A Terminal Prognosis? The Case for Financial Euthanasia
In the past few weeks the scale of the crisis has escalated once again. The question however is the location of the weak points and hidden fractures within the present system. As Faisal Islam points out, from a certain perspective this does not look like a crisis of capitalism at all. The bargaining position of capital vis-a-vis labour is currently extremely strong in the industrialised North, no doubt because the high levels of unemployment induce quiescence on the part of employees desperate to keep their jobs. Workers are effectively accepting cuts in their standard of living, there is no factory floor challenge to capitalism.
Worryingly for the populaces of the advanced industrial economies, this rather supports the viewpoint that some shock (maybe technological change or the rise of the emerging economies) has occurred which has significantly undercut the market price that labour can fetch in the world economy. If this is the case then things won’t get better after the financial crisis, indeed the GFC might be a signal of massive shifts within the world economy that signal a bleaker future for many workers in OECD nations.
The problem for the ‘no real crisis’ argument, however, is that if shocks of such significance have occurred then the reverberations might themselves be catastrophic. The three clear dangers ahead are that the global financial system may not be able to take the strain of both sorting out bad debt from good and absorbing losses likely to arise from secondary consequences of the crisis; the fact that the structures of political decision making (what Susan Strange called the Westfailure system) are pretty clearly inadequate for the scale of the problem and elites far too insulated from the depths of the crisis; that publics in the North are not prepared for drastic downward revisions in their standard of living and attempts to enforce any such settlement will result in the collapse of the legitimacy of democratic institutions. In this crisis political problems simply cannot be separated from economic problems because an economic solution to the crisis depends on international cooperation and maintainence of domestic order.
Hence the excellent discussion with Paul Mason and Gillian Tett over at the Guardian, in which the two commentators discuss the nature of the risks the liberal international political economy may be threatened with. What is fascinating is that, in the face of such risks, hitherto totally left-field ideas suddenly become thinkable. It’s particularly interesting to read mention of ‘financial repression’, also known as financial euthanasia, by Tett. The term is shorthand for a series of policy steps which close off avenues to financial speculation and force liquid capital into the economy at below market or negative rates. These sort of measures were employed by East Asian economies such as South Korea during their industrialisation, providing a source of domestic seed capital drawn in significant part from small household savings accounts.
Intriguingly enough it was just such measures, which include controls on the movement of capital, that the US took aim at in the 1990s through the IMF as well as other channels. According to the sadly late Peter Gowan this was part of a concerted effort, a ‘global gamble’, to expand the scope for financial capital to operate, providing an enlarged market for the US financial sector to expand. The idea of financial euthanasia therefore runs against the entire thrust of post-Cold War US geo-economic strategy, the interests of a hugely powerful set of organised interests, as well as the economic orthodoxy which still dominates the mindset of Northern elites. But then again other potential solutions such as monetising the debt and eroding it through inflation are equally radical. It is a testament to the scale of the crisis that such ideas are being floated by journalists working for the Financial Times.