Archive for category Political economy

Martin Jacques on the ‘death of neoliberalism’

Martin Jacques’ article in the Observer today is well worth reading if you haven’t already done so. I’m not sure it says that much that’s new but it does connect a few dots quite successfully. It presents a convincing and coherent analysis of the current political and economic conjuncture in Europe (especially the UK) and the US – weaving together the 2008 financial crisis and its aftermath with the rise of ‘populism’ and ‘anti-political’ distrust of elites for example – setting this in longer term historical context.

Though powerful, I have to say that I find something slightly frustrating and incomplete about this sort of neoliberalism-critique however. It comes down to a rather glaring absence of consideration of the structural determinants of neoliberal hegemony in these pieces. Neoliberalism is often presented largely in terms of a sort of ideological worldview or political-economic school of thought. As if its hegemony is determined in wholly political or ideological terms – rooted in and reproduced through political discourse and wider ‘cultural’ factors and so on. This comes out strongly I think in Jacques’ argument (predictably so perhaps as a Marxism Today  neo-Gramscian). There’s the rather brisk argument here for example that social democratic parties simply became disciples of neoliberalism and globalism – as if they were intellectually/morally seduced by a false gospel or something. As if the turn from social democracy to social liberalism was a freely chosen set of policy reversals.

But wasn’t the neoliberal turn conditioned by real pressures on national structures of post-war capital accumulation – slowing growth, intensifying international competition, growing international interdependence? Don’t these pressures and constraints on capital still exist? Might individual national governments in Europe simply choose to become more interventionist, dirigiste, to divert a larger share of national income to wages etc 30 years after the defeat of the Mitterrand experiment? Is it simply a matter of political will to be constructed and reinforced via cunning ideological wars of manoeuvre? Wouldn’t full blooded social democratic  economic policy – as usual – intensify pressure on profits and sharpen the crisis? Isn’t neoliberalism, in large part, simply a default set of policy choices for the management of capitalism in the absence of the extraordinary conditions characteristic of the 1950s and 60s?

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An Alternative Economic Strategy

[Note: this was written in June 2012 for the Labour Left’s Red Book Vol.2. This publication does not appear to have come out and shows no sign of doing so. Figures are slightly out of date now. Please also note that it was written for a particular audience and I’m much less confident about the possibility of a left-wing Labour government than I may appear to be in this piece!]

It must be clear now to all those with some grip on reality that George Osborne’s austerity strategy simply isn’t working. The most recent figures show that the UK economy has slipped back into recession with two consecutive quarters of negative growth (-0.2% in the last quarter of 2011 and -0.3% in the first quarter of 2012). These figures in isolation, furthermore, do not tell the full story about the dire circumstances in which the British economy languishes. As Paul Krugman has pointed out, since the crash of 2008 the UK economy has fared worse than it did even in the 1930s at the time of the Great Depression.[1] It’s not just in Britain, of course, that austerity has clearly failed. The dreadful economic and social consequences this strategy are plain to see in countries like Portugal and Spain – and, at their most extreme, in Greece.

Thankfully an economic and political alternative, spear-headed by the new French President, Francois Hollande, is emerging in Europe. In Britain, however, the Labour leadership still remains wedded to a remarkably timid critique of the government’s austerity programme. It is true that Miliband and Balls insist, like Hollande, on the need for growth, but their criticism of government policy hinges on the idea that the coalition is cutting ‘too far, too fast’ . In other words the Labour leadership do not reject austerity as such – they call, merely, for a less vicious version of the coalition’s programme of cuts.

As I have pointed out elsewhere[2], it is interesting to compare the timidity of Labour Party thinking today with the relative ambition and creativity of party thinking during the last period of economic downturn. During the crisis of the 1970s a collection of figures and groups clustered around the Labour left produced a radical, left-wing programme for economic recovery – ‘the Alternative Economic Strategy’, or AES.  At the heart of the AES was the idea that a well-designed programme of state driven investment could not only stimulate growth and thus provide a solution to the pressing, immediate problem of economic stagnation but could also combine this with a longer-term, fundamental restructuring of the economy in the interests of the vast majority. As I hope to show here, some elements of AES thinking provide useful resources for the construction of a socialist alternative to austerity today.

In what follows I outline the nature of the current economic crisis and explain how it emerged from longer-term trends and developments. I then specify a series of possible measures and policies which could be implemented as part of a programme for recovery and socialist change, drawing especially on the resources provided by the AES.

The Crisis

The Tory-Lib Dem government usually claims that the crisis was caused by ‘profligate’ public spending under Labour (although how exactly spending on schools and hospitals in the UK precipitated a global crisis is never quite explained) – and, closely bound up with this is the idea that the key pre-requisite of economic recovery is slashing of ‘unsustainable’ public debts and deficits.  These claims are nonsense. For one thing, as Reinhart and Rogoff have concluded from a detailed study of 44 countries over 200 years, ‘the relationship between government debt and real GDP growth is weak for debt/GDP ratios below 90% of GDP.’[3] The UK’s gross public debt at the end of 2007 (i.e. before the financial crisis took hold) stood at less than 50% of GDP – which, incidentally, was far lower than the average across the Eurozone and the OECD and 10% lower than Germany’s public debt/GDP ratio.[4]  For another thing, as James Meadway points out, the ‘UK’s most sustained period of economic growth, over the post-war boom, was a period of exceptionally high public debt.’[5] Both the public debt and deficit shot up after the onset of financial crisis and recession, but the direction of causation is immediately obvious here – the coalition’s claim that sharp rises in public debt and deficit precipitated the crisis is, in fact, to get things back to front.

Whatever else they may be, the coalition leadership is not stupid and the political narrative they have settled on in relation to the debt and deficit is certainly not simply a misunderstanding on their part – the claim that the crisis stems from fiscal profligacy and that, therefore, the solution is to roll back public spending is a deliberate falsification designed to smooth way for, and to justify attacks on, the public sector and the welfare system. This is an objective to which, of course, many Tories (and Orange Book Liberals) have long been committed. The Tory-Lib Dem narrative, however far from the truth it may be, has been enormously successful and has now, indeed, attained a sort of hegemony within popular and media discourse, largely framing the terms of mainstream debate in relation to the recession and austerity. Like many such hegemonic ideological strategies, the narrative has an uncomplicated, simple to grasp core message – that the recession was brought on by the last government ‘spending too much’ – which can be propagated with ease through endless repetition in the Tory press and in political sound-bites. The degree to which this simplistic narrative has been successful in shaping popular understanding of the crisis can be appreciated when you look back at how far the terms of mainstream debate have shifted since the onset of the financial crisis. In the initial stages of the crisis, popular anger was directed at the banks and media stories in relation to the financial crisis tended to highlight ‘irresponsible risk taking’, ‘greed’ and so on, on the part of bankers. Then, relatively abruptly, in 2009/2010, the blame shifted from the financial system to public spending – this was the point at which the neoliberal right, which had initially been stunned and disoriented by the crash, started to gather its wits and formulate the ‘fiscal profligacy’ narrative which now dominates political and economic discourse. The apparent ease with which the banking crisis was smoothly and seamlessly transmuted, in the popular imagination, into a crisis of public finances bears witness to perhaps one of the most brilliantly effective ideological manoeuvres in recent political history.

