When a crisis breaks as quickly and dramatically as the banking crisis of 2008, there can be a tendency to identify clear historical trends emerging in day-to-day news stories. This time three years ago, we all felt that a clean break had occurred. Western capitalism had just experienced its "1989 Berlin Wall" moment. Alan Greenspan, the former chairman of the US Federal Reserve, informed a senate committee that the "entire intellectual edifice" on which his own monetary policies were based was now in ruins. In the space of a few weeks, whole epochs of economic history had apparently reached their conclusion, and new ones were about to begin. History does not move at such speeds for long and the crisis has since played out more tortuously.
Writing about the "new times" of Thatcherism in 1988, Stuart Hall and his fellow contributors to Marxism Today were not reflecting on a particular rupture in the trajectory of capitalism but trying to synthesise various disparate themes that had been emerging over decades. These were cultural, political and economic, and occurred with different historical rhythms, lacking their own defining crisis or focal point. The crisis of Keynesian macroeconomics (primarily manifest in the combination of rising unemployment and rising inflation, or "stagflation") had developed steadily between the 1968 slowdown in the US economy and the 1976 experiments in monetarism in the UK, with a series of disparate upheavals in between. Manufacturing employment had peaked in the 1950s. Identity politics and new social movements were a demographic symptom of the postwar baby-boomer generation reaching adulthood. The phenomenon referred to as "postmodernism" had been growing steadily within European and American philosophy since the end of the 19th century.
Under these circumstances, the contribution of Marxism Today was to offer an interpretation and name for a set of interlocking trends and events, rather than to respond to a single historical moment. It is important to learn from this and not be so fixated on the banking crisis as to ignore the longer-term trends that have also shaped the present.
What Hall named "Thatcherism" was in many ways a success story, both electorally and economically. A post-industrial path to prosperity appeared to be opening up, analysed as "post-Fordism" and the "end of organised capitalism". The recession of 1991-92 notwithstanding, this new path did indeed deliver substantial growth over the subsequent 20 years, and captured the political imagination. The economic and political conflicts of the 1970s and early 1980s seemed to have been ameliorated via a new ethos of cultural democracy, whereby individuals expressed themselves through taste, consumption and lifestyle choice. The message to the left was to take this seriously and engage with it.
Today, however, conflicts and crises merely multiply, often defying existing logic. We still have no clue as to the micro- or macroeconomic bases of future growth. The cultural egalitarianism of consumerism no longer looks so benign, after televised images of teenagers looting branded goods during the August riots in England. The left feels that levels of inequality are no longer sustainable - and that the opulence and self-gratification of the economic elite have become intolerable - but lacks either the language or the policies to act on this. Where capitalism was coalescing around a series of themes in 1991 - weightlessness, consumption, flexibility - today it is disintegrating but without simply returning to a pre-Thatcherite politics of class. The problem is that we feel less that we live in "new times" than in, as Slavoj Žižek suggests, "end times".
In retrospect, Marxism Today's "new times" analysis has one startling omission: finance. Flexibility of production and differentiation of consumption are the most prominent themes. But the institutions of credit, stock markets and, indeed, money itself are strangely absent. There is reference to globalisation, but without the accompanying recognition that the financial economy would drive and benefit from this. The City of London's "Big Bang" was still recent, while Wall Street was still constrained by the Glass-Steagall Act and private ownership of investment banks, all of which meant that financial services had yet to begin their derivative-fuelled rampage. But it would be remiss not to consider the possibility that Marxism Today, and subsequently New Labour, were duped by all the talk of "post-Fordism", "postmodernism" and "flexibility" into thinking we could live on thin air, when, in the event, we were to live on credit, asset price inflation and financial derivation.
At the time it appeared that the economy was magically dematerialising and that wealth could be generated without producing anything; today, we look back on this as “financialisation" and recognise the extent to which more money was being poured into non-productive assets (such as housing) and financial capital. In this regard, Will Hutton's 1995 book, The State We're In, was the more prophetic analysis.
If we still cannot say quite what our own new times consist of, perhaps we can put the question negatively - what is ending? The most immediate analysis, and the one that is closest to politics and policy, is that we are experiencing the harsh end of the Blair boom. This story is well-rehearsed. Britain's early exit from the European Exchange Rate Mechanism, combined with its flexible labour markets, "competitive" levels of regulation and taxation, and a stable macroeconomic environment, produced a set of circumstances that led to an unprecedented period of growth and rising living standards.
The arrival of a tacitly social-democratic government in 1997 meant that much of this wealth could be redistributed through public-sector employment and tax credits, thereby softening the harsher aspects of globalisation and competition, and spreading wealth beyond the south-east of England. The present slump is just another recession, the sort of event that occurs every decade or so, and requires macroeconomic and/or microeconomic interventions to return the economy to growth. Redistribution of wealth will return once there is another government with tacitly social-democratic values.
