Steve Fraser on the Crisis of Capitalism
Posted on Nov 6, 2009
By Steve Fraser
Moreover, the point of all this is not merely that we’ve now arrived at a tale-of-two-cities moment, when it’s the best of times for the bankers and the worst of times for the rest of us. It is rather that all along that faux prosperity rested on, depended on the inexorable erosion of other avenues to economic well-being. Some of us grew richer not only while but because a lot of the rest of us grew poorer.
Perhaps the greatest gulf separating the Great Depression from the Great Recession is the difference between the political economy born back then and the political economy of the last generation. The New Deal articulated the outlook of a new order based on mass consumption industrial capitalism. It was rooted in emerging sectors of mass production and distribution as well as in the insurgent labor movement and among broad circles of social welfare reformers. It helped give birth to a high-wage industrial economy buoyed by strong unions, an expanding system of social welfare, a regulatory regime to dismantle that era’s “money trust” and so open up the sluice gates of private capital and credit, and government pump-priming when called for. Some of the reform legislation of FDR’s first 100 days (the Securities Act, the Glass-Steagall Act, the TVA) and much more of the legislation to follow (the Wagner Act, Social Security, the Securities and Exchange Commission, the Public Utility Holding Company Act, the Fair Labor Standards Act, and so on) were designed, by no means always successfully, to bring this new, consumer-oriented industrial capitalism into being.
The New Deal was no utopia. It left untouched gross racial, gender and economic inequities, still deferred to the power of an industrial-financial-military elite, and committed itself to empire-building abroad. Nonetheless, for a generation it closed the gap between the haves and have-nots and kept alive the hope that much more in the way of economic and social justice might be accomplished.
Since then—beginning with the Reagan years—finance has triumphed over the New Deal industrial order. Financialization, or what some have called financial mercantilism, triumphed by gutting the American industrial heartland. That is to say, the FIRE sector not only supplanted industry but grew at its expense and at the expense of the unions, the high wages, and the capital that used to flow into productive investment, not to mention at the cost of government social supports and government regulation that comprised the understructure of New Deal capitalism. Think back only to the days of junk bonds, leveraged buyouts and asset stripping in the 1980s. What was getting bought out and stripped so as to support the exorbitant interest rates commanded by those high-risk junk bonds was the material wherewithal of the American economy and the millions who depended on it for their lives and livelihoods.
So today instead of unionized, high-wage industry, there is Wal-Mart. Our political economy is driven by “I banks,” hedge funds and the downward mobility and exploitation of casual labor, while industrial investment has been exported to the global south. This may account for the abject reliance of the Obama regime on the financial oligarchy and its intellectuals. It is a telling commentary on this great transformation of the past 75 years that Obama’s first 100 days did not feature at its core an industrial recovery act as FDR’s did. Instead, most attention is directed at restoring the well-being of the FIRE sector whose health is everybody else’s disease.
Will those “green shoots” of recovery flower? Perhaps. But so long as we remain in thrall to high finance, that’s a sobering thought. By extending the bailout state inaugurated by George W. Bush and Henry Paulson, the Obama administration assumes a heavy burden. One might call it the president’s own “moral hazard.” Determined at apparently any cost to keep those “too-big-to-fail” zombies alive and well, he licenses them to behave exactly as they have behaved for a quarter-century and more. Why not behave that way, if they are being reassured by Washington that at the end of the day there is no end of the day? And the latest indications are that they are doing precisely that, leveraging new, speculative paper transactions that help nobody but themselves.
More profoundly disturbing is this: Even should those “green shoots” flower, the best that can be expected is a kind of jobless “recovery” and a general lowering of the social wage. After all, recovery of the economy of high finance is not recovery we can believe in, nor is it even an economy. If this happens, then we may have to conclude that the Great Recession gave way to the Great Retrogression.
Steve Fraser is the author of several books, including “Every Man a Speculator: A History of Wall Street in American Life,” “Labor Will Rule: Sidney Hillman and the Rise of American Labor” and, most recently, “Wall Street: America’s Dream Palace,” published by Yale University Press.
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