Wednesday, 28 January 2009

Is Channel 4 Run by a Marxist?

Well their Chair does say this in the FT today,
"...we must learn something painful and radical – how to live within our means – because the credit just is not there any more. The easy money is all gone, and there will be no more for a long time...... Homeowners should forget about houses going up in value – all that is history. They are places to live in. So cut back on your outgoings. Pay rises are off the agenda. Wholesale pay cuts may yet become common. ..... I fear most citizens’ plans for the future must be put on hold. This is not something happening to other people – we are all in trouble.......Business must adjust to the idea that this stagnation could last for many years. The age of free money from mad lenders is finished. The growth game is over. Whole swathes of industry are on life support. The banks are in desperate straits...... This is not a correction, a brief hiatus until the upward march once more resumes. At some point, the Japanese, Chinese and Saudi buyers of US and European government bonds will see just what miserable value they offer. Then governments may have to stop all the runaway state spending and bail-outs, and even put up interest rates."

As I understand it, insofar as Left Keynesian/Marxist-influenced economists have a distinctive view on the root causes of the current crisis a (much vulgarised) version of their particular narrative might run like this:
1. Around 1970-75 the rate of return on industrial capital began to decline in the USA and across the West - this resulted, first, in a renewed emphasis on cutting back the share of national income that went to wages and salaries (cf here) and, second, the development of a huge and sophisticated system of credit driven finance capital. It is this unprecedented credit system which has created globalisation, not any allegedly 'game changing' technologies such as computers. It allowed big capital to lend money to vast numbers of people whose static or declining real wages would otherwise have prevented them from acquiring assets such as housing.
2. This system also allowed the US in particular to borrow to pay off its debts - and to create new ones. As the dollar functioned as the reserve currency, the new financial architecture effectively obliged central banks of both rich and poor countries to lend to the US – by buying US treasury bills (debt). Britain played an important subordinate role in all this as the City of London functioned as Wall Street's 'off-shore island'.
3. This system created far higher returns for finance capital than investment in productive enterprise - so the rate of new capital formation in such industries continued to decline. Or at least did so in the West: Chinese - and BRIC countries more generally - rates of investment were far, far higher.
4. Given the prosperity of the West has been underpinned by credit the BRIC countries - and other big exporters such as Japan, Germany and the oil states of the Middle East - have effectively been exporting their national surpluses to underpin it. China in particular now holds formal ownership of large swathes of American industry and housing.
5. But this was a bubble - it was structurally doomed to eventually collapse. & it has collapsed. & there is no obvious way back to where we were before....because the West is no longer the sole power in the world.

Compare and contrast these two views, as they used to ask in exams...


  1. great post Charlie.

    have you read Graham Turner's book on the crisis? quite interesting as he points to the decline of organised labour in the west (necessary for the restoration of profits you might argue!) as one of the key factors in all this. obviously the relative decline of the purchasing power of labour required demand to be stoked up some other way...

  2. I take that as a real complement coming from you Tom!

    I've not read Graham Turner - I keep meaning to do so and keep putting off buying the book.(I'm no economist and there is a limit to the number of economic texts I can struggle with at any one time...). But the idea that the globalisation of the last 25 years has been built on the back of a profound and game changing defeat for organised Labour surely goes back to (at least) Hobsbawm's 'Forward march of Labour Halted'.That short essay deeply influenced me when I first read it in 1978 as a 20 year old.