A Great Fall: The Origins and Crisis of Neoliberalism

[marmar]

from Dollars & Sense:


A Great Fall: The Origins and Crisis of Neoliberalism
The First Part of a Two-Part Article

BY DAVID M. KOTZ | NOVEMBER/DECEMBER 2015


In the fall of 2008, a massive financial and economic crisis struck the United States and much of the world. The biggest American banks were suddenly insolvent and survived only thanks to government bailouts. A deep recession spread around the globe. The unemployment rate in the United States jumped up to 10%. Over the following five years, more than four million U.S. homeowners were tossed out of their homes due to foreclosure, as home values plummeted below the mortgage debt owed and unemployment cut household incomes. The economies of the United States, Europe, and much of the rest of the world have been stuck in stagnation or worse since 2008.

This condition is not something new in the history of capitalism. Capitalist economic systems—in which a small percentage of the population owns the enterprises, hires wage workers, and sells the products aiming for a profit—have brought economic growth but also periodic severe economic crises. To understand these recurring crises, we need to take account of the quite different forms of capitalism over time. While always having the key features noted above, capitalism has nevertheless not looked the same at all times. For several decades following World War II, the United States had a “regulated capitalism” in which government, trade unions, and other non-market institutions played major roles in regulating the economy. Since 1980, we have lived under “neoliberal capitalism,” in which the government retreated from regulation of business and markets, and trade unions were marginalized (see sidebar). In the past, each form of capitalism has worked well on its own terms—fostering investment and economic growth—for a few decades, after which snowballing problems gave rise to severe economic crises such as today’s.

The crisis of neoliberal capitalism has made it vulnerable to replacement by something else. Every past economic crisis of this severity has been followed by major changes in economic and political institutions. Earlier so-called “free-market” forms of capitalism have produced economic crises before in U.S. history—in the 1890s and the end of the 1920s. In each case, the crisis was followed by the construction of some kind of regulated capitalism, in response to the forces that had brought on the crisis. After 1900, Progressive Era reforms together with the rise of powerful Wall Street banks led to a corporate-dominated form of regulated capitalism. This lasted until the end of World War I, when another shift brought a decade of relatively unhindered pursuit of profit—the Roaring Twenties—that culminated in the 1929 crash. Eventually, a more thoroughly regulated capitalism, this time based on capital-labor compromise, emerged in the late 1940s. While history does not always repeat itself, there is good reason to expect that, if U.S. capitalism is to surmount the stagnation that has followed the crash of 2008, it will do so through another version of regulated capitalism, which can potentially address the problems that led to the current crisis.

Several big questions cry out for answers. Why did the last sea change, from regulated to neoliberal capitalism, take place—not just in the United States but in much of the world—around 1980? Why did a radically different form of capitalism emerge after decades of active state regulation and strong trade unions? Why did the post-1980 “neoliberal capitalism” eventually produce such a big economic crisis after 25 years of seemingly stable, if lackluster and unequally distributed, economic growth? And most immediately, what kind(s) of economic change are possible and likely today? The relative strength and determination of key economic classes has decided the direction of economic change in past crisis periods, and the current one is not likely to be an exception. ...................(more)

http://www.dollarsandsense.org/archives/2015/1115kotz.html

[truebluegreen]

1. Good read; thank you. nt