For the second time this week, I go to a conference about Marx and the economic crisis. The first – with Meszaros, Harman and Richard Brenner – is full of repetitious statements of fact, but not much on what to do next. The trouble is, we know how bad things are, we know which banks have collapsed, how much money the bail-out was, the crisis in the housing markets, oil prices, etc. It's no bad thing to be reminded of such details, of course, but it's not like we haven't spent the past few weeks reading this stuff, obsessively...but where do we go from here? Some solutions were proposed, far more interestingly at the 'Marxism and the Economic Crisis' conference at UCL organised by ISJ than at the earlier 'Marx and the Credit Crunch' Conway Hall meeting, and I've tried to detail them below. The following summaries are simply my notes from the Saturday conference, and as such are not very beautiful, lack polish of any kind and are rather fragmentary. Nevertheless, some of you might find them interesting. Obviously I might have gotten some things the wrong way round, so don't take this as the final word of any of these speakers. I found Alan Freeman's talk the most appealing overall in lots of ways, which probably makes me a strange kind of Keynesian-Communist, but there you have it. I always did like the New Deal acronyms, and really like the idea of building a bridge or some such large public project. Mmm, collectivish.



Session One: The Depth of the Crisis

Chris Harman

How much has changed since 14 months ago, and six weeks ago. Some say just a mistake in the financial system – the short-selling 'spivs' of the Daily Mail. Financial system needs control but capitalism is essentially alright. Excess necessary to keep the US economy (thus rest of the world) going. Decoupling – detach the US economy from the world economy. Smith and Ricardo – needs more profit to keep going. If you're small vampire you need a little bit of blood, if you're a big capitalist you need a great deal of blood. Falling rate of profit, comes back again and again. Capitalism gets bloated, consumption or investment. Downward trend. How to maintain it? Growth of gvt expenditure or worker consumption. Wages in continual decline, capitalism cannot sustain itself. Spiral of debt. Lend money you don't have to people who can't pay you back. Three major bubbles in past 30 years. early 1990s, early 2000s, now. States step in. Biggest nationalization in history. Deleverage: during the high point of the bubble now cannot be turned into value, let them be wiped out (Lehman Bros), but cannot allow avalanche effect to get too out of hand. But worst is yet to come.



How deep is the crisis? We don't really know. 20 major states 2000 major corporations, need chaos theory! But similarities with 1929-31. Rate of profit fell 1900-1914. 1920s looks like prosperity but workers' wages held back. Workforce didn't grow. Slump started in productive industry in 1927, brief recovery before stock exchange crash. Domino effect, which could well be happening now. State intervention much quicker this time round. Vast handouts, bailing out the US car industry. If it is more serious than 1929, then it is because of the scale of it, e.g., Iceland bailing out banks with sums larger than the GNP. Three potential solutions: slash workers' living standards; allow small banks to go bust; or allow massive inflation. Even if things go the best way, they have to recuperate paper profits, more state intervention likely. Crisis looms.

Alan Freeman, Marx, Keynes and the Crash

In 1929, many understood capitalism by reading Marx. Now the number of people who do that are smaller than the number of Marxists. Marxist economists have been effected by the same disease that effects other economists, the self-suppressiveness of economics. People frightened of being outed as merely heterodox. Conformity within economics – why they failed to collectively predict what is now happening. Reaching now from Keynes – 'we are all Keynesians now', but you'd have to be really dumb and seeking early retirement NOT to be a Keynesian now! Imagine if all the bridges fell down, and all the cars and trains stopped, would the engineers still have their jobs? And yet we trust the economists! Trust yourself more than the economists and more than the Marxist economists! We need to read and understand Marx for ourselves. Many of the best Keynesians currently have a better analysis than the Marxists.

What are the really fundamental questions we need to be asking, as pluralists?

1. Can we fix the crash by fixing the crunch?
2. Is recession inevitable? (Freeman says yes).
3. What explains the crisis? Political economy is when people wonder why they don't have any money.
4. Can the G8 create a new Bretton Woods?

All one question: Did the financial crisis bring down the 'real economy' – or did the 'real economy' cause the financial crisis?

If you think the crisis is caused by the banks you will think the solution is to fix the banking system. If you do not accept that there is a 'real' crisis of capitalism you are less likely to grasp how serious are the problems facing the world. Get the schadenfreude out of the way, incidentally, the poor will suffer most.

Russian debates: can capitalism heal itself after a long period of downturn? Kondratiev says yes, it's endogenous. Trotsky said no. Condition for reconstructing the falling rate of profit is a political one. Need huge global reorganization of states – this is usually war, a violent a dangerous solution. We must hope this is not the case but it has happened four times already in history.