A second analysis takes a slightly longer-term view, suggesting that we are witnessing the end of "neoliberalism". But this depends heavily on what is meant by that term. As an intellectual movement, neoliberalism emerged in the 1930s as a critical response to totalitarianism, developed much of its policy analysis at the University of Chicago during the 1950s and 1960s, and then acquired political influence during the 1970s with the crisis of Keynesianism. It sought to reduce the public regulation of private economic actors, especially corporations, and to remodel public institutions (such as universities and the NHS) according to the ethos of market competition. All of this was on the basis that the aggregate welfare produced by self-interested, calculated behaviour was typically greater than that produced by collective provision and altruistic behaviour.
This notion, that individuals are best left alone to take their own decisions, paying for their own mistakes, was at the heart of the intellectual edifice that Alan Greenspan believed had collapsed in 2008. It has become morally discredited by the vision of bankers and rioters allowing their egoistic desires to run rampant. More psychologically and systemically nuanced ways of regulating markets, drawing on behavioural and ecological theories of finance, are therefore needed to update this intellectual paradigm.
Institutionalists, such as the Harvard political scientist Peter Hall, and regulationists, such as the French Marxist Robert Boyer, have long argued that capitalism is governed according to certain intellectual paradigms, which enable it to cohere in a predictable way from one year to the next. Keynesianism and Fordism held sway between 1945 and 1973, while neoliberalism reigned between 1979 and 2008. By this account, we are simply waiting for the new paradigm to emerge, with a common expectation that it will draw on neuroscience, behavioural economics, complexity theory and data-mining techniques. Already, the assorted crises of neoliberalism are being framed in psychological terms, be it the hedonism of teenagers, herd behaviour of investors, bad nutritional decision-making, and so on. There is an expectation that financial regulators and central banks will take on expert responsibilities similar to weather forecasters, seeking to depict emergent financial and macroeconomic trends in real time, rather than constructing rationalist models of them.
A third analysis takes an even longer-term view and may be the least politically helpful, but the most dangerous to ignore. This is that systems of capitalism are driven by hegemonic powers, which rise and fall over decades and centuries. Moreover, as they decline, they exhibit tendencies towards "financialisation" of their economies, enabling them to experience an exuberant final belle époque.
By this account, nations such as Britain and the US have been living on borrowed time and borrowed money for the past 40 years, since their economies and firms ceased to generate real wealth within their own borders. Both neoliberalism and the Blair boom were merely symptoms of an Anglo-American belle époque, following which the Chinese government now has the ultimate room for political and economic manoeuvre. This is not just a recession or a paradigm shift but a major geopolitical shift in power, which will have profound implications for the economic security, business strategies and living standards of western populations for the foreseeable future.
These are rival analyses, with rival notions of capitalist history. None should be ignored. Where they are most in conflict is over the institution that sits at the epicentre of the present crisis, namely debt. The "just another recession" narrative tempts both left and right into believing that debt is an innocent institution, which can facilitate a return to prosperity (they argue only as to who should carry it). It ignores the regulationist insight that severe crises are exacerbated by persisting with the policies and behaviours that led up to them, which in this case is borrowing. Sixty years of Keynesianism and neoliberalism has made ever-increasing indebtedness a normal part of both political and household economy, and greatly increased the power of speculative capital, financial intermediaries and sovereign creditors in the process. A historically nuanced critical perspective surely has to consider the possibility that all good things come to an end. It is no wonder that economic conflict has become intergenerational, given the possibility that such easy prosperity may never return at all.
Research published by Prudential Insurance in 2009 suggested that 1948 has proved the "luckiest" year in which to be born, providing a generation with both a growing public sector to mitigate risks and unprecedented house-price inflation for those who bought property in the 1970s. Both elements relied partly on growing indebtedness, with some inevitable loss of autonomy as a result. Even after the current public and private "deleveraging" has run its course (which may take more than a decade), it is impossible to imagine a repeat of the Keynesian "golden era", followed by a repeat of the neoliberal belle époque. And there are few other precedents in history, of entire societies growing 3 per cent richer a year over decades, at least without significant exploitation of nature. The assumption, epitomised by an American "new world" mentality, that each generation is entitled to do better than the previous one, must now be abandoned. The baby boomer ethos, in which each generation invents its cultural mores anew, may still prosper, but it will no longer be so fuelled by consumption. In some respects, this is to be welcomed.
From these various "endings", new themes and trends will emerge in time, although it is too early to say what these will be. Marxism Today had had over a decade with which to reflect on the crisis of Keynesianism, before it synthesised its view of Thatcherism and "new times". For the time being, it might help to organise interpretations of contemporary capitalism according to the single theme of a new realism, to follow the post-modernism of the 1980s (presently the subject of a cultural retrospective at the V&A museum in London). The chief characteristic of this new realism is a shift from a logic of money to a logic of power.
