World Economy: False ‘gods’ of a failing system

Reviews of ‘The Gods That Failed: How Blind Faith in Markets Has Cost Us Our Future’ by Dan Atkinson & Larry Elliot

According to the ancient Greeks, “Those whom the gods wish to destroy they first make mad.” But according to Larry Elliot and Dan Atkinson, today’s ‘gods’ – a new class of super-financiers and its helpers in national and international organisations such as central banks – are themselves a bit flaky, drunk with power and are wreaking economic havoc in Britain and worldwide.

This readable book – drawing heavily on Greek mythology to indict the ‘New Olympians in an apt and witty fashion – is a devastating critique of ‘modern’ capitalism. Indeed, it so demolishes neo-liberalism and those political forces that uphold it – all the main parties in Britain – logically it should lead to the idea of creating a new alternative political force. We would argue that this means a new mass workers’ party. Unfortunately, the authors draw back from this but their analysis provides all the ammunition necessary to lead others to draw such a conclusion.

From the first page they contrast the attacks on Britain’s so-called ‘sick-note culture’, which even New Labour pledged in 1997 to end, with the big financial institutions “arranging for themselves a welfare state with Scandinavian levels of generosity”. Yet these ‘New Olympians’ have taken “the world economy… to the brink by a mania for speculation”. Moreover, Brown and before him Blair, “instead of taking on the City, [have] turned [their] attention to [attacking] the workforce”. On their watch, Britain, according to the authors, is “living beyond its means”, with rich entrepreneurs in particular “paying tax at a lower rate than their cleaners”. This has transformed Britain into a virtual “hedge fund”.

Manufacturing industry has gone to the wall but the new lifeboat for the British economy, according to Brown, is services and the ‘knowledge economy’. The authors demolish this perspective. As The Socialist has pointed out, and as Larry Elliot has underlined in his column in the Guardian, there has been a continued decline in manufacturing, which to some extent has also been the case in most of the advanced economies. But: “The pace of change has accelerated under Labour and manufacturing jobs have been lost at a faster rate in parts of the country where there was already a surplus of labour.” [From Coutts, Glyn and Rowthorn, Structural Change Under New Labour; Cambridge Journal of Economics, November 2007.]

Services a solution?

This means that 300,000 manufacturing jobs have been lost under New Labour to be replaced with what? The much-vaunted service industry which will ride to the rescue? And yet, as the authors point out: “The surplus on services came nowhere near wiping out the deficit on goods of £84 billion, leaving a trade deficit of more than £54 billion once the surplus on services was deducted from the deficits on goods.” [p180]

But won’t the income from investments abroad continue to buoy up the British economy? The authors shatter this impression: “These earnings are perched on top of a negative international asset position of minus £291.9 billion in 2006, a worsening on the minus £143.5 billion seen in 2005. In other words, foreigners own more of the UK than the UK owns of ‘abroad’.” Moreover, the idea that British capitalism is cleverer and ‘out-earns’ their competitors is false: “The investment income surplus in the third quarter of 2007 was non-existent.”

These are not abstract facts, esoteric figures of no concern to the mass of the British people. They denote a collapse and, flowing from this, a harsh if not brutal future for the great majority of the population. As the fallout from the sub-prime crisis and the credit crunch grips – reflected in the rapid collapse of the housing market – so also do the number of insolvencies and bankrupt firms climb, resulting in a rising curve of unemployment. This is accompanied by the beginning of a contraction in disposable household income, even before the full effects of the world economic crisis have impacted on Britain.

Capitalism to blame

The causes of this crisis are documented by the authors and are familiar to the readers of The Socialist. We have sought to chart both the causes of the boom of the last 20 years in a series of articles and its inevitable collapse, the timing of which was only in doubt. However, there is priceless information contained in this book underlying the sheer arrogance of the ‘New Olympians’, their disdain for the plight of the people of Britain and the planet as a whole.

This ‘hubris’ – overweening arrogance – is resulting in a ‘nemesis’ – catastrophe – for finance capital in the current crisis, write the authors. They are, however, a little one-sided in singling out for special criticism just the financiers. The capitalist class as a whole – including those in ‘productive industries’ – have engaged in an orgy of speculation in shares, property and the wild extension of debt. It was Karl Marx who pointed out that speculation, like poverty, is the very warp and the weft of capitalism. He wrote that an economic upswing of capitalism inevitably leads to the creation of the “pleasant character of swindlers and prophets”.

The authors are therefore critical of one aspect of capitalism and not of the system as a whole. They nevertheless write: “The response to the market meltdown helps illustrate… that, despite the lip service paid to democracy, western societies are effectively run by moneyed oligarchies, who have as little time for their wage slaves as did the ruling elite of ancient Athens.”

The authors contrast the refusal of New Labour to give full workplace rights to agency workers, many of whom are immigrants, with Alistair Darling, the chancellor, who “announced that he was relaxing his proposals to tax more heavily one group of immigrants – the so-called ‘non-doms’ (non-domiciled residents) who were mightily wealthy and used London as a tax haven.”