The 'real' problem behind the crash.

US begins 1945 dominating all sources of superprofit – technical, commercial and financial. Trade surplus, world currency and banker, world military policeman and bailiff.

Undermined by two processes endemic to capitalism: long-term decline of the rate of profit effecting the whole world; 'imperialists without an empire' (Germany, Japan) as specialists in technical superprofit and outcompeted it (hence trade deficit). Compensated by hyperextension of all 'custodian' functions – financialisation, 'globalisation' and militarism. But this eroded its competitiveness, and has led to an ungovernable world. The 'irrational exuberance' of the financial economy – bears no relation to the real economy.

US is like a kid running, turning round to punch the other runners, ensuring it always wins. It has been 'squeezing the world' and squeezing the poor. Every time it gets a problem it launches a political initiative in order to postpone the day of reckoning. The third world took the hit from liberalisation.

What kind of new world order will the crash produce? Some sobering thoughts.

Beginning of the end for US hegemony, but remember that the beginning of the end for UK imperialism came with the Indian mutiny, but hung on for a hundred years. May be similar for US, beginning of the end could take a very long time. When the invisible hand of the market fails, the visible hand of the state steps in. What happens next depends on us. We have more influence than we did say five years ago.

Not all state interventions are left-wing. Neither 1929 nor 1873 (the last crises on this scale) led to any socialist revolution. Capitalist solutions have always been violent and barbaric (imperialism, fascism, war). Our most important need is understanding.



Mass unemployment, fascism and war: the preconditions for a new capitalist order. Capital stocks have to be lowered through negative accumulation of value – this is the function of depression. Capitalists need political safety for long-term investment, requiring a political re-organisation of system of states – this is the function of war. Capitalists require EITHER a major reduction in the rate of surplus value (the 1929 solution) – this was the function of fascism. OR a major source of superprofit from elsewhere (the 1873 solution) – this was the function of imperialism.

[I have picked out only some of the questions, as some were simply mad, or annoying]

Questions: Callinicos. Background of long period of stagnation. Kondratiev's long waves don't work, we would have expected upward turn in 1990s, but we have moved into much more serious economic crisis. Brezenski in 1931, as the individual units of capitalism grows, harder to wipe out value to restore the rate of profit. The rescues of the current moment, a bastardised Keynsianism are going to make things worse as they won't get rid of value. We need to look at mechanisms for the gap between rich and poor on global scale – not just superprofits – 2/3rds of foreign direct investment goes to the west, capitalism has in fact deserted the poorer parts of the world, not over-exploited them.

Some bloke: what about oil?

Some other bloke: what about imperialism?

Yet another bloke: what about houses?



CH: paper value of houses has risen and fallen. Someone has created value somewhere in the system. Read Volume 3 of Capital! Imperialism – it's not that they lack the will, they have squeezed the world to the utmost but squeezing other countries is not going to solve the falling rate of profit. Advanced capitalist powers clash, but it is unsustainable. We live in a very unstable world.

AF: Does Keynesianism provide a way out of the crisis of capitalism? We are not yet on the edge of a socialist revolution. Will the gvt sell off the banks once they have been stabilised? If massive unproductive state spending carries on, will it 'save' capitalism? WWII didn't exactly work out. State spending is absolutely necessary, but what kind? How do we stop the capitalists making money out of it? War allows you to run down the stock of capital, pumps value out of the private sector to the state sector. Stagnation: we don't have enough data. We need world numbers. We all need to look at the data. Trade: if the raw materials the the west were priced at their value we would have to pay twenty times as much. Imperialism imposes a structure that stops people breaking out of it. Once the US leave the Middle East, they'll probably go back into Latin America. We need to stop them.

Session Two: Finance and the Crisis

Robin Blackburn

Two angles on the crisis. Robert Brenner in 1998 – fundamental blockage, a failure of profitability in US manufacture. Also work on pension funds, more activist work on RB's part. Trying to make sense of what was happening in pubic and private pension fund arrangements. Transitional demands which would go up against the limits of capitalism towards new forms of collectivism. Aging society (RB's own books: Banking on Death, Age Shock). Interviewed people from big investment banks, who wrongly figured he had influence. Sub-prime assets seemed to be not just some minor aspect of the financial landscape, but were treated like gold dust. Banks had convinced themselves that the mortgage-bundles of CDOs were going to make them huge profits.