First, consider the crisis in the credibility of money. Friedrich Hayek, the godfather of neoliberalism, had little interest in the efficiency of markets, but was fervently convinced of their honesty. Because prices reflect all available information about a good, they are the most accurate symbol of its true worth. Under neoliberalism, money comes to provide a lingua franca with which to discuss values and priorities; consider how Whitehall departments have to calculate the hypothetical price of a public good, in order to work out whether it is worth investing in. The current crisis is not simply a "market failure", in which prices are not functioning properly, but a profound loss of faith in money's capacity to tell the truth. It is a credit crisis in the most literal sense, that we no longer believe what the price system is telling us. Governments wrestle with this problem, printing more money in the vain hope that this will help it to circulate, designing "macro-prudential" policies with which to keep the financial system from believing its own lies and repeatedly trying to seal off the discredited parts of the money economy. But disbelief has become endemic, and evades political strategies to contain it.
Much of the wealth created since the 1980s was not real but merely monetary. The government estimates that the crisis has so far cancelled out 25 per cent of the wealth created in the decade up to 2007. This isn't so much because a recession destroys wealth, as the orthodox macroeconomic view would have it; it's because that wealth never existed in the first place. It was tied up in house-price inflation, financial products and speculation, all bets on the future. There is now a yearning for wealth that is real and tangible: politicians are agreed that the economy needs "rebalancing" away from finance and back towards manufacturing, and that housing provision has been a neglected policy area.
The great challenge of our times is how to recombine the money economy with the real economy, although now that British households scarcely generate savings to support traditional banking (and are scarcely encouraged to by the near-abolition of interest rates), this challenge looks substantially harder than it did 20 years ago.
The second aspect of the new realism is its recognition of power as the critical factor in capitalism. On a brute level, this is about physical power - labour and energy. The "new economy" and the "knowledge economy" that were foreseen by Marxism Today privileged intangible factors of production. Microsoft embodied 1990s capitalism.
Today, the most valuable company in the world, Apple, nurtures an image to lure western consumers, but its business model is dependent on the opening up of the largest labour pool (and skilled labour pool) in the history of capitalism. Meanwhile, climate change is casting a new light on 20th-century capitalism, revealing how we have become dependent on a single, finite energy source for nearly all of our needs, comforts and luxuries.
The core proposition of liberal economics, dating back to Adam Smith, is that the market system is a positive sum game, and where this holds, centre-left governments are able to divert more surpluses for the public good. But contemporary capitalism is increasingly dominated by non-liberal economic powers, engaged in zero-sum practices. This includes the Chinese government, which has the freedom and the quantity of capital to behave in a purely political and strategic fashion, without recourse to any textbook. Future British prime ministers may have to fly to Beijing far more regularly than they ever had to fly to Washington DC. It also includes the banks and credit-rating agencies, who have emerged from 2008 with an oligarchic freedom and now negotiate with politicians face-to-face, in the same way that Rupert Murdoch once did. This poses a question of whether there will be any new paradigm to replace neoliberalism, or whether the 200-year period in which economics provided a rationalist template for economic governance might be drawing to a close.
The left once raged against the "free market" (though was often very unclear what this referred to), while stock markets were seen as a scourge of Anglo-American capitalism. But with the rise of private equity, sovereign wealth funds and a new quasi-feudal class of the super-rich, property and ownership are the institutions that should concern the left. Markets are institutions that enable things to change hands; ownership is an institution that fixes them to one owner, and one of the most significant trends of the next 20 years will surely be the capacity of oligarchs and rentier capitalists to purchase and privatise assets and institutions across national borders.
This makes it all the more important that the left continues to develop the legal and technical preconditions of public goods and common ownership, via mutual and open-source models. Protectionism is no affront to liberalism, where it is protecting the public from rentier capitalists and oligarchs; on this, Blue Labour is right.
This also justifies the emerging common sense that it is wealth, land and assets that should be taxed, and not wages. This long-standing liberal ambition has acquired renewed urgency after 30 years in which wealth became increasingly concentrated by the power of financial leverage, rather than effort.
The new realism is not necessarily a new pessimism. The end of easy, money-fuelled growth makes things harder for the left and zero-sum capitalism often helps the right. But, by the end of this decade, it is entirely possible that Britain will have developed many new socio-economic institutions that are creditable in a way the existing money economy is not.
Markets will always be with us but their design is an open question. Capitalism depends on people keeping their promises to one another, often over very long periods of time.
Either that capability has to be rebuilt and the institution of credit reinvented, or capitalism does not survive. The rise of mercantilist powers, be they sovereign powers, private billionaires or financial institutions, is not something that the left is going to be able to prevent. But alternative ways of producing, owning and lending can always be invented, allowing a new optimism to flourish.
William Davies is academic director of the Centre for Mutual and Employee-Owned Business, University of Oxford.
This is an edited version of an essay that will appear in a forthcoming special edition of "PPR", journal of the think tank IPPR, to mark the 20th anniversary of the closure of "Marxism Today"