We publish here a report and recording of a debate – hosted by the Sussex Marxist society – on “The Great Recession of 2008: what happened and what can we do now?” Participating in the debate were Adam Booth – editor of www.socialist.net – and Professor Frank Brouwer from the Department of Economics at the University of Sussex.
We publish here a report and recording of a debate – hosted by the Sussex Marxist society – on “The Great Recession of 2008: what happened and what can we do now?” Participating in the debate were Adam Booth – editor of www.socialist.net – and Professor Frank Brouwer from the Department of Economics at the University of Sussex.
On Tuesday 25th February the Sussex Marxist Society hosted a debate with the Sussex University PPE Society and Economics department on the topic of the ‘Great Recession’ of 2008 and the ongoing crisis.
The task for the speakers was to explain how the crisis had occurred, and to offer a solution. Presenting the Marxist case was Adam Booth, economics writer for In Defence of Marxism, and opposing was Frank Brouwer, an economics teachers at the University of Sussex
This jointly hosted event attracted a large crowd of around 50. After a brief introduction to the background of the debate, the speakers were given 30 minutes each to state their initial case.
The Marxist analysis
Adam began his opening speech by pointing out that the event of the 2008 crash itself and its repercussions into the global economy was part of the reason that many of the attendees had come in the first place. The crisis, which is particularly affecting youth and students, has caused huge changes in many people’s lives. A packed debate about the cause of and solution to the crisis shows that people who have been affected by it are looking for answers.
But, as Adam explained, the usual ‘experts’ have no explanation and, importantly, no solution for this crisis. Mainstream economists like Paul Krugman resort to Keynesian responses that say we need to spend our way out of the crisis, whilst those presenting a neoliberal case call for austerity and more deregulation. Both of these approaches have failed in the past however: Keynesianism led to the ‘stagflation’ of the 1970s and debt crises recently, and the neoliberal dominance of the past two decades directly preceded the current crisis, putting its supposed attractiveness to bed. Either way, there is talk of a ‘permanent slump’ and ‘permanent austerity’ – the economists have given up.
So, what is the Marxist approach to the crisis? Marxists, he explained, understand profit, around which the whole capitalist system is built, as the unpaid labour of the working class. This means that workers cannot buy back the goods they produce, as they are only paid part of the value of these goods.
Whilst this system, in which business owners compete for the highest profits, has in the past been extremely progressive, innovative and productive, it leads to a contradiction: crises of overproduction, where the economic problem, for the first time in history, is not that there is not enough to go around, but there is too much. There is poverty amidst plenty.
Adam explained how the capitalists will cut costs by reducing the wages of their own workers and replacing labour with machinery. But this capitalist requires the workers of other capitalists to be paid as much as possible in order for there to be enough money in the hands of potential buyers to buy the goods produced. There is a contradiction between what it is individually ‘rational’ for a single capitalist, and what is collectively rational, within the capitalist class and within society as a whole. Given that workers are never paid back the full value of the goods produced, this contradiction can never be fully overcome, but capitalism works around it temporarily with the expansion of credit.
Adam went on to explain the history of the twentieth century through this lens: the 1929 Wall Street Crash and Great Depression were the result of a collapse of credit, and were “solved” by World War Two and state planning of the economy during it. The ‘Golden Age’ of capitalism, the post-war boom of the 1950s and 1960s could then come about due to the massive wartime investment and destruction of industry, and was financed through Keynesian stimulus, which eventually gave way to the ‘stagflation’ crisis in the 1970s, with high unemployment alongside high inflation. Thatcherism and Reaganism arose at this point in order to drive down wages, through anti-union and ‘supply-side’ policies, to try to get the economy moving again. Since then, profits have risen while wages have stagnated. With lower wages, the original contradiction appears again, leading to a massive expansion of credit, setting capitalism up for the crash in 2008 and the Great Recession.
The solution, Adam explained, is to get rid of the system that is based on the unpaid labour of workers itself, which with its inherent contradictions inevitably leads to crisis. By nationalising the banks and big businesses under democratic workers control in order to have a rational plan of the economy, we could have the leisure time that it was promised technology would bring over the course of the twentieth century, so that everyone could participate in the running of society and the economy.
The orthodox economist
Frank opened by emphasising the role of the 2007 financial crisis in the creation of the Great Recession, especially the ‘shadow banking sector’, the part of the banking sector that doesn’t lend to consumers. This part of the banking sector had been heavily deregulated in the years leading up to the crash, and this created too much risk and the wrong kind of incentives. Bankers gambling with packages of mortgage debt created a housing bubble, and when this burst it led to the collapse of the Lehman Brothers bank and the collapse of the whole US financial sector. Frank asserted that the question of explaining the Great Recession comes down to explaining why the financial sector was allowed to collapse.
