WILL THE NEOLIBERAL CONSENSUS SURVIVE THE BANKING CRISIS?

By Ingo Schmidt

[This article published in: SoZ - Sozialistische Zeitung March 2008 is translated from the German on the World Wide Web, www.vsp-vernetzt.de/sozkoeln/index2.htm.]

The bank always wins. This proverb has been reality for decades in the capitalist centers. Isolated bank failures, mergers and takeovers erupted but crises of the whole banking sector only occurred in the foreign worlds of the public or cooperative sector or in upward-oriented threshold countries.

In the late 1980s, American cooperative banks consisting mostly of working class and middle class households fell into a serious crisis because they entered the private business world of ascending finance market capitalism through state guarantees for risky businesses.

In the 1990s, many threshold countries that abolished capital transaction controls on the advice of the OECD and the IMF experienced a short period of investment euphoria and then had to bear the burdens of currency- and financial crises.

One person’s joy is another person’s suffering. This is another proverb that private banks in the metropolises. Unpleasant crises elsewhere cleared away competitors and expanded the possibilities of big western banks. The most recent developments in the German banking sector fit this picture. Massive losses in real estate speculation drove the Saxony regional bank into the arms of the Baden-Wurttemberg regional bank. The state intervention was hardly enough to prevent bankruptcy.

This is an encou9raging market correction for private parties. New write-offs and liquidity bottlenecks of the IKG regional bank are utilized by their private shareowners to take the banking group of state credit institutions for reconstruction off the cross. Deutsche Bank announces record profits. If God does not allow trees to grow in the sky, the people intimidated by the strong invisible hand of financial markets warn. They ask how long the reduction of wages, social benefits and jobs will lead to higher bank profits. Those who enforce these measures in business and politics are also raising the same question.

That economic growth – and profits realized with unchanged distribution between labor- and assets-income – is weakened is not denied any more by businesses and their ideology producers. This weakening will probably lead to a recession. Pessimistic voices from the middle class assume the recession is already here. Recession is not yet visible in business- and economic statistics because the data only gives information about the past and not about the present and future.

Recessions are part of the capitalist business routine. They are troublesome because no business knows if it can carry out enough wage cuts, working hour extensions and labor intensification to raise the profit rate. On the other hand, they are useful because those who disregard their employed workers with intensified pressure on overtime work have good chances of defeating their labor-friendly rivals. Businesses that demand high prices or must adjust to the market price on account of concessions to their own refractory workers and then cannot harness the latest technologies sparing and disciplining workers because of trifling profits are eliminated from the capitalist game.

Recessions occur again and again. Now something new appears that has not happened for a long time, a crisis of the banking sector in the capitalist metropolises. Many former employees of Deutsche Bank are now on the street. Deutsche Bank only understood veiling the imminent write-offs better than others.

Business data is a fetish constructed for the goal of profit maximization, not an objective reflection of business reality. This fetish has lost its magic power for Merrill Lynch in the US, Northern Rock in England, USB in Switzerland and Societe Generale in France. When a whole series of big banks that (like their predecessors) always stood on the side of the crisis profiteers since the worldwide economic crisis of the 1930s are seized by crisis, the capitalist mode of production and its international order may force a cyclical reaction. This is all the more true since all financial metropolises are stricken by unplanned write-offs, losses veiled for a long time and liquidity bottlenecks. A single country is not affected by the banking crisis like Japan in the 1990s.

To lubricate the circulation process of aggregate capital, the central banks in Washington, Frankfurt, Tokyo and London have pumped gigantic sums of money into the global financial system since the fall of 2007. Nevertheless international financial institutions, economic- and finance ministers and economists still fear a general credit crunch could lead to the drying up of the capital flow guided by the West.

Some even ask whether the capital accumulated in China, India and Russia in the past years from the raw material- and export boom and partly controlled by the governments of these countries can be taped without becoming dependent on these up-and-coming powers.

These are hard times for the neoliberal consensus whose message was forced worldwide by the ruling classes in the imperialist metropolises for three decades on free capital flows.

The US Federal Reserve tries to stop the decline of Wall Street-dollar capitalism through massive interest reductions. According to its calculation, low interests prevent available capital from being parked for years in state bonds or gold and from being hidden under the proverbial mattress out of fear of bursting speculative bubbles. In a word, low interests should restore the fraud mentality that dramatically drove the accumulation process of capital in the past decades and the debt accumulation and presented fabulous returns and profits to big western banks.

In the crises of 1990/91 and 2001, the US and the Wall Street-dollar regime could maintain themselves as a worldwide power through a loose-aggressive monetary policy. The accumulation of capital surpluses in India and China began at that time. The euro was a fantasy or was first baptized. The Soviet Union faced collapse. Neo-capitalist Russia encountered a financial crisis.

For a long while, tectonic shifts of the capitalist world system were hardly noticed since proponents and critics of neoliberal capitalism were captive to the notion that the world market would wear down the hierarchies of the international system of states.

In the present crisis, political and economic decision makers must admit that their dear ideas of a neoliberal crisis management are no longer equal to the changed reality. Neither the rise of new political powers nor a crisis in the economic control center of world capitalism is intimated in the textbooks where crisis burdens are shifted to the capitalist periphery and the working class of all countries. Uncertainty and the beginnings of political representation within international neoliberalism could awaken movement possibilities that were buried alive for a long time amid disappointments over the drowned ideas of socialism.