What constitutes “the next economy”? (prt1)

With the ongoing global crisis of capitalism one hears so much about the need for some kind of economic fix that will take the world out this morass. Similarly in South Africa, where 18 years after our victory over apartheid we now have the widest wealth gap in the world, there is an understandable desire to forge some kind of “new economy”.

But that desire may be a case of barking up the wrong tree…The problem of our times is not a lack of “economic imagination” but our political marginalisation. We can design any number of plans … but governments have their gaze elsewhere – to the “markets”, the bankers and the speculators.     

For the moment there are two narratives which dominate the public domain:

One is that we need some kind of inclusive economic growth to expand the cake. And, secondly, given that this needs a high level of expertise, we need the finest minds to do research, find out what works and then - armed with this policy - apply it here. Within the same paradigm there are calls from some commentators for a kind of “national dialogue’ in which – like the World Trade Centre talks – we can get an economic consensus.             

There are two problems with this approach. Firstly, it assumes that what is called the “economic” is somehow separated from the “political” and the “social” – and that the latter is OK. And, secondly, it abandons all of us, particularly the millions of ordinary people who fought for democracy, and want that democracy to improve their lives, to mere spectators, waiting for the economic experts – or the Eminent Persons at the national dialogue - to get it right.     

The most bizarre recent example of this kind of reasoning was applied by the business media about the Nigerian government’s doing away with petrol subsidies. They all said so smugly how, in the midst of the public outcry and widespread strikes, that “economists all agreed that it was the right thing to do”. In other words in a battle between the people and the economists the people must be wrong.

The concept of the “finest minds” plays into something very deeply engrained in us all …the idea that an alternative economy would require levels of expertise that only properly-trained professionals would be able to comprehend, let alone design.

We have this same respect for medical science and would be aghast at the idea that a cure for HIV/AIDS or cancer could come from anyone else but a trained specialist.    

But economics is not about objective scientific rationality but about political choices, trade-offs and the relations of power that define what choices governments make, and on whose behalf. 

It is one of the great intellectual and moral crises of the last 30 years that we defer so much to economists. All the great movements for human freedom over the last 150 years – the post 1848 movements for democracy; the anti-slavery movement; the feminist movement and the movements of national liberation involved the passions of millions of people striving for human equality – without an economist in sight. Today it is an ex-liberation movement – the ANC- employs a panel of economists to crush dissent with its youth wing over an interpretation of its own policy. One is reminded of the bumper sticker “My lawyer can beat your lawyer!” Except that we would say, in this case, “My economist has a better solution than your economist!”    

The truth is that the theorists and architects of the current order – neo liberalism (since the 1970s) – are not new or “cutting edge”. Nor was the paradigm of its predecessor, Keynesianism (from 1944’s Bretton Woods Agreement).
The Austrian economist, Theodore Hayek, is widely credited as the intellectual architect of neo-liberal economics. Yet Hayek wrote his major work in the 1920s and 1930s and was already in intellectual decline in the 1940s when he published his The Pure Theory of Capital, which turned out to be an abject failure. Hayek had begun the book in 1934, hoping to expand decisively on the earlier arguments of Prices and Production.  He didn’t finish it until 1940; and when it appeared, in 1941, it seemed completely beside the point and was described by fellow main stream economist, Paul Samuelson, as: “a pebble thrown in the pool of economic science that seemingly left nary a ripple.” His The Road to Serfdom, which appeared in 1944, was an embarrassment in academic circles. He actually argued in the middle of World War 2 that “it is Germany whose fate we are in some danger of repeating.” When he decided to seek university tenure in the USA the Institute for Advanced Study wouldn’t hire him, but the University of Chicago would – just not in the economics department, where young professor, Milton Friedman, objected to Hayek’s economics.
His ideas were resurrected, however, when the Norwegian Nobel Prize committee awarded him the economics prize in 1972 (hedging its bets by doing so jointly with his Keynesian opponent, Gunnar Myrdal) and given political clout when Margaret Thatcher made The Road to Serfdom essential reading for her cabinet when she took power in 1979.
By then the overthrow of the D’Allende government in Chile and the establishment of the military dictatorship of Pinochet (which Thatcher so admired) had created the space for the “Chicago Boys” (Chicago-trained economists) to mete out their programme of privatisation and deregulation on Chile. With the political forces of neo-liberal politicians and their corporate backers beginning to restructure the world there was the space for the Nobel committee to award Hayek’s monetarist colleague (once he had overcome his professional reservations about Hayek), Milton Friedman, the Nobel Prize for economics in 1974.