Widespread popular acceptance of the notion that public spending somehow caused the crisis helped to prepare the ground for Osborne’s austerity programme. As a political strategy to provide ideological cover for an assault on the public sector, this has so far proved fairly effective (as the 270,000 public sector workers sacked last year can attest). As a strategy for economic recovery, however, austerity is failing miserably and is, in fact, making the economic situation much worse. As Meadway explains, there ‘is a simple mechanism at work’[6] here:

Cuts in government spending shrink demand in the economy. As demand shrinks, firms sell less. Firms that sell less cut wages and make redundancies. Demand falls still further, and a vicious circle of decline is established. Cutting spending to reduce a deficit leads to bigger deficits as unemployment rises and taxes fall. Austerity is self-defeating.[7]

As Meadway points out, this is the sort of ‘death spiral that helped define the Great Depression’.[8] The austerity mongers of today have simply disregarded one of the biggest lessons of the 1930s which is that governments need to stimulate demand in times of economic crisis, not suffocate it.

The core, defining feature of the recession today is indeed a major crisis of demand and, intimately bound up with this, a serious deterioration in ‘business confidence’ in future growth prospects. Private sector investment has collapsed – investment by firms is down by about £48billion from its 2008 peak[9] – but there is no shortage of liquidity or savings in the economy. Indeed, the Financial Times recently reported that ‘companies globally are awash with cash’ and that UK firms, specifically, are sitting on an estimated £750 billion.[10] As Burke, Irvin and Weeks amongst others have noted, ‘No sustained recovery can take place without breaking this pattern’[11] – and since the private sector is unwilling to invest, the public sector must take over this investment function. The situation calls, in other words, for a classically Keynesian stimulus strategy of state driven investment to boost demand and thus, in turn, to boost ‘business confidence’.

Nevertheless it is important for the left to go beyond calls for a Keynesian type stimulus. Keynesian inspired social democratic analyses of the crisis tend to argue that it was brought on by the inherent weaknesses of the particular model of capitalism that has been dominant for the last thirty or so years – neoliberalism – and the process of ‘financialisation’ that has accompanied it. The call, from these quarters, essentially, is for the reining-in of finance capital and for a return to the much more strongly regulated, mixed-economy, model of capitalism that characterised the pre-1970s post-war order. But this analysis does not take adequate account of the deeper, systemic determinants of the crisis. It is also far too optimistic about the capacity of the planet to absorb for much longer a return to high rates of growth in consumption. We need to develop a better grasp of the longer-term and systemic determinants of this crisis and a better appreciation of the limits to further growth which make any attempt to return to ‘business as usual’ on the part of capitalism hugely problematic.

Delving deeper

The current crisis represents the breaking down of a series of temporary solutions to a major crisis of capitalism that emerged in the 1970s. In effect, the international economy has gone full circle and returned, after a few decades of (largely debt-fuelled) growth based on various temporary fixes, to the relative stagnation in which it languished around forty years ago. In order to understand the crisis today, then, we need to examine the development of the global economy over the past few decades.

Robert Brenner[12] has shown that the advanced capitalist economies entered a crisis of profitability at the end of the 1960s. Indeed, according to Brenner, these economies have suffered from relatively low rates of profit ever since. The reasons for this are disputed – various explanations have been put forward. These are complex and I cannot set them out here. Nevertheless, one determinant is clearly capitalism’s tendency toward overaccumulation of capital.  The logic of capitalism is one of perpetual accumulation – capitalists are forced, under pressure of competition, to recapitalise and reinvest in expansion a proportion of the surplus they produce. The corollary of accumulation at the level of the firm is, at the aggregate level of the economy as a whole, economic growth. The volume of capital flow must constantly increase. If capitalists encounter blockages in this process – if they fail to expand the volume of surplus they produce – the effect must be that they run into severe problems. At the level of the economy as a whole, absence of growth brings recession or depression.  All of this requires, of course, that new profitable outlets for investment are found so that the surplus can be absorbed and accumulation can continue. Overaccumulation of capital – lack of profitable investment opportunities – lies at the root of capitalism’s crisis tendencies. One major reason behind the crisis of profits that emerged in the late 1960s, then, was that firms encountered increasing constraints on opportunities for profitable investment as the post-war boom (founded, amongst other things on the opportunities opened up by the massive destruction of capital in the war and by post-war reconstruction) petered out. The effects of this can be seen in the marked slow-down in rates of growth from the 1970s onwards compared to previous decades (the average rate of annual GDP growth in Western Europe from 1950-73 was 4.79%, while from 1973-03 it averaged 2.19%).

Capitalism responded to this crisis in several ways. It sought to ‘go global’ in order to seek out cheaper pools of labour and to open up new investment opportunities abroad. Under Thatcher and Reagan especially, it launched an assault on trade unions and pushed up unemployment in order to weaken organised labour and drive down wage costs at home. Finance was also, increasingly, deregulated in order to soak up excess capital looking for profitable outlets. Some of the initial solutions, however, soon created further problems for capital. Repression of wages, of course, drove down workers’ spending power and thus reduced the rate of effective demand. Capital’s solution to this problem was to extend the credit system and to ramp up debt-fuelled consumer spending. This strategy intertwined with wider moves to deregulate finance and with the rapid acceleration of ‘financialisation’. Credit-fuelled consumption, together with asset price inflation drove growth for a while. However, this solution, in turn, eventually became the source of serious problems for capitalism because it ‘ultimately led to working-class over-indebtedness relative to income that in turn led to a crisis of confidence in the quality of debt instruments’.[13] The crisis that emerged in the US ‘sub-prime’ market brought into full view the extent to which major financial institutions had become perilously overextended and, indeed, the extent to which growth had been reliant on ballooning of debt.

What we saw, then, from the 1970s onwards was a series of temporary fixes to a deeper structural problem in which each fix raised further problems that had, in turn, to be temporarily solved with further fixes. Indeed Capitalism, as David Harvey points out,[14] never really resolves its crisis tendencies – they are merely shifted around, postponed and held off. Capitalism finds a way of overcoming one crisis only to discover, sooner or later, that the terms of this solution, in turn, throw up new problems which develop into a new crisis. As all of this suggests, crisis is inherent to capitalism. Crises are not anomalous events, deviations from the ‘natural’ or normal functioning efficiency of capitalism. They are part and parcel of the logic of the system. They stem from capitalism’s systemic imperative – perpetual accumulation (for accumulation’s sake) under the pressure of competition.

Further, Harvey suggests that capitalism may well find it particularly difficult to find its way out of this crisis and get back to adequate rates of long-term growth.  Capitalism, he suggests, is running into serious constraints in relation to the ‘capital surplus absorption problem’ and this, indeed, is a key problem underlying the current crisis. It is generally agreed, as Harvey points out, that a ‘healthy’ capitalist economy must expand at a rate of about 3 per cent per annum. This means, of course, that more and more capital surplus must be absorbed – more and more profitable investment outlets for this growing surplus must be found every year.  In 1950 global capitalism needed to absorb $0.15 trillion in surplus capital, in 1973 it needed to find new outlets for $0.42 trillion and, if we are to return to 3 per cent compound growth today, $1.6 trillion in surplus capital would need to be profitably invested. If sustained growth returns the world economy will need to absorb some $3 trillion in surplus capital by 2030.[15] This, Harvey remarks, is ‘a very tall order’.[16] The depth of the current crisis may well be a reflection of this problem.

