Really Existing Capitalism.

How the World Works?

It has been argued that the financial crisis of 2008 was caused by a failure of economic policy that there has been too much intervention and too much regulation. This is one of the genres, in terms of opinions and arguments, to emerge as an explanation of the causes of the crash of '08. The most right-wing pundits at Fox News, but also the Tea Parties and the World Bank, have been spouting this argument. The state hasn't stuck to the theory and principles of free-market capitalism and as a result the rest of us are suffering. These free-marketeers claim that if there had been less regulation and less taxation, and if there hadn't been bailouts in the past, the crisis would have never came about. Theoretically, market forces would have led to greater competition and innovation, which would have eliminated the kind of recklessness that led to this crisis.

This is in spite of the fact that the economies of the UK and the US have been financialised over the last 30 years, which was engineered mostly by the administrations of Thatcher and Reagan (but also Major and Clinton). Over the same time period the welfare state has decreased in size in both countries, the labour movement has been smashed, financial markets have been deregulated and effectively subsidised through generous tax-cuts. The state did have a role in enabling the financialisation of the economy and is partly responsible for the financial crises. But it was the internal structure of the banks which nurtured irresponsibility as part of company practice and such irresponsibility was exacerbated by the kind of market forces unleashed over the last three decades.

However it is true, as the free-marketeers claim, that capitalism does not really exist in its "pure form" in the West. The stock market may be free, due to the minor level of regulation and taxation that it is subjected to, but other areas of the economy like the labour market are not as free. Even so, the economies of the developed world are not egalitarian in terms of structure and remain explicitly capitalist. It would be more accurate to describe the economy of a country like Britain as state-capitalist, or even corporatist, as it is a mixed economy and there is still some kind of welfare state in the UK. In the UK and the US, the way the state interacts with the economy often amounts to socialising costs and privatising profits.

The closest examples we have to the free-market ideal are countries in the developing world where neoliberal reforms has been imposed undemocratically, usually through a dictatorship or a loan with strings attached by a fine institution like the IMF. Take Mali where over half of the population lives on less than $1.25 a day and the economy is "built" on agriculture, specifically cotton and cattle. Unlike American and European politicians, the Malian government actually believe in free-markets and as a result Malian beef and cotton producers cannot compete on a level playing field. As the US government subsidise cotton farmers with more funding than the Malian government spends on it's entire budget. And the EU subsidises farmers with 500 euros per cow, which is higher than Mali's GDP per capita. It would be easy to say that the US and the EU should not subsidise agriculture, but such measures are what have secured economic growth and development.

The Free-Market Utopia?

The advocates of "pure" capitalism like Milton Friedman, Friedrich Hayek and Ludwig von Mises supported statism as an invaluable step towards their utopia, whether their followers like to admit it is another matter. Hayek was an admirer of General Pinochet in Chile, after all it was the 'Chicago Boys' - who were inspired by Hayek, Mises and Friedman - who advised Pinochet on economic policy. When Hayek was interviewed by El Mercurio, a pro-Pinochet rag, he stated "Personally I prefer a liberal dictator to democratic government lacking liberalism." It was the devotion to neoliberal economics - specifically policies which consisted of anti-inflationary measures, spending cuts, privatisation and deregulation - under Pinochet that these puritanical ideologues fawned over. It didn't matter to them that these economic policies were incredibly unpopular and had to be imposed by illiberal means.

Ludwig von Mises admired Italian fascism as it "defended" private property and "saved" the European civilisation. He once wrote "It cannot be denied, that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilisation. The merit that Fascism has thereby won for itself will live on eternally in history." When the Austro-fascist dictator Engelbert Dollfuss began to crush the labour movement in 1934, Ludwig von Mises once again approved with glee and even worked as an economic adviser under Dollfuss. Mises went on to co-author a report with Dollfuss arguing that the the Great Depression was caused not by the free-market but by government interference.

This is the essence of free-market fundamentalism, when the boom ends in bust and we are plunged into a deep recession, it is not the markets that were responsible it was the state and those politicians who were not faithful enough to the theory. Similarly, in socialist states - really existing socialism - whenever the system failed it was communists who claimed that the failure was because we were not "pure enough". These claims were almost always followed by a "purge" of the "bourgeois tendencies" undermining the revolution and stifling socialism. We see the same claims being made at Fox News, for Glenn Beck the crash of '08 was caused by too much regulation and has been exacerbated by "socialist tendencies" in the Obama administration. The logic of this is to further perpetuate the system and further it's current trajectory.

There are no "socialist tendencies" in the US government, which is why the Treasury Department is referred to as "Government Goldman" by regulators as most of the players involved in drawing up economic policy are former bankers. The reason that Goldman Sachs emerged so well from the recession was because the Treasury Department was dominated by former Goldman employees, namely Hank Paulson et al. The American commentariat - specifically the radio-show hosts and pundits of the extreme Right - is fuelling common grievances and outrage going back over 30 years. The aim is to empower the most reactionary elements of the Republican Party. But this is nothing new, the same methods were used against Clinton with great success, and it ultimately led to the 8 year catastrophe known as the Bush Presidency.