In love with disaster
Doug Henwood on the trouble with left catastrophism
Back in 1992 I wrote an article in the newsletter I edit, saying that it was pretty unlikely that the US financial system would implode. After the roaring eighties peaked around 1989, the US economy fell into stagnation, and bank failures and bankruptcies reached frightening proportions. Since by most ordinary measures the financial structure was as bad as or worse than it was in 1929, it wasn't at all alarmist to fear the worst.
But George Bush's government came up with hundreds of billions of dollars (nobody really knows for sure how much) to save the wrecked savings and loan industry, and Alan Greenspan's Federal Reserve pushed real interest rates down to zero percent and kept them there for years. State action saved capital from itself, and I thought it was time to say that there would be no second Depression. Saying so evoked a fair amount of mail and phone calls, ranging from those expressing concern about my sanity to those expressing outright hostility.
Last Fall, I said pretty much the same thing about the Asian financial crisis - that, thanks to state intervention (mainly an indulgent US Fed and the ministrations of the IMF), the worst of the 1997-98 melodrama was probably behind us. I made it clear that I didn't think the worst was over for the workers and peasants of Asia - just that the systemic meltdown of the global financial system was looking pretty unlikely. This too evoked reactions similar to 1992's all-clear.
I recount this not to brag about my prescience; I've made lots of bad calls in my life too, though they are a lot less pleasant to think about. One of those bad calls was to take the 1987 stock market crash all too seriously - I thought it was the overture to a rerun of the 1930s, when it turned out to be the financial equivalent of a summer thunderstorm. That made me think a lot about catastrophism.
The left, Marxist and non-Marxist, has long shown an unhealthy affinity for disaster. Bank runs, currency crises, oil spills get radicals' blood running. But this hasn't proved a very fruitful passion. Of course it goes without saying that a system so prone to crisis - where it's become routine that a major country can go under every couple of years - has, by definition, serious systemic problems. But despite the turmoil and misery that come with these crises, capitalism has shown a remarkable capacity to heal itself, and even to turn crisis to its advantage. The terminal crisis, the death agony of capitalism, just refuses to arrive.
Let's think back for a moment on some of the great financial disasters of the past 20 years.
There was the third world debt crisis, that even respectable people thought might be a system breaker. Instead, the creditor countries, led by the US Treasury and the IMF, used the crisis to force debtor countries to dismantle protectionist development machinery, open up to foreign trade and capital flows, and privatise state enterprises. The human consequences have been severe - massive impoverishment and polarisation - but the system emerged not merely intact but strengthened.
There was the (now-forgotten) US leveraging mania of the 1980s, which I mentioned at the beginning of this article. Not only were several hundred billion dollars of public money expended with almost no debate - at a time when we were constantly told there was no money available for social spending - but the Fed's low interest-rate policy set the stage for the great bull market in stocks of the mid and late-1990s. That bull market has not only greatly enriched the five percent of shareholders who hold 95 percent of all stock, it has also contributed to the broad prestige of US capitalism.
And there were the two great 'emerging market' disasters - Mexico in 1994-95 and south-east Asia in 1997-98 - both of which looked like potential system-breakers, especially the Asian melodrama. But again, the combination of emergency funding and engineered depression in the crisis countries kept the system together. Mexico was further 'liberalised', and the developmentalist state regimes of south-east Asia, particularly Korea, have been placed under siege. It is too early to tell whether Asia will undergo a complete neo-liberal renovation, the way Latin America did during its years of crisis, but Western banks and multinationals have been buying up choice properties that were long off-limits to foreign investors.
Now, I would never want to argue that this approach to crisis will work for all time. Capitalism has gone through quite a few smash-ups, and the dismantling of a lot of the stabilising mechanisms of the Keynesian era may eventually take a toll on the system's capacity to reproduce itself. But it's important both theoretically and practically to recognise that despite many claims to the contrary coming from both Marxists and Chicago-school free marketeers, state bailout managers have become quite accomplished at forestalling the day of reckoning that many persist in declaring inevitable.
So does that mean I have made peace with capitalism? No, far from it. It's still a system that produces poverty alongside wealth, and alienation even among its winners. Bailouts frequently require that productive capacity be destroyed and real incomes be halved to preserve the paper wealth of the creditor class. Many catastrophists share this analysis, but I think they let their desires get the better of them: because they hate the system, they embrace disaster scenarios. They feel politically powerless to transform the system they hate, so they posit its inevitable self-destruction.
That faith in inevitable self-destruction has deeply unfortunate political consequences. You end up looking profoundly silly for saying that the sky is falling when the firmament remains well-attached. In nineteenth-century USA about half our economic time was spent in recession or depression - but since the Second World War, only about a quarter of our time has been. If you don't have a critique adequate to periods of expansion, chances are three to one you're going to sound pretty off-key. If you find capitalism appalling, and you can't tune your critique to those moments when it's working reasonably well, you might as well give up.
Doug Henwood is the author of Wall Street: How It Works And For Whom
He is also publisher/editor of the Left Business Observer, available from 250 W 85 Street, New York, NY 10024-3217, USA.
See the LBO website
Reproduced from LM issue 121, June 1999