It is worth noting that ‘financialisation’ represented a response to very real pressures on profitable accumulation – it was a way of soaking up excess capital given the weakness of profitability in the productive sector. The deregulation of the financial markets and the concomitant extension of credit and debt did not simply represent, as social democratic and Keynesian theorists tend to suggest, an ideologically driven, bad policy choice on the part of neoliberals. A solution to the problems we face then, cannot be as simple, as some sort of return to the post-war ‘Keynesian consensus’ in which financial regulation is tightened up and the financial markets put back in the box from which they escaped after the 1970s. The real structural pressures to which ‘financialisation’ was a response are still there and remain unsolved.

One of the biggest problems humanity currently faces is, of course, the looming ecological crisis. There is an overwhelming consensus amongst climate scientists that the planet cannot absorb the huge amounts of CO2 currently being pumped out into the atmosphere for very much longer without triggering irreversible climate change. Furthermore, human activity since industrialisation has had a hugely damaging effect on the Earth’s biosphere as a result of demand for ever increasing amounts of food, water, mineral resources, fossil fuels, timber and so on – and this destruction is continually accelerating. Massive deforestation, pollution, destruction of entire ecosystems and species extinction are some of the effects. This ecological crisis is largely driven by capitalism’s insatiable need for expansion. The logic of perpetual accumulation for accumulation’s sake compels capitalism to plunder more and more of the planet’s resources, burn greater and greater quantities of fossil fuels and fill the atmosphere with more and more CO2. It is surely clear, however, that infinite growth on a planet with finite resources is a logical absurdity. We are approaching the point at which the planet can no longer support ever increasing rates of consumption – and thus we are approaching the point at which the economic system becomes wholly incompatible with ecological sustainability.

We have seen, then, that the current crisis is the latest (and most serious) of a series of crises that have plagued capitalism since the petering out of the long post-war boom and stems from a major underlying structural difficulty – chronic overaccumulation of capital. We have also seen that financialisation and neoliberalism represented responses to real pressures on profits on the part of capital – these processes were not simply ideologically determined choices on the part of political leaders. Given all of this it is difficult to see how a stable, long-term solution to the current crisis can be found within the confines of the current system except through massive destruction and devaluation of overaccumulated capital (letting unprofitable firms and banks go bust) to restore the rate of profit – but this would be a dangerous strategy which would almost certainly involve a prolonged serious slump. Further, we have also seen that the planet is, anyway, unable to support for much longer any return to perpetually accelerating growth in consumption – capitalism is simply incompatible with ecological sustainability. So while, in the short term, a public spending stimulus is needed to drag the economy out of the immediate crisis of stagnation and to get people back to work we also need to develop plans for massive structural reform of the economy so that we can begin to shift society towards a new economic model which is ecologically sustainable and governed by the priority of satisfying democratically determined human needs rather than by the insatiable and destructive drive for profit.

Back to the AES

The AES was formulated in broadly similar economic circumstances to the ones we are in currently. The basic thinking behind the strategy centred on the notion that the crisis then could be ‘resolved’ in one of two general ways – in the interests of big business and the wealthy or in the interests of ordinary people. The first kind of ‘resolution’ would involve an attack on wages, the labour movement, the public sector and the institutions of the post-war consensus (and this, indeed, was the way things worked out with the coming to power of Thatcher). The second, alternative route, however, would involve a ‘resolution’ of the crisis in such a way that would produce a much more egalitarian and democratic society. For more radical variants of the AES, this second route would entail the beginnings of a transition to socialism rather than to a beefed-up version of the post-war mixed economy system. Most variants of the AES shared all or most of the following key elements in common:[17]

  • A major policy of expansion to stimulate growth and reduce unemployment based primarily on increases in public spending
  • A democratically determined national economic plan which would identify national macroeconomic priorities and coordinate these with planning at the level of the firm
  • Nationalisation of major financial institutions
  • Stringent controls on international capital movements
  • A National Investment Bank to channel financial resources in line with strategic national economic priorities
  • An industrial strategy based on extended public ownership of key firms and statutory planning agreements with large private firms
  • Powers to control prices and imports
  • The democratisation of the economy through the involvement of trade unions in the planning process and through introduction of industrial democracy in nationalised industries
  • The radical redistribution of income and wealth through for example a steeply progressive tax system

At the core of the AES, then, was a plan for the massive reflation of the economy, which it was hoped would pull the economy out of recession and increase employment – but this public spending stimulus would be harnessed in such a way that would lead to major restructuring of the economy and to radical social transformation. In particular, power would be shifted away from big business and big banks and a strong measure of democratic control would be asserted over the economy. This was a serious response to the crisis of the 1970s which sought to find a radical, socialist resolution of the problems it was clear that the social democratic form of Keynesian demand management that had characterised the ‘post-war consensus’ could not deal with – and which was spurred on by the realisation that if a left-wing route out of crisis was not found, the free market right were waiting in the wings to unleash their own brutal form of resolution.

In some ways we find ourselves in a similar situation today. We are in a deep crisis and it is clear that the policies of economic management that have characterised the past few years – (tacitly) based on credit fuelled growth and asset price inflation – are simply not viable anymore. We face a free market right insistent on austerity which, as it becomes clear to them that their current policies are not working, is likely to turn to even more vicious measures. Beecroft’s recent proposals on labour market ‘flexibility’ are an early indication of the sort of route they are likely to go down – attempts to dilute or remove important workers’ rights and force down wages. We desperately need to assert a left alternative and it seems to me that the AES provides some useful resources for thinking about the kind of programme that might be needed. Of course, I am not going to suggest that the AES could be transplanted wholesale into current circumstances. Clearly it was formulated in a specific conjuncture and there are parts of it that would not be appropriate or relevant today.  Nevertheless there are elements of AES thinking that we can draw on.

An Alternative Economic Strategy for Today

As we have seen, the only way to break out of the current spiral of decline is to end austerity and to boost growth through raising demand. A socialist economic strategy would begin with a massive stimulus package financed through public borrowing. Such a programme should more than pay for itself (and, further, help to reduce the accumulated debt) through the kick-starting of economic growth and thus the generation of increasing tax revenues and the lowering of unemployment benefit payment costs. Furthermore, restructuring of the tax system – stamping out tax avoidance, implementing a robustly progressive income tax regime in which the wealthy and the super-rich are required to pay their fair share and the implementation of a land value tax together with a ‘Robin Hood tax’ on the banks and perhaps a ‘Tobin tax’ on international currency transactions (though the latter would require international coordination) – would raise enormous funds to cover government investment.


Direct government spending is not the only way to deliver an economic stimulus. As we’ve seen one of the AES policies was for the utilisation of a National Investment Bank. Indeed such an institution has been proposed by several commentators today as a means for addressing the current crisis. Burke, Irvin and Weeks, for example, propose that a National Investment Bank could draw directly on the financial resources of the part-nationalised banks (the government still owns 83% of RBS and  41% of Lloyds-TSB) to invest in sectors of the economy prioritised by the government.[18] Such an institution, further, would be able to raise large funds from private capital markets.

