Thursday, 18 September 2008

The Credit Crunch or the End of the Capitalist Utopia

By Dr Mark Featherstone

We are currently living through the worst economic crisis the world has seen since the early 1930s. In response to this situation the famous American economist Joseph Stiglitz recently declared the ‘end of neo-liberal capitalism’. Stiglitz explained that the current crisis, signaled by the bursting of the ‘credit bubble’ which has sustained more or less continuous economic growth since the mid 1990s, was a sign of the collapse of the validity of the neo-liberal theory supported by Gordon Brown and George Bush and before them Tony Blair and Bill Clinton.

But what is the significance of the current economic situation for sociologists? What the current economic crisis signals is the end of the idea of endless credit. Over the course of the last ten years we have come to believe that it is normal to ‘buy now, pay later’. But this worldview, encapsulated by the idea of instant enjoyment or what we might call ‘climax culture’, is no longer viable today. The neo-liberal utopia, where we can have whatever we want, even if we have no money to pay for it, is finished. As such, we are currently living through the end of an ideology, the end of a utopian idea which has sustained our lives for the last decade.

But what is, or rather was, neo-liberalism? Unlike liberal theory, which championed individual freedom from excessive social constraint, neo-liberal ideology focused the idea of freedom upon freedom from economic constraint. In other words, neo-liberalism wanted us to be free to make as much money as possible or alternatively fall into absolute poverty. This idea was then related to consumer culture, the idea that personal happiness is found in the consumption of things, and the struggle to make more and more money in order to buy more and more things.

If the pursuit of the utopia of capitalism, characterised by consumer happiness, provided the pull factor to encourage people to try to make it big under capitalism, the possibility of the fall into total poverty, the threat of becoming a resident of the dystopia of the same market society, provided a very urgent push factor. Thus neo-liberal society, realised by Margaret Thatcher and Ronald Reagan in the 1980s, and augmented by Bill Clinton, Tony Blair, George Bush, and Gordon Brown in the 1990s and early 21st century, was characterised by voracious desire, enormous excess, complete precariousness, and a heightened state of fear.

These conditions, desire, excess, precariousness, and fear, which have more or less characterised society since the early 1980s, were largely caused by the neo-liberal refusal to interfere with the economy on the basis of the idea that politics could never really manage economics effectively. The idea that the market should govern itself can be dated back to the 18th century founder of economics, Adam Smith, and the later American economist Milton Friedman, who argued that economic crises were normal and that squeamish politicians should not interfere with the market even when economic fluctuations begin to hurt normal people, because eventually the market will stabilise itself and find a new equilibrium.

Smith’s idea were extremely popular until the early 20th century when the Wall Street Crash and the related rise of Nazism in Germany led most political and social commentators to reach the conclusion that some kind of economic management was necessary to maintain social order and ensure that radical political groups did not come to power on the back of economic crises. Following World War II the idea of the social state dominated Western Society. Although Eastern Europe was controlled by so-called Communists, the capitalism of the west was no longer totally untamed. Instead, it was controlled by the state in order to ensure some sense of social security.

By the late 1970s the Anglo-American elites threw out the idea of the social state in favour of a new idea of pure capitalism on the basis that the working classes held too much power and had begun to interfere with productivity and profit in the major capitalist countries. Thus Margaret Thatcher and Ronald Reagan destroyed the union movements in Britain and America and started to champion the idea of unfettered individualism. The idea of self realisation became the new secular religion of capitalist society. People no longer thought about how they could improve society, but rather spent time trying to achieve personal happiness through consumerism.

The problem with this idea was, of course, that the pursuit of happiness through consumption requires money and not many people had an endless pot of money to pursue personal happiness, which is by definition not something that we can ever really achieve. Hence we witnessed the emergence of the credit society, premised on the idea that we can ‘buy now, pay later’, and the fantasy of endless enjoyment, which was sustained by the fact that nobody worried about the harsh reality of scarcity or the unpopular truth that there is simply not enough money or resource for everybody to consume endlessly.

The convenient by-product of this situation for everybody was that more consumption meant more production which meant more consumption and so on ad nauseam. Hence, we found ourselves locked into a cycle of apparently endless economic growth and began to forget about the essential problem with this situation: the entire edifice was premised on credit that we could only manage if prices were kept artificially low by political interference and we never had to confront the truth of scarcity.

Unfortunately, it is this situation, the harsh truth of scarcity, that confronts us today. The fantasy of endless credit, debt which could be endlessly deferred into some fictional future when we would have to make our repayments, has collapsed before the truth that we do not actually possess the monetary resources our consumption habits require. In other words, the truth that most of us have been living beyond our means for many years has been cruelly exposed by the realisation of scarce raw materials on the global market.

That this situation was, in many respects, fated by planned de-industrialisation in the 1980s, which meant that western nations had to import cheap fuels that have since become extremely expensive, simply confirms that the utopianism of the credit society, built on the belief that we would never have to repay our debts, was supported by another utopian belief, the idea that the world’s raw materials would never become expensive scarce commodities. This fantasy of abundance has been similarly exposed by the contemporary credit crunch.

On an everyday level, what this means is that the enormous rise in the price of food and fuel has caused people who were largely ‘living in credit’ to find themselves unable to keep up their repayments. Thus the credit society has begun to collapse before the truth of scarce raw materials. Consequently, as our ability to manage our credit has collapsed, so lenders have begun to tighten their own belts, consumption has started to fail, with the knock-on effect that the entire economic cycle of western society has begun to stall. But where will this end? What the failure of the credit system is likely to produce, beyond the economic shock waves caused by the fundamental inter-relatedness of the world finance system and a renewed trend towards monopoly capitalism, is even more urgency on the part of nation states to posses the scarce raw materials that form the bedrock of economic value.

We have seen the first example of a major ‘resource war’ in Iraq. I think this trend towards what Karl Marx called ‘primitive accumulation’, that is the attempt to obtain scarce raw materials through violence, is likely to continue over the course of the next fifty years. Given this turn to imperialism, brutalist politics is also likely to become more and more popular with the masses, who are likely to turn on the other, the stranger, in response to their dire economic situation, simply because it is easier to understand economic pain in terms of fantasies about strangers stealing our jobs than it is to fathom the complexities of the world economic system.

We have, of course, seen many examples of the turn to xenophobia in response to economic crises, but reference to the economic situation of early 1930s Europe which perhaps best parallels our current predicament, provides a truly horrifying comparison. We know that the economic crisis of the 1930s eventually led to the rise of Nazism and the Holocaust. We must be aware of the parallel between the 1930s and the contemporary economic crisis today.

It may well be the case, as Joseph Stiglitz suggests, that neo-liberalism and the capitalist utopia is dead, but we really have to keep an eye on the kind of political form that steps into the breach. This is surely why sociology is today more important than ever before. What is sociology if it is not the form of knowledge which enables us to connect our private fears to public understandings in order that we might avoid repeating the terrible mistakes of the past?

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