Banks to Blame for Financial Crisis
3 Oct 2008
The following is the text of General Secretary, David Begg's article from the Irish Times 3 October 2008.
For the last twenty five years we have been told that the twin phenomena of globalisation and the financial system underpinning it are unalterable. Free markets, we were told, are possessed of an inherent and irresistible logic and the state must not interfere. Economists, politicians, academics, commentators and business people of the neoliberal persusasion foreclosed all debate about the subject.
But that liberal dogma has now been turned on its head by the need for massive state intervention in the banking system, not least in the United States, the very citadel of capitalism.
Let us be absolutely clear. This crisis was caused by greed and recklessness in our own country, in Wall Street, London and other major financial centres. Senior executives permitted speculation on a huge scale on investments they ill understood. Speculators have exacerbated the serious rises in fuel, food and raw materials.
The losers are many and include workers in the industry and more generally, pensioners, families, firms seeking investment capital, and all of us as taxpayers now bailing out banks. It will take years to recover the money - if we manage to do so - and our future ability to fund high-quality public services is now jeopardized.
Friedrich Hayek, widely recognised as the progenitor of neoliberalism, published his most famous book The Road to Serfdom in 1944. By coincidence a Hungarian socialist, Karl Polanyi, published The Great Transformation in the same year. While Polanyi's work celebrated the New Deal in the United States precisely because it placed limits on the influence of market forces, Hayek's book insisted that the New Deal was the road to perdition.
Although he identified himself as a socialist, Polanyi had profound differences with economic determinism of all varieties, including Marxism. In the Cold War era there was little room for Polanyi's nuanced and complex arguments. Hayek, on the other hand, went on to be a tireless advocate of market liberalism in Britain and the US. He inspired such influential followers as Milton Friedman and was responsible for the policies of deregulation, liberalisation and privatisation pursued by Margaret Thatcher and Ronald Regan. Over time they deconstructed the last vestiges of the New Deal, leaving us with the catastrophe we have today.
Polanyi's central thesis is that self-regulating markets never work. To his mind their deficiencies were so great - not only in their internal workings but also in their consequences (e.g. for the poor) - that government intervention becomes necessary; and that the pace of change is of central importance in determining these consequences.
Polanyi supported his case with what seems to me to be irrefutable historical evidence and explained how the market system was central to the growth of Fascism in Europe. He described the Fascist solution to the impasse reached by liberal capitalism as a reform of market economy achieved at the price of the extirpation of all democratic institutions, both in the industrial and the political realm.
Some may feel that his could never happen again but the fact is that authoritarian models of capitalism are now the reality in China, Russia and South East Asia.
Polanyi's great attraction lies in his concern to advance both freedom and social justice. He believes that allowing the market to control the economic system was a fundamental error because it meant no less than the running of society as an adjunct to the market. Instead of economy being embedded in social relations, social relations are then embedded in the economic system.
The most obvious manifestation of this in practice is the treatment of labour, which is really human beings, as a commodity. Polanyi points out that human beings are not a product made for sale. Nevertheless, upon the fiction that labour is a commodity is the whole market system organised. It is therefore based on a lie.
Much of what Polanyi wrote is consistent with the European Social Market Model of capitalism. Unfortunately in recent years, under the pressure of globalisation, Europe has been moving in the direction of the US model and, in truth, Ireland and Britain are part of that Anglo-Saxon constructl. But the events of recent times require us all to re-consider.
The problem we have to transcend is that many intelligent people who think of themselves as rational and urbane have put their faith in the idea of self-regulating markets as piously as others put their trust in God. Now that this God has failed perhaps people will have the freedom to see things more clearly again, and to reclaim responsibility for their own lives and begin organising the future in its more promising terms.
ends