Getting Off the Long Run Roller Coaster: A Response to Michael Taft’s 10 Proposals


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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.

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Terrence McDonough is Professor of Economic in National University of Ireland, Galway.

4 Responses

  1. KesheR

    December 10, 2008 5:42 pm

    I think peak oil is the most dramatic factor in this ecuation. I’m concerned: I really think this crisis is going to last for the whole century. “The century of decline”, as ‘peakoilers’ are used to say.

  2. Phil

    December 10, 2008 8:16 pm

    “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 more I look into the current crisis, the more I come away from it with a similar impression. First of all there’s the simple observation that every day the business sections report that somewhere in the world (it was China and Britain today) things are turning out worse than anticipated. I think the media certainly pick up on this point, they deploy a sort of “aesthetic of doom”; but you’d swear that various governments just don’t want to know. I mean, even when they do recognise the need to do something, as for example the Labour government in Britain have, they don’t want to recognise the possible extent of the problem.

    Then when you turn to the macroeconomic situation of the last 35 or so years you’re hit with another bombshell. The tactics deployed to try and outrun stagnation can’t help but strike you as being not only rather excessive but also extremely presumptuous of many factors; placing significant trust in principles which probably didn’t merit it. The instability and fragility which could be generated in such a system seems to me to be potentially massive.

    This is where the mainstream media and, hence, mainstream opinion, both public and (hence) political, tend to drop off. As I said the sentiment seems to be there, at present its being directed at the bankers, the financiers and the speculators, but it doesn’t seem to be given coherent articulation…

  3. Tomaltach

    December 15, 2008 9:52 pm

    There is much in Dr McDonough’s piece with which I would agree. In particular, I like the idea that the current crisis presents an opportunity, perhaps an imperative, to re-examine “a comprehensive list of separate but intimately related changes in the way we do things”.

    But for me, the piece makes a number of points that I wouldn’t necessarily agree with. I realise that Dr McDonough had a limited amount of space in which to flesh out his ideas, and that his main job was to comment on Michael Taft’s proposals.

    Still, here are a few of the issues I have. Dr McDonough says we are witnessing the collapse of the neoliberal order (though he then qualifies this by saying we are only at the start of the collapse). This could well be true. But I still don’t see it. Shattered is the hard orthodoxy that the market is always right and that it should be let run freely to produce optimum results regardless of ugly side effects. But the history of this orthodoxy, even in the US, has been to see it honoured in the breach as and when required. It was never as sacred a cow as we are led to believe. Think of the US again: When the motor undustry buckled in the 80s it was bailed out. When the airlines here devastated after 9/11 they were rescued. Farmers enjoy massive subvention. Huge military programs are decided and financed by the state. The free market was always sacred for profit seekers, but when the shit would hit the fan, no ideology could stop them begging for state intervention. It’s true now that the scale of the intervention in the financial system is unprecedented. But state rescue in and of itself is nothing new. Furthermore, while the neoliberal dogma of unfettered markets is now badly shaken, other tenets of the kind of global capitalism that we have come to know and love, remain, so far at least, fully in place. There have been no significant calls (yet) to abandon free trade. In fact, all governments that I’ve heard on both sides of the Atlantic have explicitly called for trade levels to be held up or boosted. This was one of the agreements of the G20 meeting a few weeks ago. In short, I remain to be convinced that the neoliberal order is about to collapse. I think that competition, private ownership (apart from key failing giants taken into state control in emergency), and free trade will not die that easily.

    On a small point – Dr McDonough referred to both Neoliberalism and Globalisation as ‘institutions’. Certainly institutions have been created as part of the architecture which supports these concepts of how the world is ordered, but the ideas of neoliberalism and globalisation are far broader than can be encompassed in the term ‘institution’.

    On the point of globalisation, Dr McDonough says “globalisation was a policy, not an inevitability.” True, aspects of globalisation were deliberately promoted and institutionalised – like free trade. But globalisation has really been under way for centuries, and has been carried along on waves of technological development. Globalisation of course, is much more than economic, but even treating its economic component: was it ever realistic that there would be first, huge strides in shipping technology, then in long distance wired communication, then more recently internet and satellite comms, all this without leading to greater and greater exchanges of first goods, then ideas, and latterly services of all kinds? In my opinion it would have taken considerable effort to contain economic globalisation over the long term? How could it be contained? What would be the cost? Would the cost really outweigh the benefit? This is not to argue that the latest wave of globalisation has been either universally beneficial (environmentally it is a disaster) or that parts of it couldn’t have been prevented. My point is that globalisation was and is hideously complex and was at least as much an inevitable product of the industrial revolution and the modernity that followed as it was of some deliberate policy to create the world we have today.

    I’d also like to comment on one of the main points – the hollowing out of the state, its resultant inability to deal with crises, and the need to bring the state back to the core of the economy. Its true that the state has retreated from many areas of the economy. But it is not clear to me that the answer for more equality and better living conditions is to bring the state back to where it was. The nature of society and the economy has changed utterly over the last couple of generations. The picture today is an order of magnitude more complex than it was twenty or thirty years ago. I cannot imagine how state ownership of the economy would deliver the better economic performance we require for progress. If the market is seriously flawed, and brave is the voice now that says that it isn’t, we also know that government is seriously flawed. Markets fail yes. And so do governments – all the time. When markets function reasonably smoothly they do a great job. They channel investment to innovation and respond well to changes in demand. But of course, the invisible hand often needs to be guided. Arguably that is also part of why the financial system failed. The failure to guide the invisible hand. True, banks were unscrupulous, and in the Irish case developers greedy. But that regulation failed is widely acknowledged – but in the end, that is a failure of government to acknowledge the failure in the market. We know that a huge problem in Ireland was the toothless (and perhaps incompetent) financial regulator. We know also that the cosy relationships between the banks and the regulator and between banks and builders were a massive problem. So too was the absence of any action plan to deflate the bubble from say 2004/5 onwards. But these are all failures of government as much as of the market.

    I am not arguing the case for an unfettered market. But I would be wary of any long term plan to deliver huge chunks of the economy over to government ownership (as implied by the comment that only socialism can rescue us now, though mostly Dr McDonough is emphasising social democracy rather than socialism per se). On the whole, I think the model of the state which is largely regulatory, with limited target ownership, is likely to survive the crisis. It’s pretty banal picture, but personally, I am not convinced by any of the alternatives. I think also that one of the keys for progress is not just a reformed market, but a reformed democracy, but I suppose that is a long term project (and incidentally one I see little sign of in Ireland at least and which the current crisis is unlikely to trigger).

    I certainly hope that Dr McDonough is heeded when he calls for the issue of equality to be considered in any policies aimed at tackling the crisis. And I wonder if the current crisis will be traumatic enough to shake us away from models wedded to short term gain and towards something which is more long term and environmentally sound. This kind of change I believe wouldn’t necessarily involve the end of capitalism – but it would certainly involve a dramatic change in our values. I tend to be a bit of a pessimist – so if I were to bet, I’d say there will be some adjustments towards equality and sustainability, but then we will just get on with more of the same. I hope I’m wrong.