This spending would be carefully and strategically targeted – investment would be designed to kick-start more sustainable growth, create jobs and to reorient the economy away from its excessive reliance on the financial sector and debt-fuelled consumption toward more productive economic activity. Priority areas for investment should include investment in green, low-carbon infrastructure – particularly in transport and in energy. The UK has long suffered from low rates of investment in public infrastructure and a major investment push to bring it up to international standards would generate jobs and growth. One of the major areas for investment should be renewable energy based on wind, wave and solar power which would radically reduce carbon emissions and also create jobs in manufacturing, construction and engineering. A major scheme to make existing homes and businesses more energy efficient would also generate considerable employment and help to reduce the national carbon footprint still further. In addition, a publically funded project to build new, affordable and energy efficient houses would create still more jobs.

In addition, government policy should include a strategy for the managed downsizing of the financial sector. The authors of the ‘Green New Deal’ have put forward some useful ideas in this respect.[19] They suggest, for example, that tighter controls on lending and credit creation are introduced. This might include the reintroduction of stringent ‘fractional reserve requirements’ on private banks. They propose the forced demerger of large banking and financial groups and (bound up with this) the separation of retail from investment banks. They suggest that all derivative products and other exotic financial instruments should be subjected to strict regulation – only products approved by government would be allowed to be traded. Further, they argue for the imposition of robust capital controls to allow the state to exert control over the national inflow and outflow of capital and thus restore some measure of ‘policy autonomy to democratic government’[20] in the face of otherwise destabilising international  financial movements. Coupled with the channelling of investment – perhaps via the National Investment Bank – into manufacturing production and research and development, measures like these would help to rebalance and restructure the economy away from over-reliance on the financial sector.

The sort of programme outlined above incorporates, or at least echoes, some of the policies that went to make up the AES of the 1970s and early 1980s. Though the AES was associated with the left of Labour there is no reason why the programme I have just described could not be implemented by a ‘moderate’ left-of centre party committed to mildly social democratic objectives – there is no reason, given the seriousness of the current crisis, why the current leadership of the Labour Party could not commit itself to a similar set of policies without too much trauma. If we on the left, however, want to go beyond a sort of green ‘muscular Keynesianism’ toward a programme for the far-reaching democratisation of the economy and for a transition toward an economic logic based primarily on production for need rather than for profit – as, indeed, I suggested is necessary given the scale of the ecological crisis we face, given capitalism’s inherent tendency towards crisis and given the deep structural crisis of capitalism currently which is likely to place severe limits on growth over the long-term (though growth via stimulus is certainly possible, we are unlikely to repeat the experience of the decades long post-war boom before slump sets in again) – we will need to push, in addition, for measures resembling the more radical components of the AES.

A more radical programme would include, in addition to the above, nationalisation of major banks and financial institutions under democratic control and the bringing into public ownership under democratic control, too, of a string of industrial firms. Taking a large proportion of the financial sector into public ownership would allow financial resources to be allocated according to social, ethical and environmental criteria. Similarly, the nationalisation of industrial firms would allow their activities to be oriented increasingly towards socially useful and environmentally sustainable production. Furthermore the bringing into public ownership of much of the heavy manufacturing and engineering sector would help to facilitate the major, coordinated industrial restructuring and research and development investment that would be necessary for the design and construction of a green national energy infrastructure. As advocated by the architects of the AES, our socialist strategy could include the development of compulsory planning agreements between the government and large private firms. These planning agreements would allow the government to secure major firms’ compliance with national strategic economic objectives. The planning agreements system would also be designed to allow access to information on major private firms’ investment plans, product development, import requirements and so on which would help with the identification and modification of national planning objectives.

Radical forms of collective democratic management and workers’ control could be explored within nationalised firms. Furthermore, as proponents of the AES suggested, trade unions and worker delegates could be involved in the formulation of planning agreements alongside government representatives and employers in order to democratise, to some extent, planning in private firms. Democratic planning at the level of the firm would be integrated into a wider, national system of planning. Broad, strategic macro-economic parameters would be decided at the national level – perhaps on the basis of a series of alternative plans drawn up by planning experts which could then be voted on by the population as a whole or by democratically elected national representatives. Within these established overall guidelines the details of the national plan could then be progressively filled out on a decentralised basis – at a regional and local level, and also at an industrial sector and production unit level – on the basis of democratic deliberation, negotiation and majority voting. Workers’ councils within nationalised industries under democratic control, for example, would be responsible for the day to day running of their firm but would manage productive activity within the planning framework elaborated democratically at, for example, sector, local, regional and national levels. Of course, democratic planning and control should not be confined to the narrowly ‘economic’ sector. The entirety of the public sector – the education system, welfare system, NHS and so on – should be opened up to collective, democratic and participatory forms of management.

The basic aim of such a radical strategy would be to introduce a socialist logic to the functioning of the economy (and society more widely) that would help us begin to break with the logic of capitalism. As ordinary people, through experience of democratic planning, became more confident in their capacity to make investment decisions and organise production and so on collectively, this logic could be progressively extended to encompass the entirety of the economy.[21] Of course, different kinds of socialists will have different views in relation to whether and to what extent such a process of socialist transition could be a smooth and gradual one. Many would argue that, sooner or later, such a process of transformation would encounter intense (and structurally embedded) forms of resistance from capital that would necessitate a choice between retreat and complete reversal of socialist reforms or, alternatively, a swift and radical break with capitalism. But socialists of many persuasions could agree on something like the package of reforms described above as at least a way of starting a process of socialist transition – whatever shape we think such transformation must take eventually. It is also worth pointing out that such a strategy would depend for its success on the existence of friends and allies implementing similar processes of transformation abroad. Certainly a country attempting to go it alone with such a strategy would – at least beyond a certain point – find itself hopelessly isolated in the face of hugely powerful international economic and political forces. But socialists have long known that socialism must be international if it is to exist at all.

Of course it might be objected that it is very difficult to see how a radical strategy such as the one described above could ever even come on to the political agenda, let alone be implemented, in the UK. Making this objection, however, would be to underestimate the depths of the current crisis and the potential for a further very drastic worsening of the international economic situation. At the time of writing, the Eurozone is teetering on the edge of collapse – which threatens to plunge us into another acute financial crisis at least as serious as the one that hit in 2008 and, perhaps, an extremely serious global slump. Even if this nightmare scenario is avoided, the international economy looks set for years of stagnation or low growth – especially if the architects of austerity continue to have their way. This means years of growing unemployment and increasing hardship for many. It’s in these conditions that socialist ideas are likely to gain more and more traction – but only if the left is prepared to think big and articulate clear and ambitious solutions appropriate for the enormity of the problems we face.  I’ve suggested, here, that some of the ideas developed amongst the British left during the last major economic downturn – the ideas that went to make up the AES – provide valuable resources to help us in relation to this task.

