Why Marxians are getting excited about the credit crisis

Are we all doomed?

Karl Marx knew a thing or two. Only six years after Charles Darwin published “The Origin of Species” Marx had worked out that capitalism needed two things to be fit to survive; growth and debt. Profits could only be created if someone, somewhere, borrowed money.

This dependency on debt meant that capitalism, viewed from a Marxist perspective, was doomed to periodic crises as human nature couldn’t self-limit. Credit binges would erupt from time to time, threatening the edifice of debt-fuelled consumption. More to the point each crisis would become larger and larger until, one day, capitalism would implode and the social economy would take its rightful place.

And so it has been since Marx first published “Das Kapital” in 1867: debt has accumulated in the corporate sector, the private sector and, most controversially, at the heart of western governments. Even the United States, supposed to be that most arch of capitalist economies, has racked up debts equal to its national income and now its annual interest bill is rising at an alarming rate.  We in the UK are not immune: soon our fourth largest government expenditure will be the interest we pay on our government debt.

As a Marxian you might even regard this phenomenon with some glee; the crisis of capitalism has passed from the private domain, through the banking system into our central banks and now is gathering within our government finances.  The conspiratorial nature of Marxist analysis even has it that Big Finance bullies government into borrowing, destructively transferring wealth from citizens to capitalists. This paradoxical behavior leads to the conclusion that the biggest enemy of capitalism is not the working classes but capitalism itself.

So Marx would have it that the third wave of the current crisis will be that a well-known national government will renege on its interest payments; someone is going to default as the jargon goes. The logical response would be to start reducing your debts and this is at the heart of those who see austerity as a social cost worth paying to stabilize national finances. But controlling national finances comes with a social cost. Witness the 27 per cent unemployment in Spain and the rioting on the streets of Europe.

So far politicians have tried to appease the markets at the expense of the people. This has worked for a time but now, with their survival instincts at full the throttle, the pressure is rising to change course. The IMF has told the UK coalition government to loosen the girdle it has placed around public finances whilst the first statement by the new Italian Prime Minister Enrico Letta has been to reverse some of the tax increases meant to control Italy’s chronic debts. Last week Spain decided to take the brakes off deficit reduction and Greece is heading in the direction of requiring another round of forgiveness and do I really have to mention Cyprus? Trouble is brewing at the heart of government finances – marx my words Karl might say….

A bust of Marx. Photograph: Getty Images

Head of Fixed Income and Macro, Old Mutual Global Investors

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How should Labour's disgruntled moderates behave?

The price for loyalty looks like being long-term opposition. Sometimes exiting can be brave.

When Albert O. Hirschman was writing Exit, Voice, Loyalty: Responses to decline in Firms, Organizations, and States he wasn’t thinking of the British Labour Party.  That doesn’t mean, though, that one of the world’s seminal applications of economics to politics can’t help us clarify the options open to the 80 to 90 per cent of Labour MPs who, after another week of utter chaos, are in total despair at what’s happening under Jeremy Corbyn.

According to Hirschman, people in their situation have essentially three choices – all of which stand some chance, although there are no guarantees, of turning things around sooner or later.

The first option is simply to get the hell out: exit, after all, can send a pretty powerful, market-style signal to those at the top that things are going wrong and that something has to change.

The second option is to speak up and shout out: if the leadership’s not listening then complaining loudly might mean they get the message.

The third option is to sit tight and shut up, believing that if the boat isn’t rocked it will somehow eventually make it safely to port.

Most Labour MPs have so far plumped for the third course of action.  They’ve battened down the hatches and are waiting for the storm to pass.  In some ways, that makes sense.  For one thing, Labour’s rules and Corbyn’s famous ‘mandate’ make him difficult to dislodge, and anyone seen to move against him risks deselection by angry activists.

For another, there will be a reckoning – a general election defeat so bad that it will be difficult even for diehards to deny there’s a problem: maybe Labour has to do ‘déjà vu all over again’ and lose like it did in 1983 in order to come to its senses. The problem, however, is that this scenario could still see it stuck in opposition for at least a decade. And that’s presuming that the left hasn’t so effectively consolidated its grip on the party that it can’t get out from under.

That’s presumably why a handful of Labour MPs have gone for option two – voice.  Michael Dugher, John Woodcock, Kevan Jones, Wes Streeting and, of course, John Mann have made it pretty clear they think the whole thing’s a mess and that something – ideally Jeremy Corbyn and those around him – has to give.  They’re joined by others – most recently Stephen Kinnock, who’s talked about the party having to take ‘remedial action’ if its performance in local elections turns out to be as woeful as some are suggesting.  And then of course there are potential leadership challengers making none-too-coded keynote speeches and public appearances (both virtual and real), as well as a whole host of back and frontbenchers prepared to criticise Corbyn and those around him, but only off the record.

So far, however, we’ve seen no-one prepared to take the exit option – or at least to go the whole hog. Admittedly, some, like Emma Reynolds, Chuka Umunna, Dan Jarvis, Yvette Cooper, and Rachel Reeves, have gone halfway by pointedly refusing to serve in Corbyn’s Shadow Cabinet.  But nobody has so far declared their intention to leave politics altogether or to quit the party, either to become an independent or to try to set up something else.

The latter is easily dismissed as a pipe-dream, especially in the light of what happened when Labour moderates tried to do it with the SDP in the eighties.  But maybe it’s time to think again.  After all, in order to refuse even to contemplate it you have to believe that the pendulum will naturally swing back to Labour at a time when, all over Europe, the centre-left looks like being left behind by the march of time and when, in the UK, there seems precious little chance of a now shrunken, predominantly public-sector union movement urging the party back to the centre ground in the same way that its more powerful predecessors did back in the fifties and the late-eighties and nineties. 

Maybe it’s also worth wondering whether those Labour MPs who left for the SDP could and should have done things differently.  Instead of simply jumping ship in relatively small numbers and then staying in parliament, something much bolder and much more dramatic is needed.  What if over one hundred current Labour MPs simultaneously declared they were setting up ‘Real Labour’?  What if they simultaneously resigned from the Commons and then simultaneously fought scores of by-elections under that banner?

To many, even to ask the question is to answer it. The obstacles – political, procedural, and financial – are formidable and forbidding.  The risks are huge and the pay-off massively uncertain.  Indeed, the whole idea can be swiftly written off as a thought-experiment explicitly designed to demonstrate that nothing like it will ever come to pass.

On the other hand, Labour MPs, whether we use Hirschman’s three-way schema or not, are fast running out of options.  The price for loyalty looks like being long-term opposition.  Voice can only do so much when those you’re complaining about seem – in both senses of the word – immovable.  Exit, of course, can easily be made to seem like the coward’s way out. Sometimes, however, it really is the bravest and the best thing to do.

Tim Bale is professor of politics at QMUL. His latest book, Five Year Mission, chronicles Ed Miliband's leadership of the Labour party.