“Auguries For A ‘Vile’ Decade” was the headline of a Financial Times column by its veteran commentator Samuel Brittan in May.1 He was quoting Michael Saunders, a Citigroup analyst, on the prospects for British capitalism, but generalised the prediction to “the old industrial West as a whole”.
Brittan is one of the select group of people whose advice on the best policies for capitalism is taken seriously by governments and central banks. The analyses and prescriptions of this group are repeatedly proved wrong. But when they panic it is a sign that those they advise face serious problems—and they are in a double panic today.
Their latest terror is the upward spiral of energy and food prices. This comes on top of the credit crunch, which, far from going away, is turning into a recession in the US and Britain with unpredictable consequences for the rest of the world. Oil, at $130 a barrel, is ten times its price in 2000 and twice that of a year ago; grain prices have doubled in 18 months. Not since the mid-1970s has there been such a combination of spreading recession and escalating inflation worldwide. It is hardly surprising that some commentators are talking of a “third oil shock”—the first being the one in 1973-4 that marked the end of the long post-war boom and the “golden age of capitalism”, and the second the one that marked renewed global crisis in 1980 and the final demise of the old Keynesian ideology of “managed capitalism”.
What the high priests of capitalism now fear is that the latest shock will be just as devastating to their system. The repercussions of the credit crunch have already forced governments in the US and Britain to break openly with the neoliberal ideology they had been propagandising so enthusiastically. The British government was forced to “buck the market” in order to save it with the nationalisation of Northern Rock; the US Federal Reserve had to pour half a trillion dollars into the money markets in March and organise the takeover of one severely damaged big bank, Bear Stearns, by one that was less damaged, JP Morgan. While the whole neoliberal ideology was thrown into turmoil, its adherents crossed their fingers, hoping the recession in the US would not be as bad as many feared and would have limited effects elsewhere in the world. The old mantras about globalisation gave way to talk of “decoupling” national economies from each other. Then came the latest leap in the oil price.
In this issue of International Socialism Carlo Morelli disentangles the factors underlying the rises in food prices, while Chris Harman debates our previous analyses of economic crises and the credit crunch with Jim Kincaid and Fred Moseley.
But what matter above all are the political and social implications of the double crisis. There is a danger that people forget these as the media concentrate on electoral defeats for the centre-left in Britain and Italy, and the drama of the US presidential election.
The more longsighted advocates of capitalism like to believe they can cope with recessions. They recognise that in the short term there can be explosions of anger from below and schisms in political structures as different sections of capital try to shift the burden of dealing with the crisis onto each other. But they believe that if immediate political crises can be contained, the system can return to stability as prolonged unemployment replaces popular anger with deep-seated demoralisation and as certain sections of capital restore their fortunes at the expense of others. So in some pro-capitalist circles there is already complacent talk to the effect that “the average recession only lasts 18 months”.
This view finds its counterpart among sections of the left who remember only the stultifying demoralisation of the early 1980s and early 1990s. There is, in fact, a degree of amnesia on both sides. The supporters of capitalism assume that recovery from crisis is ordained in advance, forgetting the experience of Japan in the early 1990s, let alone the whole industrial world in the early 1930s. The pessimists of the left forget the generalised class rage of the first Thatcher years and the popular upsurge of feeling that shook the Major government as it launched its pit closure programme in 1992. But it is certainly true that not every recession leads to great challenges to the system.
Be that as it may, inflation and recession together are an explosive combination. For inflation causes workers of all sorts—including even those with little or no class consciousness—to see struggle as the only alternative to declining living standards. And it does so just as recession undermines wider acceptance of the mythical virtues of capitalism.
Demonstrations and riots over food prices have already affected a wide range of cities across the Global South. In Vietnam, Bangladesh and, most significantly, Egypt they have come on top of waves of strikes among groups of newly militant workers. The international agencies’ concern to organise an emergency fund to cover part of the cost of rising food imports for poor countries is at least as much to do with political stability as with concerns over people’s welfare. When the king of Saudi Arabia puts hundreds of millions of dollar into such efforts, the implications of upheaval in Egypt for the whole Middle East must be uppermost in his mind.
The global elite is not merely worried about the poorer parts of the world. It is also concerned about the heartlands of the system. So Samuel Brittan, echoing the governor of the Bank of England, Mervyn King, writes about getting people to accept “a dent in living standards” (although doubtless neither Samuel Brittan’s nor Mervyn King’s living standards). But that raises a central problem for them. Even before the double crisis many governments were having trouble getting people to accept the medicine of counter-reforms prescribed for them. As an article we quoted from the New York Times two years ago put it:
There is a strong sense in Europe that, because of weak governments and divided publics, the continent’s three big countries are unable to make the economic changes that most political leaders agree are essential.2
Little has changed since. Just a year ago Nicolas Sarkozy in France portrayed himself as the capitalist superhero who was going to change all this. Now he has the lowest opinion poll rating of any French president for half a century and is derided by his former big business fans for his failure to implement the most important counter-reforms he promised.
Politics, Lenin famously remarked, are concentrated economics. The politics of the period ahead will be determined by the clash between the pressure for governments to impose cuts in living standards and the reluctance of the mass of people to accept them. The key question will be what form those politics take. It is in that light that we have to view the other trends focused on by the media.