[10] Lex, ‘UK corporate tax: a missed opportunity’, Financial Times, 12 March 2012

[12] Brenner, Robert (2005) The Economics of Global Turbulence (London, Verso)

[13] Harvey, David (2010) The Enigma of Capital: And the Crises of Capitalism (London, Profile Books), p. 117

[14] Ibid. p. 117

[15] Ibid, pp. 26-27, p. 216

[16] Ibid, p. 27

[17] This summary of the AES’s key features follows quite closely, but is not identical with, the summary provided in Conference of Socialist Economists London Working Group (1980) The Alternative Economic Strategy: A Response by the Labour Movement to the Economic Crisis (London, CSE Books), p. 6.

[20] Ibid, p. 24

[21] A detailed model of a democratically planned economy is set out in Devine, Pat (1988) Democracy and Economic Planning: the Political Economy of a Self-Governing Society (Cambridge, Polity).


Timid Labour must rediscover its economic edge

First published in the Guardian, ‘Comment is Free’, 28 September 2011

Ed Balls’s assessment of the current economic situation in his speech at the Labour party conference wasn’t exactly upbeat: “These are the darkest, most dangerous times for the global economy in my lifetime.” Few can doubt that Balls is right to be extremely worried – we are facing a severe crisis of capitalism. In fact, if anything, his speech underplayed the severity of the current situation. It’s not just that we face years of stagnation, it’s that we are, again, on the edge of economic meltdown as the eurozone crisis threatens to tip the world into a 1930s style crash.

Nevertheless, Balls’s assessment of the danger that confronts us was terrifying enough. Given his account of the bleakness of our predicament you would be forgiven for thinking that he might have used the rest of his speech to set out an appropriately radical and bold series of measures. The policies he actually went on to outline, however, were laughably tame: his key proposals were for cuts in VAT and a national insurance “holiday” for small firms talking on extra employees. This certainly came as a bit of an anticlimax after all that rather dramatic talk of darkness and danger.

The pitiful inadequacy of Balls’s proposals is entirely in keeping with the general timidity of Labour’s response to the crisis. The seriousness of the economic situation demands radical measures. Yet serious, ambitious thinking in relation to economic policy is nowhere to be seen within Labour. The intellectual energies of the party are currently confined to the rather depressing debate between Blue Labour’s “faith, family and flag” approach and Purple Labour’s warmed-over Blairism. Neither faction has very much to say about economic strategy.

As David Osler has pointed out, it is interesting to contrast the timidity and poverty of Labour’s response to the economic crisis today with the relative vitality, creativity and ambition of Labour thinking during the last period of major economic downturn. During the crisis of the 1970s, a collection of figures and organisations clustered around the left of Labour formulated a radical set of policies for economic recovery. This set of interlocking policies was collectively termed the Alternative Economic Strategy (AES). In fact, several distinct versions of the AES were produced over several years by different groups. One of the most remarkable things about the AES project was its democratic pluralism and openness – it drew on the creative energies of a wide range of people within the labour movement. Almost like a piece of open-source software today, the AES was taken up, tweaked and adapted by different groups and organisations. Among the most influential AES variants were those developed by Stuart Holland (a close ally of Tony Benn) and Sam Aaronovitch. All variants were rooted in the view that the economic crisis could and should be resolved in such way that produced a more egalitarian and democratic society.

At the core of the AES strategy was the idea that the state should organise a major programme of investment to stimulate growth. This would be combined with a broad programme of public ownership (including nationalisation of major financial institutions). Nationalisation of banks and key firms would allow the government to directly channel and target investment in line with strategic economic priorities and to restructure the economy in favour of the productive sector. The programme of investment in publicly owned enterprises would be supported with a system of planning agreements between major private firms and the state. Furthermore, capital controls would be introduced to prevent capital flight and minimise speculative transactions. Some AES variants also envisaged the setting up of import controls to protect the balance of payments.

There were frequent disagreements among AES proponents – many criticised the idea of import controls, arguing that they would export unemployment and provoke international retaliation. Many others were critical of the degree of state centralisation that the plan seemed to involve. In response to this problem more radical versions of the AES incorporated plans for industrial democracy and workers’ control in the nationalised industries and advocated the democratisation of the planning process so that the national plan would reflect democratically determined priorities.

The AES had a major impact on the Labour party – no version of it was ever adopted wholesale – but elements of it were incorporated into official party policy. It is easy to find fault with much AES thinking, but looking back at discussion of the AES you are struck by the impressive ambition and willingness to “think big” that characterised this debate. It is certainly striking how timid current Labour thinking is by comparison.

Some elements of the AES, perhaps, provide useful resources to draw upon today. For sure, any serious strategy of recovery must centre on a major programme of government investment and perhaps this will require, along the lines of the AES, an extensive programme of public ownership. A strategy for growth certainly requires more than the sort of minor fiddling about with VAT and national insurance Balls is proposing.

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Review of David Harvey’s The Enigma of Capital

[This is a longer version – an earlier draft I had to cut down – of a review which first appeared on the Marx and Philosophy Review of Books website]

David Harvey, The Enigma of Capital:  and the Crises of Capitalism. Profile Books, London, 2010.

Mainstream economics, David Harvey points out, was taken completely by surprise when the current crisis first broke in 2007-8 and is still unable to provide an adequate account of the major economic difficulties still on-going two to three years later, let alone identify a convincing exit route.  It has never been clearer that the quasi-mathematical abstractions and dogmatic, otherworldly assertions that go to make up neoclassical orthodoxy simply do not successfully describe real economic processes. Yet, as Harvey laments, even despite its obvious failings, neoclassical economics continues to exert a tight hegemonic grip in universities and elsewhere. Indeed, one can’t help but admire the sheer chutzpah of a school of thought which, when confronted with economic realities that it cannot explain and which, indeed, seem to run counter to many of its central assumptions, simply carries on regardless (after, perhaps, a very brief moment of self-doubt) as if nothing very much had happened. Harvey’s aim in The Enigma of Capital is to cut through the hopelessly myopic orthodoxy and help restore a critical understanding of the systemic logic of capitalism and of the role that periodic crisis plays within that logic.

The organising metaphor that Harvey deploys at the beginning of the book is to describe capital as the ‘lifeblood that flows through the body politic… spreading out, sometimes as a trickle and other times as a flood, into every nook and cranny of the inhabited world’ (p. vi). Indeed the focus throughout the book is on the ‘flow’ of capital – which, for Harvey, is not a ‘thing’ but a constantly moving and dynamic process which cannot be analysed in static terms.  Like the human body, capitalism must be understood as an organic system that is constantly in motion – one cannot fully grasp any one component element of capitalism except in relation to its place within the systemic whole, just as one could not really understand the significance of a particular organ of the human body without reference to its function within the corporal totality. Furthermore, capitalism, for Harvey, is permanently in flux – constantly shifting and renewing itself in a perpetual process of what Schumpeter termed ‘creative destruction’.  For Harvey, Marxism provides by far the best conceptual and theoretical resources with which to understand capitalism – it is the only approach that is adequately equipped to analyse capitalism in the dialectical, dynamic terms that can provide us with an understanding of the systemic character of capital flow. It is, moreover, the only approach that can provide us with an adequate understanding of capitalist crisis, including the crisis that we are currently living through. In this respect, Harvey’s metaphorical description of capital as the ‘lifeblood’ of the body politic is particularly useful. As the ‘lifeblood’ of capitalism, should the flow of capital be slowed down or suspended the whole system goes into crisis. Much of the book is taken up with analysis of the various obstructions and barriers to capital flow that can bring about crisis.

