From Socialist Voice, February 2011

Capitalism in the coming decades

It is well established that the global financial crisis severely damaged a large part of the world’s financial system. Concurrently, the financial crisis was joined by a recession in the non-financial sector in many industrialised economies, and continues to linger.
     Policies that had been successful in conquering past financial crises in the neo-liberal era—expansionary monetary policy along with institutional bail-outs—appear unable to stem the crisis. Rather the crisis may be resolved only through a restructuring of the system. If the current situation is not a systemic crisis, then it should be feasible to resolve the financial crisis with state bail-outs of financial institutions and the imposition of regulations on the financial system, while tackling the recession with a broad stimulus program.
     It is not clear, certainly in Europe, if such a strategy has worked. If interventions do work, neo-liberal capitalism may resume normal functioning. However, if the current financial economic crisis is indicative of a systemic crisis of neo-liberal capitalism, then it cannot be saved by institutional tinkering: neo-liberal capitalism will be replaced by something else.
     History has some pointed insights. Over time, capitalism has alternated between periods of liberalism, in which market activity was subject to little regulation, and periods in which the state actively regulated market activity. Notably, both were subject to crisis. Economic crises in liberal forms, however, develop more rapidly and are of greater severity than crises of regulated capitalism. The Great Depression of the 1930s was an economic crisis that developed more rapidly and was more severe than the crisis of regulated capitalism of the 1970s. The latter developed slowly, with problems appearing from the late 1960s, when the international rate of profit began to decline. Crisis broke out only after 1973. Recent experience is consistent with this crisis trajectory.
     Following this logic, we might predict that the next economic structure will involve a significant expansion of the state in the economy. However, predicting what kind of state-regulated capitalism might emerge is more problematic. The outcome will depend on various political and economic contingencies.
     The obvious option might be a corporatist form of capitalism dominated by big capital. If popular movements remain weak and are unable to influence the restructuring, then big capital will determine the course of restructuring. Big business will regulate the economy through the state, reinstating the stability and profitability of capitalism and allowing accumulation to continue over a lengthy period.
     Particular characteristics might feature the financial system becoming subject to regulation to ensure its stability, and the resumption of credit functions in support of the real economy, although the exact nature of a new financial structure would depend on the relative strength of financial and real-sector capital.
     This is a debate already taking place in Britain. The institutions affecting the capital-labour relation would remain similar to those of neo-liberalism, to ensure a high rate of profit. Capital would remain fully dominant over labour. To resolve the aggregate demand problem arising from repressed wage growth there might be a programme of state investment in sectors to promote profit-making. State investment in transport, communications, power and technological development would be likely.
     Military and security spending might also be of import. Such restructuring could seek low wages to ensure a high profit share. The subsequent aggregate demand problem, resulting from rapidly rising profit and stagnating wages, would be resolved through expanding state spending.
     Of course the economic crisis may foster strong popular movements, which would affect the course of restructuring. This might lead to an alternative type of state-regulated capitalism, involving a compromise between capital on the one hand and labour or other popular constituencies on the other. Changes in the institutions that affect the capital-labour relation would be required to enable labour to increase its wages in step with growth in productivity. At the minimum this would require a stronger trade union movement (or, in the absence of that, a leftist or populist political movement), a willingness on the part of big business to make concessions to labour, and a shift in the form of inter-capitalist competition to hold off the severe downward pressure on wages that results from unrestrained competition.
     Under those conditions, growing aggregate demand might be possible. Expanding state spending would also play a role, involving social spending and environmental spending as well as infrastructure investment. Again, the financial sector would be closely regulated.
     These dynamics are more convoluted in an Irish context, and whether they might be replicated is uncertain. Given the extraneously imposed requirements from Europe and the IMF, prolonged economic stagnation is more likely. The decline of the country to an economic backwater, serving as little else than a relatively impoverished satellite of the European Union, is the more probable consequence, and clearly the most pressing matter at present.

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