I was intrigued to read this paragraph at the end of Chapter 4 of David Harvey’s “The Enigma of Capital and the Crises of Capitalism”:
A synoptic view of the current crisis would say: while the epicentre lies in the technologies and organisational forms of the credit system and the state-finance nexus, the underlying problem is excessive capitalist empowerment vis-a-vis labour and consequent wage repression, leading to problems of effective demand papered over by a credit-fueled consumerism of excess in one part of the world and a too rapid expansion of production of new products in another.
Written in 2010, this is a clear outline of the current state of the UK economy in 2014. On the surface, innovations within the financial system brought about a catastrophic crisis of global proportions. Policymakers at the time of the crisis were unwilling to allow the system to wholly collapse – as advocated by some neo-liberal fundamentalists at the time – arguably because they were part of a ‘group think’ which simply couldn’t conceptualise an alternative to propping up the banks. This is the ‘state-finance nexus’ of politicians so strongly connected to the existing financial system that maintaining it intact is the starting point for economic policy.
In trying to understand what is underneath these symptoms on the surface, the neoliberal revolution of the late 70s and 80s becomes significant. By altering the balance of power between employers and workers it allowed business to hold down wages and drive up profits. But this created another long term problem – who will buy the products churned out by an expanding economy? The neoliberal solution was to encourage credit to fuel a consumer boom which subsequently delivered the economy straight to the financial crisis of 2008.
The end result then is the current state of the UK. The government is committed to protecting the integrity of the financial system and the wealth of asset owners. With incomes for the majority stagnating tax receipts disappoint. Growth is delivered by returning to the asset inflation, credit, and consumerism that created the collapse in the first place.
The logical solution as outlined in the recent report from the OECD is to address inequality, increasing incomes at the lower end of the scale and thereby creating a wider market and higher demand, and a more sustainable route to growth.