The capitalist system has proved very adaptable since Marx described in details its workings in the mid-19th century, not least because the state has become critical to ensuring the survival of capitalism at critical points in recent economic history. Now in 2008, we see the state being rehabilitated once again by the apologists for the free market system, the very people who denounced the role of the state in the economy a few years back. since in many cases throughout the world today, the state is being deployed using tax payers money to bail out the busted financial system.
The thirty years after 1945, saw the dominance of Keynesian economics in the western world, whenever the western economies slowed the state could intervene with an injection of liquidity. For thirty years the business cycle was smoothed and business grew in scope and scale, a process known now as globalisation. With the oil crisis of the 1970's, prompted by the assertion of some control over production by oil producing states, and a huge growth in inflation driven largely by organised labour in the western world seeking a more eqitable share in the wealth created , we see Keynesianism becoming discredited and elbowed aside as the ruling economic orthodoxy by the aggressively right-wing pro-big business approach of monetarism/neo liberal economics.
The advent of neo-liberalism was characterised by FOUR key features,
Firstly;- a direct attack on the bargaining power of organised labour through the demoralisation and fear that arose from mass unemployment. This was expressed by increased legal controls on trade unionism, and the parallel creation of a 'flexible' casualised labour force.
Secondly:- the privatisation of utilities and public services, creating a new and certain stream of income to private corporations.
Thirdly:-the freeing up of capital movements globally, allowing capital to be directed to areas of the world with the most profitable rates of exploitation.The City of London became the primary world centre for currency and commodity speculation, while the UK economy was steadily de-industrialised.
Fourthly:- workers savings for pensions, insurance and housing were transferred into the private sector. With mutuals such as building societies being transformed into plc's.
This 'financialisation' provided a new and critically important mechanism for the extraction of super-normal profit. The bulk of capital in public companies and high street banks now derives from the pension funds and and the savings of both employees and the greatly reduced non-monopoly strata . These funds earn a low and sometimes negative rate of real interest. However, around them lay clustered a complex array of financial vehicles for the very wealthy. Merchant Banks in the 1980's, hedge funds in the 1990's, and private equity and commodity index investors in the 2000's. These operate off-shore, do not pay tax, and secure immense profits. Hedge funds had ana average annual return of 19% throughout the 1990's, and they used our savings for leverage.
This system w as no more immune to capitalisms contradictions than its predecessors. The accelerated accumulation of capital placed pressure on average profit, and the export of capital to countries such as India and China generated huge imbalances in trade and currency reserves . Fatally the system fell prey to the inequality and poverty that itself had created. Workers could no longer afford to buy all the goods produced .
So to keep the casino wheels spinning, governments and banks between themselves colluded in the creation of massive levels of sanctioned debt, above all in mortgages. In the hands of finace capitals investment specialists this became the credit required for one last round of leveraged speculationin property, commodities, and private equity buy-outs.
Then the bubble burst, leaving working people the world over facing unemployment and repossession.
So this current, rapidly deepening world recession, is not about bonuses or the "culture of greed". It is all about recognising that the state for the past 30 years and more has been utilised throughout the western world to facilitate an increased rate of exploitation. Now the state must be rescued from being the handmaid of capital, to being a servant of all the people. For this it is essential that instead of being a sugar-daddy to the corporate sector, the state must take control of savings, pensions, and insurance. When this is achieved it will be possible to direct investment towards the truly productive economy and away from the parasitic economy of the financial sector. Speculative capital transactions must be stopped, tax havens scrapped, and wealth taxed.
When all this is understood, it becomes clear that once again the role of the state in the modern economy is up for serious discussion , and for that reason, the hegemony of neo-liberalism is drawing rapidly to an end, since it is the champions of unregulated capitalism, red in tooth and claw, who are looking increasingly out of touch with the new zeit-geist sweeping all before it.