Frank explained that the dominant model attempting to explain behaviour in markets before the crash was the ‘efficient market hypothesis’, i.e. that all prices will gravitate towards equilibrium. Other models included the ‘financial instability hypothesis’, which states that there was too much debt in the economy, leading to financial instability, and ‘information asymmetry’, which states that markets are unstable because buyers and sellers do not have the same information about the goods they are dealing with; Frank affirmed that he preferred this last model and argued that it represents a jump forward in economic thinking.
He then focused on how the crisis occurred in Europe and explained that this was tied up with the issue of European integration. Not all European countries are integrating at the same rate and in the same ways, and Brouwer used this as evidence that there was no one capitalism that was common to all countries, that nevertheless may be coming closer through globalisation.
The eurozone countries could borrow cheaply from Germany, fuelling a housing bubble in Spain and Greece, which, like in the USA, started the crisis in Europe when it burst, making defaults on national debt in these countries more likely. The eurozone, Frank argued, is unhelpful in other ways: the eurozone requires its members to reduce government deficits, meaning austerity, and Germany, which is in surplus, is not spending enough. Unemployment has skyrocketed in countries like Spain, where youth unemployment is over 50%, leading Frank to state that markets do lead to inefficient outcomes, but that they are adaptable and will recover. The issue was that the banking crisis was not foreseen, and this led to the debt crisis, as the European Central Bank cannot bail out banks.
In the UK, the Conservative-led coalition government is cutting the budget deficit, which is aggravating the crisis by increasing debt. The blame, said Frank, has gone to Labour, but it remains true that the last government did deregulate the financial sector.
Nevertheless there is a small recovery, but Fank stated this is despite austerity measures and no one really knows why. He argued that government economic policy should be less austere now – as monetary policy like quantitative easing is ineffective and possibly harmful – and that debt should only be reduced once a real recovery has started, admitting that this was a Keynesian response.
Frank finished his speech questioning Adam’s interpretation of Marx, lamenting that mainstream and Marxist economics usually do not engage with each other. He challenged what he called ‘base-and-superstructure’ Marxism, and said that Marx’s view of capitalism as progressive is problematic for indigenous peoples. He also challenged Adam’s view of the crisis as one of overproduction, but focused on an ecological question. Frank ended his contribution talking about Gramsci’s ideas of hegemony, stating that the working classes can consent to capitalism, and that the working class voted for Thatcher.
Discussion and questions
Questions in the discussion were varied and came from differing political perspectives. There were contributions from Marxist Society members on the position of women and the pharmaceutical industry under capitalism, and challenging Frank’s views on the ecological possibilities of socialism.
Some disputed the Marxist view that nationalisation and planning could solve crises, arguing that it would lead to an automatic fall in productivity. One contribution came from an attendee from Spain, who argued against both speakers: against Frank by saying that he had ignored the fact that today’s youth are facing worse living standards than their parents, especially in especially crisis-torn areas like Spain; and against Adam saying that for this reason, Marxists should look more at the working classes in peripheral countries rather than Britain.
Summaries
Frank began his closing speech by returning to themes from his leadoff: he said he was not against Marx but disputed that Marx should be placed outside of and contrary to mainstream economics. He also questioned notions of collective solidarity and class identity in a post-industrial age, saying that no worldview has a monopoly on truth and appealing to various thinkers. He stated that Marx studied capitalism and that Marxists had not addressed enough Marx’s view of the progressive, innovative nature of capitalism, and that no ‘maximal blueprint’ could be given of a post-capitalist society. Finally, he challenged that central planning could work, saying that it ignores the effort people make with their private property and the possibility of public sector failures as opposed to market failures, and asserted that there will always be markets.
Adam started to close the debate by responding to a question from the floor about technological innovation under capitalism. He pointed out that innovation doesn’t produce equality or raise living standards under capitalism, but instead creates more profits and unemployment. Besides, automation leads capitalism into new crises, because machines can not buy back the goods they produce, even less so than workers.
To summarise, Adam once again argued for the nationalisation under worker’s planning of the economy, but agreed with Frank that central planning could not work: planning would have to be democratic to respond to needs. Adam said that Frank had presented a case that we can never really know anything about the world, and had given a description of events rather than an explanation. In contrast, Marxists study the world to find laws that govern society, in order to show what is wrong with those laws and change society, as the only way to solve crises.
An informal show of hands was taken as a vote on the question, and it was seen that the majority of the audience agreed with the Marxist analysis of the crisis and the necessary solution: for the socialist transformation of society.
