Making the best of a good crisis?

17 May

A recent debate has emerged around the use European elites can make of the Eurozone crisis. According to the Naomi Klein theory of social change, backed up recently by Paul Krugman, crises are used by capitalists as opportunities to reform economies in their favour. Whether such crises, or “disasters” to use Klein’s turn, are wars provoked by outside interventions (Iraq) or financial crises of the kind we are seeing today in Europe and elsewhere, the point is that crises are good for those who favour neoliberal policies.

In the context of the austerity versus stimulus debate, Krugman suggests that the reason why austerity is preferred is not that it works (it clearly isn’t working) but it is because stimulus might work. If European economies begin to grow again, then the window of opportunity to replace “social Europe” with a neoliberal alternative will have gone. Successful stimulus will only strengthen the case against deeper structural reform. Krugman notes that this view is already entering into the evaluation of Japan’s recent attempt at monetary stimulus: cautious voices are pointing out that if this works, then there will be no incentive to tackle the country’s underlying problems.

There is quite a bit wrong with this explanation for austerity, however compelling it may seem at the intuitive level. Everyone likes to bash those far-sighted capitalists – the elusive 1% – who conspire behind closed doors to get what they want at the expense of everyone else, the 99%. But this is more a conspiracy theory than it is an explanation of why governments are committed – for the time being – to the austerity agenda. Profiting from a crisis is one thing. Creating a crisis in order to implement a cunning plan is another. In Europe, there is no doubt that authors of the bail-outs have tried to calibrate carrot and stick, using the difficulties of the present crisis in countries like Greece and Portugal as a way of encouraging structural reform. They have also cautioned against any suggestion that the crisis is over, believing that such talk will undermine the commitment of national elites to the reform programme. All this, however, is a far cry from the notion that crises are manufactured as opportunities for neoliberally inspired reforms.

Krugman makes the added point that elites chose austerity over stimulus because they feared the latter could be too successful. He invokes the work of the Polish Marxist Michal Kalecki and his notion of the political business cycle. According to Krugman, Kalecki’s idea explains why businessmen don’t like Keynesian economies. In fact, Kalecki argues something much more specific. At issue for Kalecki is not the ability of Keynesian deficit spending to return crisis-ridden capitalist economies to the status quo ante, which is what Krugman and others imply. Kalecki’s point is not about the stabilizing effects of Keynesianism but rather about its transformative and radical political effects. These are not internal to Keynesianism itself – Keynes was far from being a radical on this point – but are part of the political consequences of Keynesian policies (hence the title of Kalecki’s famous 1943 essay, ‘Political Aspects of Full Employment’).

Kalecki argues that full employment, as a policy goal, is both feasible and attainable. However, politically, the problem with maintaining full employment is that it empowers the working class to the point that it begins to challenge the basic contours of the capitalist economy itself. Full employment has a creative effect by way of ideas and actions that threatens the fabric of capitalist society. It holds up the prospect of a better society and stimulates people to think about how that alternative could be achieved. Kalecki’s point is that stimulus makes a return to the status quo ante more difficult and that is why owners of capital will do everything to frustrate governments who identify full employment as their main goal.

In today’s context, what is striking is that the austerity versus stimulus debate is had against a backdrop of consensus around the nature of the economic system. Both are means to an agreed end and Krugman’s argument for stimulus is that it works better than austerity in this regard. Kalecki’s point about stimulus was that it throws open, because of the mobilisation and politicisation of workers, the question of what the ends are and of what kind of economic system we would like. If we want to bring back Kalecki to the present discussion, it is this aspect that we should emphasize. And to resist Krugman and Klein’s conspiratorial accounts of intended crises and infinitely cunning capitalist elites.


3 Responses to “Making the best of a good crisis?”

  1. Arthur Goldhammer May 17, 2013 at 11:01 am #

    But was Kalecki right? Full employment might equally well lead to complacency among workers about the need to maintain organization, pay union dues, etc. Union density in many countries declined during years of high-employment, while major advances in labor-protection legislation came during the Great Depression. Employers suffer from low demand and idled capacity as well as workers. In any case, in Europe, the case for austerity is most enthusiastically pressed not by employers as a class but by international elites. For different reasons, the working class in the countries with a current account surplus, such as Germany, also backs austerity to the hilt, not because they wish to see structural reform but because they believe that any transfer payments to poor countries and any potential Eurobond issue will be paid for with their taxes. So I think the Kalecki argument is both dubious in itself and a red herring in this particular case.

    • thecurrentmoment May 17, 2013 at 12:21 pm #

      The example Kalecki gives is with the US, where he claims that the breakdown in the boom in 1937 was due to a drastic reduction in government spending, provoked by fears within business and government circles about the consequences of expansionary policies. This reduction was followed by a sharp downturn, forcing the administration at the time to revert back to its earlier policies. As a way of understanding the evolution of policy from the Depression through until the outbreak of the Second World War, this kind of political business cycle reasoning is valuable. It is also worth noting that its logic is the exact opposite of the notion of the political business cycle developed by Nordhaus in the 1970s. On the current crisis in Europe, it is certainly true that much of the German working class backs austerity as a way of defending sacrifices they have made in the past to regain national competitiveness. This doesn’t really disprove Kalecki as such. Rather, it shows how weak class ties and class-based solidarity are in Europe. What would be worth considering today is whether a shared interest exists amongst workers of Northern and Southern Europe and if so, what that might be. A proper critique of the role of financial institutions in the crisis would refocus our attention onto systemic problems with capitalism, and away from the national chauvinism that has become commonplace in the contemporary European debate. That might be a good place to start.

  2. Lee Jones (@DrLeeJones) May 20, 2013 at 7:48 am #

    I take your Kalecki point but feel you are making a straw man of the “exploiting a crisis” argument. It’s true that Klein’s crude theorisation is rather conspiratorial: those nasty elites will even invade and wreck a country to create a crisis they can exploit. But the more general and sophisticated point – that, when a crisis happens, social forces will tend to promote solutions that favour their own perceived interests and ideologies – barely seems disputable. After all, this is generally what social forces do all the time. What is different about a crisis is that it appears to demand urgent and extreme measures, which ups the stakes and potentially allows for a more decisive push in one direction or another. The empirical record on crises clearly bears out this basic insight. It does not even need to rest on the notion that capitalists are “cunning” or “far-sighted”, and indeed the more sophisticated accounts do not.

    For example, Bob Jessop’s explanation of the rise of fascism in Germany does not require a conspiracy among big business who worked tirelessly from 1929 to bring Hitler to power. He explains it as the result of various attempts to resolve the crisis through trial and error: capitalists and old elites try a number of economic interventions and political arrangements to try to restore growth, push the cost of the crisis onto the proletariat and keep out the left; the failure of these various schemes lead them to turn to Hitler, who resolves the crisis more decisively than they had been able to. The point is not that there is a grand master plan, just that the solutions offered to crises aren’t neutral but reflect societal power relations.

    On today’s austerity specifically, what is interesting is not that big business is openly championing reform and austerity. I can’t see that anywhere. What big business wants is (a) to socialise its losses and privatise its gains and (b) to see a restoration of conditions favourable for capital accumulation. That led them to favour massive state intervention at the beginning of the crisis, coupled with austerity for everyone else, to then calling for greater stimulatory intervention when that has been seen to fail. In other words, incoherent groping for a solution to the crisis, trial and error, but guided by their own self-interest.

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