation of financial markets.
Stagnant wages plus an explosion of credit led to basing demand on rising levels of debt. Easy credit led to asset price bubbles (including most recently housing) which further encouraged borrowing. Unregulated finance and asset bubbles led to an increasing unstable financial sector. The economy was increasingly held up by a house of cards.
We’ve already witnessed the beginning of a rolling series of crises. The first crisis has already occurred. This is an implosion of the financial sector and a resulting credit crisis. Since so much of the demand in the economy was founded on debt, the credit crisis will quickly roll on to a demand crisis. We are witnessing the beginning of this crisis. A third crisis, driven by the globalization of capitalism, that of climate change, peak oil and scarce resources, is waiting in the long grass to pounce on any signs of recovery.
The current crisis is not just a crisis of the banks and the financial institutions. It is the crisis of all of the institutions of the global neoliberal order. This includes the financial system but it is also a crisis of neoliberalism, a crisis of globalization, a crisis of the hollowed out state, and a crisis of rising inequality. Further it is an environmental crisis. Any solution must address the crisis in all of its aspects.
This is why the time is ripe for radicalism. Any effective solution must involve at the very least the deep transformation of the current institutions of capitalism. Global neoliberalism is no longer just the enemy of socialism and the left, but is also now the enemy of a revivified capitalism. It will not, however, relinquish its grip without a long struggle. And this means the current crisis is not an ordinary recession. It will not be over in a couple of years.
The left holds the high ground now because, as in the 1930’s, the programmes of the left hold out the only hope of avoiding both depression and barbarism. The minimal programme of the left is also the minimal programme for a civilized recovery of capitalism.
Such a minimal programme would consist of the reregulation of finance on an international level, the global coordination of a Keynesian stimulus programme, the undertaking of a “Green New Deal” to deal with energy and resource problems. This will (if successful) be accompanied by a more multilateral international order perhaps beginning with the current G20. Such a programme is a ‘left’ one in the sense that it is currently inconceivable within the politics of the right and to get to this point the ‘centre’ will have to move considerably left. Nevertheless, there is no reason for a consistent left position to stop with the minimum necessary to potentially revive the capitalist market. Simple justice and democracy demand even deeper transformations.
A more consistent left programme would move beyond the regulation of finance to the nationalization of much of the banking system and the use of credit extension to more constructively guide the economy. It would make the creation of much greater equality the centerpiece of its Keynesian stimulation programme. A left “Green New Deal” would thoroughly transform the existing infrastructure of energy, transportation, housing, and agriculture. The left must demand that any further international integration be led from below. It is even possible that such a deeper left programme would be more effective in promoting economic recovery in the medium term.
Such a programme has a great deal in common with Michael Taft’s ten points.
It will be necessary for the Irish government to borrow more aggressively and leave worries about balancing the budget to a future time (Point 1). The present efforts to actually cut public expenditure and most particularly public employment are profoundly counterproductive.
At the same time more public expenditure is needed than borrowing would allow. Consequently tax revenue needs to increase (point 2). Michael’s suggestions for the taxing of wealth and phasing out tax reliefs are good ones. Tax increases need to be concentrated at the top to avoid damaging demand. Other possibilities that need to be considered are the removal of the cap on income taxed through PRSI, the creation of one or two new top tax bands, international Tobin taxes on financial transactions, and taxes on carbon and other pollutants.
Of course, a stimulus package has to be spent on something specific and Michael’s targeting of our creaking physical, social, and environmental infrastructure is spot on (point 6). The effectiveness of this expenditure must be monitored, so I’d agree with Michael’s sentiments around the establishment of Public Safety Committees (point 3), but I’d balance the public servants with community representatives, ordinary citizens and outside experts. Consumer demand is important in any stimulus and should be created by permanently redistributing income down. Consequently, I endorse Michael’s call for the expansion of union representation and base pay increases (point 4).
A thoroughgoing Green transformation is the only programme that will be extensive enough to reliably pull the world economy from the brink of depression. This includes energy as Michael mentions (point 7), but must also include the replacement of much of our unsustainable transportation infrastructure, unsustainable housing infrastructure, and unsustainable agricultural infrastructure.
Michael is right to call for credit expansion (point 8), but his proposals don’t go far enough. The current financial system has been described as a casino tied to a utility. Abolish the casino and nationalize the utility.
All of these points will require international cooperation, especially in light of Ireland’s high level of exposure to the international economy in the form of exports and imports. The promotion of this kind of cooperation needs to be included in Michael’s points.
More locally based and diverse enterprise (point 10) and aggressive encouragement of high road corporate strategies (point 9) are good things. Nevertheless, we must remember that while the current crisis is the crisis of neoliberal capitalism, neoliberalism grew in the soil of the 1970’s crisis of a more regulated, more social democratic capitalism. Only socialism will get us off this long run roller coaster. And in the meantime, only the active threat of a socialist movement is capable of putting real manners on corporate behavior and backbone into social democratic reformers.
Dr. Terrence McDonough is a Professor in the Department of Economics, National University of Ireland, Galway.
The photo above was taken by Red Mum during the recent rally outside Dáil Éireann to protest against the education cuts introduced in Budget 2009. To see more image from the march go to Red Mum’s Flickr photostream.
Latest posts by Terrence McDonough (see all)
- Ireland is Bankrupt. Now Let’s Get Over It - February 20, 2009
- Getting Off the Long Run Roller Coaster: A Response to Michael Taft’s 10 Proposals - December 10, 2008