Ten Years After the Financial Crash, the Timid Left Should Be Full of Regrets
Placards are being prepared. Photo-opportunities are being organised. A list of demands is being drawn up by a coalition of pressure groups, unions and NGOs. Yes, preparations are well under way for protests to mark next month’s 10th anniversary of the collapse of Lehman Brothers – the pivotal moment in the global financial crisis.
Make no mistake, the fact that events will take place in all the world’s financial centres is no cause for celebration. On the contrary, it is a sign of failure. The banks were never broken up. Plans for a financial transactions tax are gathering dust. Politicians toyed with the idea of a green new dealand then promptly forgot about it. There never was a huge swing of the pendulum away from the prevailing orthodoxy, just a brief nudge that was quickly reversed. The brutal fact is that the left had its chance, and it blew it.
Ten years on, international finance is as powerful as it ever was. There has been only cosmetic reform of the banking industry. Corporate power is ever more concentrated. The benefits of the weakest global recovery from recession in living memory have been captured by a tiny minority. Wages and living standards for the majority in developed countries have grown only modestly, if at all.
September 2008 was a near-death experience for global capitalism. At one point there were fears for the entire western banking system; when the recession was at its worst, industrial production was collapsing more quickly than it had in the early stages of the Great Depression. It was that bad. The moment was ripe for politicians brave enough to state the obvious: that the crisis was the result of removing all the shackles on global financial capitalism put in place for good reason in the 1930s. But social democratic parties failed miserably to come up with a progressive response to the crisis that would have involved redressing the imbalance between capital and labour. They were timid when they should have been brave, and have paid a heavy price as a result. Mainstream parties patched up the system and paid scant heed to the anger felt by those who felt ignored. The bitterness bubbled away and eventually found other ways of manifesting itself.In the winter of 2008-09, there was a naive assumption on the left that the shock of Lehmans was so profound that change would inevitably occur. If the oil shocks of the 1970s had been the catalyst for the seizure of control by a rightwing political agenda, then the sub-prime mortgage crisis would do the same for the left. But it wasn’t quite that simple, because those who had done well in the decades that followed the Thatcher-Reagan revolution used all their power, influence, financial clout and cunning to resist change. A few tactical retreats were made in order to safeguard the status quo.
The contrast between Franklin Roosevelt in the 1930s and Barack Obama is telling. Both men arrived in the White House in desperate times. Both had a mandate for change. Roosevelt thought reform was necessary to save capitalism from itself. It was this intellectual framework that resulted in the Glass-Steagall Act to separate banks’ investment and retail operations; public works schemes for the unemployed; and laws to make it easier for trade unions to organise. Obama, like most of his fellow centre-left politicians 10 years ago, was a technocrat who broadly accepted the status quo and never seriously contemplated taking on finance. Wall Street detested Roosevelt. It found Obama much more amenable.
Obama deserves a bit of sympathy. Every radical period requires a philosopher king to help to provide a political framework for action. For the first generation of free-market liberals, the gurus were Adam Smith and David Ricardo. For Lenin it was Karl Marx. In the 1930s, it was John Maynard Keynes. And in the 1970s it was Milton Friedmanand Friedrich Hayek. Ten years ago there was no one.
The process of challenging business-as-usual lacked a unifying analysis of what had caused the crisis. There was a green narrative, a Keynesian narrative and a Marxist narrative, all of which had merit and all of which had their adherents. The upshot, though, was that progressives all headed off in their own directions. That left the door open for a narrative that few would have expected to emerge triumphant in September 2008: that the crisis had been caused by governments spending too much.
There are plenty of lessons that need to be learned. One is that progressives have to win the battle of ideas, and that means taking back control of how economics is taught. Some steps have been taken to address this issue since the financial crisis, with George Soros bankrolling the Institute for New Economic Thinking, a forum for heterodox thinking. But even though the collapse of 2008 was the result of failed economics, those responsible for the duff theories remain well dug in on university campuses. Progress has been slow.
A second is that a progressive political agenda starts at the top, with an over-arching critique, and works its way down to specific policies. That was what worked in the 1940s, when the postwar consensus was built on a simple concept: never again. Control of the commanding heights of the economy and demand management flowed from that.
A third is that progressives have to be clear about what they want. The left remains divided between those who think – as Bill Clinton and Tony Blair did – that the only choice was to work with the grain of global capitalism; those who think, as Roosevelt did, that a more root-and-branch approach is needed; and those who think capitalism is so rotten it is beyond saving.
A fourth is that a bit of humility is needed. There is no question that the nature of the conversation has changed since the crisis, in part due to austerity, in part due to an overly lenient approach to the banks. But there are things about modern life that people like: the ease of communication and travel; the fact that for the same outlay as 10 years ago they get a more sophisticated mobile phone or a better restaurant meal. When the radical left has actually been in power it hasn’t always covered itself in glory.
David Hillman, the director of Stamp out Poverty and one of the organisers of next month’s UK protests in the City, puts it this way: “There was a very short period when the powers that be were on the back foot. Progressive forces were not able to take advantage. Nothing substantial has changed and we are sleep-walking into another crisis.”
That just about sums thing up. Progressives don’t really deserve a second chance, but they may be presented with one all the same. The question is whether they will be better prepared to take it this time.
Larry Elliott is the Guardian’s economics editor