This was not about cutting edge science, or the progress of rationality, though. This was about social forces having the political power to make these (old) ideas appear as the new common sense, the new consensus.                                 

What preceded neo-liberalism and shaped our post WW2 world of welfare states and highly regulated capitalism was the world of Keynesian social democracy. Even in South Africa we had a variant of racial Keynesianism in which whites had a welfare state – which activists in the wave of black freedom struggles of the 1970s and 1980s saw as the one that a post-apartheid SA would look like (only to have those hopes dashed – first by De Klerk’s privatisations and then by the ANC’s neo-liberal GEAR policies).

Yet Keynes too wrote most of his ideas well before they became consensus from the 1944’s Bretton Woods conference (where Keynes’ was present and his ideas feted). Keynes wrote his Treatise on Money in 1927 and his most famous work General Theory of Employment, Interest and Money was published in 1936. It took World War 2 and its social havoc, the need to rebuild Europe under the “threat of communism”, and the newly hegemonic power of the USA to prevail over these arrangements, to make capitalists and politicians ready to accept Keynesian ideas of regulated capitalism and state demand-management.                            

Economic ideas do not flourish and become “new” or “cutting edge”, let alone become public policy, because of the relative merits of these ideas. They develop currency because the ideas are the ideas of social forces which can make these ideas a material force. The neo-liberal/monetarist ideas of Hayek and Friedman would have remained a minor obsession of some university academics if they were not given flesh by Pinochet, Thatcher, Reagan and the capitalists who they so ably served. The ideas of Keynes too may well have remained that of a minor tax official in Her Majesty’s government if the world had not seen the Great Depression and its aftermath of a major World War and the social forces which contested hegemony in Europe.               

The recent global crisis can be summarised as one in which financialised capitalism went on a frenzy of speculation, helped by governments who deregulated finance markets, opened public services to new business opportunities and drove down wage costs. Then when the speculation bubble imploded governments took public money to bail out the banks, made credit even more easily available to speculators and then went to the bond markets to borrow, so that today their crisis now appears as a government debt crisis.

So those who caused the crisis and who were bailed out now hold to ransom the victims – the people of Greece, Italy and Spain, and even the USA.

How do they manage? Because they can get away it…  How do they get away with it? Because no one will stop them …                                     

The truth is that economic crisis is not everywhere the same, nor is it uniform and its effects evenly distributed. Although this is a general crisis of capitalism it is manifested unevenly. There are regional and country differences; there are winners and losers. There are even beneficiaries. The same bankers – the Goldman Sachs, the Royal Bank of Scotlands etc - who were bailed out with public money, have scored billions out of Quantitative Easing policies. While the holders of Greek Bonds are egging on the European Central Bank to screw Greece, there are other speculators who are already raking in billions betting on a possible default.          

With the collapse of stock markets in the US and Europe, and the easy money available from Quantitative Easing, investors, including South African luminaries, bought bonds and equity in South Africa causing a stock market boom and a strong rand for much of 2011. China largely kept up its growth rates and continued to demand resources – so gold, copper, platinum, even food prices, boomed. This benefited South African capital no end and even saw positive growth rates for many African countries.                 

In the midst of famine undertakers do good business. Rising crime levels suit security companies and lawyers. In a depression companies making booze and Valium do very well, thank you very much …                                    
So who gains from this mess and to whom can we turn to find the “next economy”? Guardian columnist, Aditya Chakrabortty, recently dispelled any notion that this is a project for economists..       
“At the start of the banking crisis, the air was thick with the sound of lachrymose economists. How did they miss the biggest crash since 1929? Professors at the LSE were asked that very question by the Queen – and were too tongue-tied to reply. A better answer came from Alan Greenspan, until recently the most powerful economist on the planet, who went to Capitol Hill and confessed to a "flaw" in his model of the world. Clearly, the economic crisis was also a crisis of economics.”
Instead this will have to be struggle by all of us for to build a movement for accountability of public officials and extending democracy into the realms deemed to be the prerogative of economic “experts”.     


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