The book begins with a detailed account of the current crisis. Harvey then sets this crisis in longer term historical context – presenting it as the latest (and most serious) of a series of structural crises that have emerged since the long post-war boom petered out in the early 1970s. For me, this is one of the most impressive sections of the book. Harvey manages to provide an in-depth, but still highly accessible, overview of the present crisis and of major macroeconomic developments and trends over the last 40 or so years in just under 40 pages. This is no mean feat. Harvey’s narrative here is of great interest. Capitalism, he explains, has in effect moved from one crisis to another since the end of the long boom. With falling profitability as the boom slowed, capital found the relative political and economic strength of organised labour (whose strength was institutionally embedded in, and bolstered by, the corporatist structures of the ‘Keynesian consensus’) increasingly constraining. Scarcities of labour further contributed to the problem. Capital and its political representatives responded to this crisis in a number of complementary ways in order to drive down wages – encouraging immigration to ease labour shortages and to undercut unionised labour, ‘going global’ in order to seek out cheaper pools of labour abroad and, probably most significantly, using state power to crush organised labour at home either directly (in, for example, Thatcher’s and Reagan’s confrontations with British miners and American air-traffic controllers respectively) or indirectly through the deliberate pushing up of unemployment. The overcoming of labour cost problems, however, eventually created further problems for capital – repression of wages simultaneously drove down workers’ spending power, too, and thus reduced the rate of effective demand. Capital’s solution to this problem was to extend the credit system and to encourage debt-fuelled consumer spending. However, this solution, in turn, eventually became the source of serious problems for capitalism because it ‘ultimately led to working-class over-indebtedness relative to income that in turn led to a crisis of confidence in the quality of debt instruments (as began to happen in 2006)’ (p. 117). Furthermore, the financial crisis that blew up in 2007-8 must be seen as the culmination of a series of inter-related financial crises over recent years (each with a different geographical epicentre) – the East-Asian crisis of 1997, the Russian crisis of 1998, the Argentine crisis of 2001. The 2007-8 crisis was the moment at which this rolling series of crises finally ‘came home’ to the centre of global finance. Capitalism, Harvey points out, never really resolves its crisis tendencies – they are merely shifted around, postponed and held off. Capitalism finds a way of overcoming one crisis only to discover, sooner or later, that the terms of this solution, in turn, throw up new problems which develop into a new crisis.

Capitalist crisis can erupt and manifest itself in myriad forms (much of the content of later chapters, as we shall see, is given over to a taxonomic account of the various limits and barriers that can obstruct capital accumulation). Underlying all of this, though, is a key problem – something that is, for Harvey, the fundamental source of capitalism’s crisis tendencies. He terms this ‘“the capital surplus absorption problem”’ (p. 26). This concept links in closely with Harvey’s ideas in relation to capitalism’s tendency towards ‘overaccumulation’ of capital more fully set out in previous publications (most notably The Limits to Capital). The logic of capital is one of perpetual accumulation – capitalists are forced, under pressure of competition, to recapitalise and reinvest in expansion a proportion of the surplus they produce. The corollary of accumulation at the level of the firm is, at the aggregate level of the economy as a whole, economic growth. The volume of capital flow must constantly increase. If capitalists encounter blockages in this process – if they fail to expand the volume of surplus they produce – the effect must be that they run into severe problems. At the level of the economy as a whole, absence of growth brings recession or depression.  All of this requires, of course, that new profitable outlets for investment are found so that the surplus can be absorbed and accumulation can continue. Overaccumulation of capital – lack of profitable investment opportunities – lies at the root of capitalism’s crisis tendencies.

As all of this suggests, crisis is inherent to capitalism. Crises are not, from a Marxist perspective, anomalous events, deviations from the ‘natural’ or normal functioning efficiency of capitalism. They are part and parcel of the logic of the system. In fact, as Harvey is at pains to point out, periodic crisis is absolutely necessary and indispensable for capitalism – it is the means by which capitalism renews itself. Crises devalue or destroy surpluses for which no profitable outlets can be found, clear-out inefficient capitals, push down wages through expansion of the ‘reserve army of labour’ and purge the system of debt for example, so creating the basis for renewed and reinvigorated growth.  As Harvey puts it, crises are the ‘irrational rationalisers of an irrational system’ (p. 215). Crises, however, are also moments of acute vulnerability for capitalism in which political opposition to it typically grows (although this opposition is also, typically, inchoate) – there is nothing inevitable about whether or how crisis is (temporarily) resolved.

Indeed, Harvey seems to feel that capitalism may well find it particularly difficult to find its way out of this crisis and get back to adequate rates of long-term growth.  Capitalism, he suggests, is running into serious constraints in relation to the ‘capital surplus absorption problem’ (and has been since the early 1970s) and this, indeed, is a key problem underlying the current crisis. It is generally agreed, as Harvey points out, that a ‘healthy’ capitalist economy must expand at a rate of about 3 per cent per annum. This means, of course, that more and more capital surplus must be absorbed – more and more profitable investment outlets for this growing surplus must be found every year.  In 1950 global capitalism needed to absorb $0.15 trillion in surplus capital, in 1973 it needed to find new outlets for $0.42 trillion and, if we are to return to 3 per cent compound growth today, $1.6 trillion in surplus capital would need to be profitably invested. If sustained growth returns the world economy will need to absorb some $3 trillion in surplus capital by 2030 (see p. 216 and see also pp. 26-27). This, Harvey remarks, is ‘a very tall order’ (p. 27). There simply must come a point where capital accumulation outstrips the capacity of the world economy to absorb the growing surplus of capital. We may, Harvey indicates, be reaching this point. The depth of the current crisis may well be a reflection of this problem.

Harvey seems to feel that there are two possible ways out of this crisis for the capitalist class. The first route is a reversion to large-scale fictitious capital manipulations – speculation in asset prices and the like – of the sort that brought on the present crisis. Even if such a return to debt-financed growth can be arranged it cannot fail, however, to produce another deep crisis in a few years’ time when that bubble, too, inevitably bursts. The second exit route involves massive destruction of excess capital and a fundamental restructuring of world capitalism. This route also involves shifting most of the costs of readjustment onto the working class and the poor. Harvey is clear that any attempt to return to long-term growth through by such means will involve large-scale infliction of hardship and suffering on the mass of people and that, furthermore, ‘[more] than a little political repression, police violence and militarised state control will be necessary to stifle the ensuing unrest’ (p. 216). Nevertheless, Harvey is not at all convinced that either route can be successful – he warns that there may be no effective long-term capitalist solutions to this crisis.