They also spell out the role of credit or debt in the creation of the financial bubble which is now collapsing with terrible consequences for millions in the US – some cities are being renamed ‘Bankruptsvilles’ – and soon in the rest of the world. They point to the exposed position of the “debt-soaked economies” of the US and Britain. The whole scam of ‘securitisation’ – in effect, selling IOUs to someone else – is clearly elaborated, which has resulted in the sub-prime crisis in the US and its spill over into the rest of the world. Debt in America, for instance, presently stands at 300% of gross domestic product and “the last time it was at this level hundreds of banks were going bust in the Great Depression; credit has been expanding in the US at more than double the rate it was in the 1920s; banks in the US, Britain and Europe are nursing as yet unknown losses as a result of subprime mortgages.”

And this has all been made possible by the deregulation counter-revolution of the 1980s to today. The authors describe this as “permanent revolution”, an echo of Trotsky’s idea for the socialist revolution in underdeveloped countries. But in reality it is ‘permanent counter-revolution’ which has been undertaken against the rights and conditions of the working class and the poor. By scrapping post-1945 controls over the economy and the banks, as well as the City, it “opened the door to grand-scale asset stripping and deal making, elevating the City – or the ‘financial intermediation sector’ to use its prosaic official name – above all other economic actors”. One commentator concluded: “One section of society, chiefly concerned with moving money, has cheated the other sections. It has been one of the greatest ‘scams’ ever pulled.”

Why then did the widespread destruction of productive assets – with particularly disastrous consequences in Britain with the destruction of manufacturing industry – not cause widespread upheaval and misery as it had done in the 1980s? The authors explain: “For some time, this giant extension of credit to the general public provided a substitute for real prosperity. Politicians, for whom a sense of history is, like reading, very much an optional extra these days, conclude that financial liberalisation has ‘worked’.” However: “like any drug, liberalised finance wreaks more damage with every dose”. A new ‘asset class’ based in property and ‘private equity’ has prospered at the expense of “damaging further the productive sector of the economy.”

Back to Keynes?

The authors show that right-wing economists, led by Friedrich von Hayek and Milton Friedman in the post-1945 situation, while they were forced to accept the ‘mixed economy’ – a state sector alongside the majority in private hands – were never fully reconciled to this. They consistently fought to ‘roll back the state’ and found their instrument for doing so in Thatcher and her governments in the late 1970s and 1980s, and by Reagan in the US.

However this was not just a ‘conspiracy’ of the right on behalf of the ‘New Olympians’. The 1980s saw the limits of the halfway house of the ‘mixed economy’ – which Larry Elliot and Dan Atkinson wish to return to. They for instance dismiss out of hand the experience of the Mitterand government of the early 1980s in France. This government nationalised significant sections of industry. But such was the overwhelming pressure of the market – and Mitterrand did not completely eliminate the power of big business – this government was forced to retreat. This coincided also with the development of new technological developments, information technology, etc, which provided the impetus for the new right to present themselves as the ‘great liberators’ of the economy from the state, as well as the ‘over-mighty trade unions’.

The alleged ‘restrictions’ which Thatcher and then Reagan swept away were the hard-won rights to defend the working class against the juggernaut of capitalism. Interestingly, the authors reveal that the deregulation of the airlines in the US, which led to the brutal defeat of the air traffic controllers’ struggle in 1981, was also supported in the US Congress by Edward Kennedy, the ‘liberal’ Democrat. This is just one pointer to the big business character of the two main parties in the US and now the three in Britain as well.

Northern Rock

There is an excellent chapter on the saga of Northern Rock, which goes over some of the familiar ground but also adds to our understanding of what took place. The chairman of Northern Rock was Matt Ridley, nephew of the notorious ultra-right former Conservative cabinet minister Nicholas Ridley, who prepared the plans for Thatcher to subsequently smash the miners in 1984-85. The authors comment that he “battled tirelessly against the dead hand of the state” as a former “crusading free-market journalist”. Now, when his own bank was in trouble, the begging bowl came out and the state was expected to step in.

These high-flying luminaries were not burnt by the collapse of Northern Rock. Applegarth, the previous chief executive of Northern Rock, received 12 instalments totalling £760,000 as his redundancy package. He could also dip into the £2.6 million sell-off of his shares in 18 months trading before the bank’s disaster struck. Moreover, in 10 years time he can also draw on a £2.5 million pension pot. Meanwhile, 2,000 Northern Rock workers are going down the road.

The authors also have great fun in describing the undignified gyrations of Brown and Darling to avoid nationalising Northern Rock. They were in almost superstitious terror of nationalisation and the equally irrational determination to achieve a ‘private-sector solution’. They point out that even a home of the “gods”, the big bank Goldman Sachs, preferred the solution of nationalisation. This is a measure of ‘state capitalism’ rather than a clear socialist proposal. Yet New Labour, wedded firmly to neo-liberalism, refuses to willingly go down this road.


What are the solutions to the ‘gods that failed’? This book, despite its trenchant criticisms of neo-liberalism, is not fully located on the side of the working class and the labour movement. If anything, it champions the newly-‘oppressed’ middle class. But many of these, like teachers and ‘public servants’, are now to be found in the ranks of the working class, by virtue of their changed conditions and in severely reduced incomes.