Starting point of the problem are global imbalances, the deficits of the US, the growth of China and other Asian producers. Workers in the US stopped saving – figures are at 0, some are 'dis-saving'. Chinese workers are on the whole saving (c. 30-40%). This creates the low cost of capital, alongside various forms of privatisation and deregulation. It would have been possible and healthier if Chinese workers had been better paid, and if there had been more collective projects. There has been a throwing of fictitious capital which creates these asset bubbles – hi-tech and housing, in particular. Household debt and financial institutions create giant debt. Crisis is a crisis of financialisation. US economy has depended on the 'consumer of last resort', but this 'patriotic duty' (cf. after 9/11) is not sustainable as a long-term strategy.



What was securitisation? Not all mechanisms of finance are treacherous, and we shouldn't think that only the 'real' economy matters. Finance capital has its own reality. At the same time the money economy and the real economy both partake in a larger capitalist logic. Finance doesn't create value but it does allow value to be created, and thus stimulates the real economy. 'Fictitious capital' has real effects. The bundles of bad debt had to be believed in for a while – the incomprehensibility of their details was a real part of the risks people took with them. Some were too sensible to take them, however, especially some pensions companies.

The shadow banking economy (or 'grey capitalism') attempts to evade controls, and buying up securitised mortgages is part of this - based on receiving money at some future date. Worldcom and Enron practiced off-balance sheet capitalism, and it didn't stop there (although perhaps it should have). The people monitoring the process had a direct state in perpetuating it. A completely non-market capitalism is not a viable proposition. OTC transactions meant that debts were passed on rather than sold. This is finance built on a house of cards. States that wanted to relate to the world market with a degree of autonomy balanced their national debts with their national assets, so some were careful. Recognition of vulnerability of the Anglo-American model of finance.



What are the sort of demands that socialist should make? Minimal and transitional demands. Programme to help out all those suffering from foreclosure is a start. Makes good financial and moral sense (though this is not anti-capitalist as such). Public enterprise could be part of a progressive package, but what is really interesting is the possibility of nationalisation of the banks and the big insurance funds, and possible democratisation of forms at the top. We could do what the Norwegians did and go for full-scale nationalization. In Bolivia, Chile and Argentina we are seen demands for nationalisation of banks and pension funds. We need an international board of derivatives. We need at a global level for proposals for taxing capital. We need financial transaction tax and a levy on shareholding of all major corporations. But aren't we trying to get rid of capitalism? What we are getting towards are publicly responsible democratic forms of financial governance. US corporations are today begging for bail-out money. This crisis is radical indeed; we need to match it with similarly radical practical solutions.

Jacob Middleton

Transformation of the banking system. Why is it an exceptional crisis? Neo-liberalism of the past thirty years is good at producing financial crises, saving and loans crisis of mid-1980s, European exchange-rate mechanism in early 1990s, hedge-fund crises, etc. System has been able to prevent black holes so far with bail-outs. This time it is different, this is a crisis of the key banks. Banks coordinate investment decisions, they are like the central nervous system of the body of capitalism. Why has this happened? Two reasons. Transformation of role of banks and decline in rate of profit in the real economy. New technology from the late 70s onwards made the kind of financial products banks could sell expanded massively. Banks could speed up and automate a lot of their processes. Deregulation of the financial system is part of the neo-liberalism of the banking system. Increased competition on credit system themselves – previously heavily regulated. 1950 in the US, 65% of assets were under the management of banks, by 1995 32% of financial assets were held by banks. There are other ways of holding money. New financial institutions suddenly expanded.



Corporations don't have to go to the bank for loans any longer. Banks then try to exploit financial markets by getting involved in things like derivatives, for example. This is the shadow banking system. 1983, US banking system had 23% derivatives. By 1995, 392% was held as derivatives. Banks used to take savings in and give loans out, but has become unregulated and peripheral activities – hedge funds, etc. This doesn't alone explain expansion of finance capital. Pressure on profit rates in real economy makes financial economy look very exciting for investors. But eventually all this electronic pieces of paper do have to have their claims renewed. This is what happened with sub-prime. Real claims cannot be met. The real economy is weak this creates a financial bubble which then creates more problems in the real economy. Not enough to clean up or regulate the financial markets.

What next? The banks that are still making profits are left alone. We can't just nationalise failing banks, they should all be under democratic control. We couldn't have said this even three weeks ago! The shareholder executive was set up in 2003 to manage public sector asserts, which is all about shareholder values, not wider goals. There is a contradiction in nationalising things as it currently stands – we need to run them for public good.