After having provided an account of the current crisis and its historical origins and after having introduced us to the ‘capital surplus absorption problem’, Harvey moves on to examine the different types of blockages and obstructions to capital flow that can bring about capitalist crisis. The bulk of the book is devoted to analysis of these barriers. One of Harvey’s major arguments is that – beyond the general underlying problem of capital surplus absorption at least – it is a mistake to seek to identify ‘one dominant explanation for the crisis-prone character of capitalism’ (p. 116) and that, instead, we should ‘recognise the multiple ways in which crises can form in different historical and geographical situations’ (p. 117). As he points out, there are three major schools of thought within Marxism in relation to theorisation of capitalism’s tendency towards periodic crisis – the profit squeeze tradition, the falling rate of profit tradition and the underconsumptionist tradition. None of these approaches are adequate according to Harvey because they seek to provide monocausal explanations of crisis and, as such, fail to grasp the fact that crises can stem from many different factors. Harvey argues that it is much more helpful to think about crisis formation in terms of barriers that disrupt or slow down the flow of capital and to recognise that these barriers can take many different forms. Harvey is also keen to stress that none of these barriers constitute absolute limits – that, in principle, capital can find ways to overcome or circumvent any one of them – but that we should also recognise that capital is always and perpetually running up against new barriers. Furthermore, the very solutions that capital finds that enable it to overcome one barrier will often throw up further barriers to deal with. There is, then, a fluid, dialectical logic to crisis formation – solutions are perpetually transformed into problems.

Harvey identifies six general kinds of potential barriers. These are:

i) insufficient initial money capital; ii) scarcities of, or political difficulties with, labour supply; iii) inadequate means of production, including so-called ‘natural limits’; iv) inappropriate technologies and organisational forms; v) resistance or inefficiencies in the labour process; and vi) lack of demand backed up by money to pay in the market. (p. 47)

‘Blockage at any one of these points’, Harvey argues, ‘will disrupt the continuity of capital flow and, if prolonged, eventually produce a crisis of devaluation’ (p. 47). Perhaps the most interesting (and, possibly, the most controversial) part of this analysis is Harvey’s discussion of potential ‘natural limits’ to accumulation. Harvey does not deny that capitalism is likely to encounter ecological ‘limits and barriers which will become increasingly hard to circumvent’ (p. 72) and is open to the possibility that there ‘may be an imminent crisis in our relation to nature that will require widespread adaptations (cultural and social as well as technical)’ (p. 78). However, Harvey is sceptical in relation to the idea that absolute, impassable or ‘final’ ecological limits to capital accumulation exist. Capital, Harvey stresses, is hugely adaptable and he suggests, furthermore, that there ‘are all sorts of ways… in which supposed limits in nature can be confronted, sometimes overcome and more often than not circumvented’ (p. 73). This view is founded, in part, on the observation that ‘nature’ is not simply some given and essentially unchanging entity and nor is it a sphere of reality absolutely separate from human society – the relationship between human action (including economic behaviours) and nature is inherently dialectical and constantly evolving.

In the next section of the book Harvey seeks to integrate an account of uneven development in space and time into his analysis of capital flow. This part of the book provides a very interesting analysis of the historical geographical evolution of capitalism from its beginnings to the present day. He points out, for example, that capitalism ‘seems to have evolved in ways somewhat similar to Stephen Jay Gould’s “punctuated equilibrium” theory of natural evolution’ (p. 130) –  long periods of reasonably stable and slow reform, punctuated by phases of revolutionary disruption. In this section of the book Harvey also provides an account of the ways in which capitalism continually produces new spaces and new space relations – capitalism’s geographical landscape is ceaselessly shaped and reshaped. He also analyses the tendency for ‘agglomerations’ or ‘clusters’ of inter-reliant capitals in close geographical proximity to emerge and sets out, in addition, the place and function of the (relatively autonomous) modern state within the logic of capital flow. There is also a brief account of imperialism in this part of the book which draws heavily on the notion of dialectical interaction between two ‘logics of power’ – the ‘territorial’ and the ‘capitalist’ – first developed in his 2003 book, The New Imperialism.

Possibly the most important and novel aspect of this part of the book is Harvey’s identification, and delineation of the significance, of seven ‘activity spheres’. Drawing, and further elaborating, on a brief comment in Capital Volume 1, Harvey argues that capital ‘cannot circulate or accumulate without touching upon each and all of these activity spheres in some way’ (p. 124). These spheres are:

technologies and organisational forms; social relations; institutional and administrative arrangements; production and labour processes; relations to nature; the reproduction of daily life and of the species; and ‘mental conceptions of the world’. (p. 123)


No one of these spheres dominates even as none of them are independent of the others. But nor is any one of them determined even collectively by all of the others. Each sphere evolves on its own account but always in dynamic interaction with the others. (p. 123)

‘A study of the co-evolution of activity spheres’, he goes on to say, ‘provides a framework within which to think through the overall evolution and crisis-prone character of capitalist society’ (p. 124). Indeed, ‘we can reconceptualise crisis formation’, he suggests, ‘in terms of the tensions and antagonisms that arise between the different activity spheres’ – the interactions between them ‘are not necessarily harmonious’ (p. 123).

In the final chapter of the book, Harvey advances some general strategic guidelines and principles in relation to possible forms and methods of anti-capitalist struggle. Crises of capitalism, for Harvey, are ‘moments of paradox and possibility’ (p. 216) in which a space opens up for radical alternatives. He suggests that ‘it could be that where we are now is only at the beginning of a prolonged shake-out in which the question of grand and far reaching alternatives will gradually bubble to the surface in one part of the world or another’ (p. 225). As things stand, however, the radical left finds itself in something of a double-bind: its lack of a worked-out vision of an alternative social order ‘prevents the formation of an oppositional movement, while the absence of such a movement precludes the articulation of an alternative’ (p. 227). The way out of this bind, Harvey suggests, is to transform it from a vicious circle into a creative ‘spiral’ – both parts of the problem have to be turned into a sort of work-in-progress in which the development of each reinforces and drives on development in the other. Harvey suggests, further, that the theory of co-evolution of ‘activity spheres’ set out earlier in the book provides important conceptual resources for thinking about how a successful transition beyond capitalism might take place. Harvey suggests, in other words, that his co-evolutionary theory of social change might form the basis for a ‘co-revolutionary’ theory. Just as the historical evolution of capitalism involved inter-linked and interacting changes within each of the seven spheres, any transition towards a democratic and egalitarian post-capitalist society must also involve complementary changes and transformations within each one of these spheres. Harvey suggests that the failure of past endeavours to build socialism and communism can be understood in terms of the failure to see that wide ranging and radical changes within each of these spheres were necessary.  Harvey argues that a transformative anti-capitalist movement could start in any of the seven spheres. ‘The trick’, he continues, ‘is to keep the political movement moving from one sphere of activity to another in mutually reinforcing ways. This was how capitalism arose out of feudalism and this is how something radically different… must arise out of capitalism’ (p. 228). Left wing intellectuals can and must play a key part in this process, Harvey argues, and one of their key tasks is to unravel ‘the enigma of capital, rendering transparent what political power always wants to keep opaque’ (p. 241).