What happened to the industrial working class in the defeats of the miners’ strike and the printers in the 1980s, for instance, is now being unleashed – this time under New Labour – against the ‘middle class’: the closure of post offices in rural areas, the attack on the legal profession, with Tesco offering cheap legal advice and now the proposals for ‘polyclinics’, phasing out local doctors’ surgeries.

There is also New Labour’s idea that commercial companies will be allowed to award ‘nationally recognised qualifications’, led by Macdonald’s. But contrary to the authors’ expectations, the modern middle class – disappearing small businesspeople, journalists turned into ‘churnalists’, administrators, technicians, etc, working more for big firms – is more dependent on big business than ever. They therefore have a common interest in uniting with the mass of the population, which is the working class and the poor, in confronting not just the ‘gods who have failed’ but the system of capitalism itself.

The general solution of the authors is a Keynesian one – the intervention of the state to cushion the effects of the market, including increased expenditure to soak up “deficient demand”. Like Paul Krugman, whose book The Conscience of a Liberal we reviewed in a recent issue of The Socialist, they attempt to invoke the image of Roosevelt and the New Deal in the US following the collapse in the US economy between 1929 and 1933. They are at pains to point out: “Neither Lord Keynes nor President Roosevelt was remotely interested in creating a workers’ state.” In fact, both were firm defenders of capitalism. They attacked the ‘excesses’ of one section of the capitalist class, the better to defend their system as a whole.

Roosevelt’s New Deal

This book gilds the lily somewhat in lauding Roosevelt’s New Deal. As we pointed out in relation to Krugman, the New Deal came at a time when the US economy was, in any case, reviving and only partially soaked up some of the unemployed. Moreover, Roosevelt’s lauded measures in defence of workers’ rights were forced on him by the situation and were only partially effective. It is true that Roosevelt took on the capitalists, at least one section of them, the ‘gods’ of the time, the big financiers. So did Churchill, as the authors point out, and even the Labour government of Attlee in 1945. They had the advantage over the average boss of farsightedness and understanding better what was required for the system as a whole at decisive turning points. This involved some temporary concessions to the working class.

Would such measures effect a big change in the situation today? As the authors themselves point out, the huge deficits in both Britain and the US, both in trade and the state, leave little room for classical Keynesian measures. This does not mean that the capitalists will not retreat – adopt a form of Keynesianism – when faced with the blind alley of the system and a revolt of working class people. But giving with the left hand they will seek to take back any concessions with the right, particularly through inflation.

The solution of the authors to the present dire situation, both in Britain and worldwide, is a “new populism”. To some extent, they wish to go “back to the future” by introducing restrictions on finance capital. They also want measures for the “protection and strengthening of an independent middle class”. They maintain that “social stability and tranquillity are more important than market efficiency or shareholder value”. They, in particular, want to reintroduce controls on capital and the movement of capital.

None of these proposals, however, fundamentally touch the foundations of capitalism. For instance, they want the reintroduction of a form of Glass-Steagall Act, introduced in the US in the 1930s, which was lifted in the recent period of capitalist deregulation. This is not the same as nationalisation of the banks and insurance companies, which we, and the labour movement in time, demand.

Commendably, Atkinson and Elliot want to “build alliances with the remnants of organised labour”. The choice of the term “remnants” clearly implies that the labour movement would be the tail end of a broad ‘movement’, largely centred in the ‘middle class’.

Workers’ party needed

However, the backbone of any successful movement must be the working class. The authors correctly say that “state employees need to recognise the notion of a ‘public sector’ as traditionally understood is under attack, from New Labour as much as from the right”. And yet despite this, they do not suggest a political instrument, apart from a vague ‘”populism”, to campaign for and implement their programme.

The Tories, New Labour and the Liberal Democrats are at one in defending neo-liberal – ‘god-controlled’ – capitalism. It is true, as the authors maintain, “These gods have failed. It is time to live without them.” The only way, however, to achieve this laudable goal is to begin to create now the basis for a new party, a mass party of working-class people and the poor, embracing sections of the middle class. Its programme may echo, in the first instance, some of the demands raised by the authors. This may be a kind of left Keynesianism or left reformism which was prevalent in the Labour Party in the 1970s and early 1980s. Limited though this is, it would nevertheless represent a step forward compared to the present situation. Marxists would argue for a much more decisive programmatic challenge to capitalism, one that would usher in a break with the system, which as the authors themselves eloquently explain, threatens to drag Britain, its people, and the world into an economic and social abyss.

Books like this should be welcomed wholeheartedly. They help to break the deadening neo-liberal deadlock which has ideologically underpinned the brutal attacks on the working class and the poor in the last three decades. A new battle of ideas – reinforced by big events, which the present crisis will lead to – will see the rich ideas and programme of socialism back on the agenda.

‘The Gods That Failed: How Blind Faith in Markets Has Cost Us Our Future’ by Dan Atkinson, Larry Elliot, Bodley Head £12.99.

(A slightly shorter version of this article appears in The Socialist)

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June 2008