Comments

RB: Crisis of financialised form of capitalism is very intimate – houses, jobs, future. The baby bond, student loan teaches you the 'disciplines' of capitalism. You become a two-legged profit and credit centre. Families are encouraged to think of themselves as a business, Businesses are supposed to be interested in new financial products – GM make nothing selling cars, they make money selling you the credit to buy the cars. UK and Euro banks are still holding much toxic waste which has yet to be admitted. Countries like Bolivia may well be showing us the way in terms of national control of banks – ultimately workers should have control of the banks, but state capitalist control will likely have to precede this move. This is the challenge. We are just at the beginning – we need global slogans and global solutions.



JM: Capitalism puts a premium on stupidity. Stupidity can be put to good use – risks are pushed to the limit until it all collapses. Real exposure – massive link between debt and exposure. UK is in a particularly bad way.

Session Three: Political Implications of the Crisis

Alex Callinicos

Geopolitical implications of the crisis. Marxist theory of imperialism can help us here. after 9/11 it was almost a cliché to say that it had ended the period of the post-Cold war era. But actually it came to an end in 2008. The 'global concert of powers' (Perry Anderson) has been shattered by financial crash but also the war in Georgia in August this year. How do we measure the geopolitical consequences? Does the crash mark the end of US hegemony? Others argue that it is a mistake to exaggerate the economic significance of the financial crisis, and that the US is not undermined by it. This is wrong.



US attempt to reinstate and entrench its global hegemony against the long downturn (Brenner), role of the dollar, deregulation, etc. Has attempted to extend system of alliances, expansion of NATO, alliance with Japan, nuclear pact with India. Divide and rule strategies designed to maintain its dominance. Comparative military advantage to further entrench – this project is massively in trouble, the mess of Iraq, and 2008 has made things much worse. Georgia showed Russia asserting its regional power. Leverage over natural gas and other parts of Europe. Pitting EU members against themselves.



Financial crash also does massive symbolic damage to the US. Complex lending arrangements with East Asia reveal weakness of US position. The US gvt has to borrow more. Will have to ask for more from East Asia – oil sheiks are not such a safe bet any more. The most secure currency at the moment might be the yen, which tells us how things have shifted. What is impact of crisis on other powers? The EU is responding in a shambolic way. The EU cannot behave like a single centre of power, their capitalisms compete. Russia and India have been severely hit by the crisis, Brazil is vulnerable. Iran and Venezuela are also in a vulnerable position because of halving of the oil price.

Discussion of China is surrounded by bullshit. i.e. the idea that the Chinese consumer will take over from the American consumer. China has 5.9% global income, the US has 25% of global income. The wealth is much greater in the US still. Chinese growth although high is very unstable – will perhaps produce a slump not just a slowdown. China is also vulnerable to its neighbours turning on it. The US will continue to be the most significant part of the financial system for a long time to come. Recipe for greater instability. No one else can yet assume the position of the US. And we shouldn't think that China taking over will be better for the left! There has been political radicalisation on two points: against neo-liberalism and against the war on terror. These precede the economic problems. We need to close the gap between political and economic resistance.



Peter Gowan

Shifting power relations within the credit system itself. Massive deleveraging of the big banks hasn't yet begun. They have only got state funding. The new grand centres of capital accumulation are shifting elsewhere. How do we maintain dominance? Through credit relations! All commercial activities contain credit relationships. We make lots of money for ourselves. Banks are very reluctant to do what the Japanese had to do in the 1990s.

It is the end of the post-Cold War period, people are for the first time are going to be open to discussions of alternative systems. Banking and financial systems are far too important to leave in private hands. The banking system in China is steered by the state. Importance of long-term credit – we think there's a division between economics and politics, but international credit relations are relations between states and states, and private institutions and states. What is banking about? Credit/debt relations! Two contradictory patterns geoeconomically. The source of the long-term credit that the US banks in the 70s were using was the petro-dollar, massive impact on Latin America, etc.



Since c. 2000, many countries have been able to sell to China. The present crisis will throw many of the countries of the south back into the grip of creditors. There will be more than one centre of creditors – not just the Atlantic institutions. East Asia and US credit-debt relations – this relationship is not just about credit-debt, it is also about US dollar dominance. East Asians are ready to accept dollars - would be catastrophic if this dollar dominance ended. US tries to being the dollar down to pay off their debts, East Asia resists. To revive US industrial strength, in the 80s, it hit labourers hard. How to increase growth? You do it with consumer-led booms! But it has been hammered and has very little income. Answer – square the circle with debt. The scale of this is massive.

East Asia is not going to challenge US power in the global power in any significant degree at the moment or challenge the dominance of the dollar. The Chinese do not want to take the steps to do that. Japan will build up its different model of finance, but will not move centre-stage. The Chinese will keep their system closed for now and concentrate on industrial development.