Harvey has certainly made a very powerful and important contribution to this process of unravelling. Though it covers complex processes and advances sophisticated ideas, the book is written in a relatively accessible style that will appeal to a wide readership. Indeed it is clear that Harvey’s intended audience extends beyond academia. There is, then, clearly a radical and democratic political purpose to Harvey’s elucidation of the logic of capitalism in this book – it is intended to contribute to popular debate in relation to the economic crisis and is, as such, designed as a serious political intervention. Harvey, indeed, operates in the best traditions of the politically committed ‘public intellectual’ – seeking to convey complex ideas in accessible terms to a broad audience with the intention of providing conceptual and theoretical resources to help inspire and guide political struggle. None of this, however, is to say that The Enigma of Capital will be of little interest to scholars. Harvey advances some very interesting and innovative new ideas in this book – the theory of dialectically intertwining ‘activity spheres’ for example – that surely make an important contribution to advanced debates in relation to the analysis of capitalism and to theories of social change. His reconceptualization of capitalism’s tendency towards crisis in terms of barriers to capital flow that can be manifested in a variety of forms also represents a powerful challenge to the current Marxist orthodoxy in this regard which tends to privilege one dominant causal factor in relation to crisis formation. The book also provides a very useful and interesting synthesis of many key ideas first put forward in previous works by Harvey – his theories of ‘spatial fix’, ‘time-space compression’ and ‘switching crises’, for example, are all integrated into the overview of the logic of capital flow presented in this book.

However the book contains a few weaknesses in my view. One of the most frustrating things about it is that Harvey is never quite clear about the relationship between the ‘capital surplus absorption problem’ and his account of the different kinds of barriers to capital flow that can bring on a crisis. Should these barriers be understood as different kinds of manifestations, or aspects, of the capital surplus problem? Is there any necessary connection or interaction between these barriers and the capital surplus absorption problem? Harvey does not spell this out and the reader is left, in the end, feeling slightly unsure of Harvey’s theory of crisis formation.

Harvey is also rather unclear about whether or not capitalism can return to long-term growth. At some points in the book one gets the distinct impression that he feels that it cannot and, at other times, that it can. Part of the problem, here, is that the relationship between the notion of ‘a return to long-term growth’ on the one hand and the notion of an exit-route from the current crisis, on the other, is rather ambiguous – are these distinct possibilities (so that it is possible to exit the current crisis, but without a successful return to long-term growth) or are the two synonymous? Harvey does not make this clear. The picture is clouded still further by the fact that Harvey’s focus seems to oscillate between the question of whether or not it is possible for capitalism to grow indefinitely and the question of whether or not it can find a way out of the current crisis – and, again, the relationship between these two questions is not completely clear.  His answer to the first question seems to be ‘no’ (but even this is not completely clear as I shall go on to explain) and at various points in the book he seems to suggest that capitalism is very close to reaching a point at which it simply cannot find outlets for the colossal capital surpluses that it has accumulated. If this is so, and the current crisis signals that capitalism is reaching impassable limits, it would seem that there is no exit route from the current crisis. At other times, however, Harvey seems to be quite emphatic that capitalism can find a way to exit from its current problems, which suggests – despite what he has written elsewhere in the book – that the ‘ultimate limits’ to accumulation are still some way off.

There is a further ambiguity. Harvey states that ‘compound growth for ever is not possible’ (p. 227) which, given that fact that perpetual accumulation of capital is absolutely fundamental to the logic of capitalism, implies that capitalism cannot survive for ever. Yet, in his discussion of the various limits and barriers to capital flow, Harvey is pretty clear that, in principle, capitalism possesses ‘sufficient fluidity and flexibility to overcome all limits’ (p. 46). There seems to be something of a contradiction here. Perhaps it is possible that Harvey means that it is only the ‘capital surplus absorption problem’ in general that cannot, in the end, be overcome and that it is only the various sorts of barriers to capital flow he identifies that capitalism may always, in principle, circumvent and dismantle. Even if that is the case, however, there is reason to question Harvey’s argument. For many socialists today, one of the key reasons to believe that capitalism is unsustainable and cannot continue for ever is the judgement that infinite economic growth on a planet with finite resources is impossible – that there are ecological ‘ultimate limits’ to capital accumulation. As we have seen, however, Harvey is sceptical about this. It is hard to see, though, why if, in principle, these ‘natural limits’ can be overcome, capitalism should not also possess the capacity for perpetual overcoming of problems related to surplus absorption (through creation of new consumer desires, new product ranges, new technology paradigms and so on). Furthermore, I am not at all convinced by the argument that there are no necessary absolute ecological limits to growth – in my view the arguments of ‘ecosocialists’ such as John Bellamy Foster are much stronger in this respect.

Many readers may baulk at Harvey’s dismissiveness in relation to the theory of the tendency for the rate of profit to fall (TRPF) which he argues is rendered ’more than a little moot’ (p. 94) by the long list of counter-acting influences Marx identifies – counter-tendencies that, notoriously, seem to entail that the TRPF seldom has any actual material effect. Even if one is not sure whether one agrees with his position, Harvey’s brusque scepticism in relation to a Marxist orthodoxy, here, is refreshing. Harvey’s neglect of a closely connected, but much more fundamental issue in Marxian economics is, for me, more concerning. Harvey makes very little mention of labour as the source of value (it is mentioned only in passing on a couple of pages) or of related matters such as surplus value extraction and exploitation of labour. This seems rather strange, to say the least, in a book about the flow of capital written from a Marxist perspective.

Another rather odd aspect of the book is Harvey’s unusual definition of socialism. He suggests, for example, that socialism:

aims to democratically manage and regulate capitalism in ways that calm its excesses and redistribute its benefits for the common good. It is about spreading the wealth around through progressive taxation arrangements while basic needs – such as education, healthcare and even housing – are provided by the state out of reach of market forces. (p. 224)

Communism, on the other hand, ‘seeks to displace capitalism by creating an entirely different mode of both the production and distribution of goods and services’ (p. 225). Few would dissent from the latter definition, but his definition of socialism is, for European leftists at least (perhaps Harvey articulates an Americanised understanding of the term), bizarre. What Harvey calls ‘socialism’ – a variety of capitalism with a human face – most (European) socialists would call ‘social democracy’. Harvey’s definition of socialism, it should be said, is not the same as Marx’s.

In addition, much of what Harvey has to say in the final chapter is unconvincing. Rather predictably, perhaps, this final part of the book in which Harvey discusses anti-capitalist alternatives and the possibility of building a movement against capitalism often descends into vague, hand-waving remarks. Certainly, there is much here that is valuable – the argument that a ‘co-revolutionary movement’ must seek to keep a mutually reinforcing dialectic of change within each of the seven ‘activity spheres’ in motion particularly so. Nevertheless there are echoes of Hardt and Negri and of John Holloway in Harvey’s conception of anti-capitalist strategy, which, while not totally eschewing the need for political organisation and clear that a left-wing movement cannot simply ignore state power, seems to me rather naïvely optimistic in relation to ideas such as the notion that a political movement against capitalism ‘can start anywhere’ (p. 228) and could operate (or so Harvey appears to suggest), simply, as some loose alliance of well-meaning people.

Despite these shortcomings The Enigma of Capital is, nevertheless, an extremely impressive book overall. It is almost certainly destined to become a seminal work amongst contemporary Marxist literature – as have so many of Harvey’s previous publications. Perhaps the most valuable property of The Enigma of Capital is that it manages to be accessible to non-specialist readers while still having many important things to say to scholars of political theory and political economy. As such, I would thoroughly recommend the book to anyone seeking to develop a critical understanding of the logic of capitalism.

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