We are used to segmenting destructive episodes as crises – the Mexican debt crisis in 1982, which gave way to the Latin American debt crisis in the 1980s, the East Asian financial crisis of 1997-98, then the Global Financial Crisis in 2008 and beyond, then the pandemic crisis since 2020. Meanwhile, firefighters are dealing with major fires from Portugal, France to Crete; Britain is about to experience 40 degrees Centigrade; Australia is dealing with a sequence of massive floods; corporations are gouging profits and pushing inflation, which is provoking policy makers to take it out on the most disadvantaged in our societies, with no logical link between the policy and the perceived problem, other than deep recessions stop the gouging; nations considered to be ‘middle income and rising’ are now lining up behind Sri Lanka to see who will be the next to basically collapse into anarchy, unable to feed its population; housing shortages are causing havoc almost everywhere; the quality of employment has declined dramatically (job security, worker agency, etc) and the trade unions are a pale imitation of what they used to be; politicians are more self-serving than ever; and people are still dying in the thousands everyday from the pandemic but our leaders insist we are now ‘living’ with Covid (more like dying with it). The reality is that all these events are linked and part of what some might call a poly crisis. Capitalism has failed and the institutions we created to tame the raw-profit greed of capital – the state, trade unions, etc – have also been compromised to such a degree that they, either are no longer effective or work as agents of capital rather than mediating the labour-capital conflict. A poly crisis requires fundamental change. But, such is the dominance of the mainstream, which has created this crisis, that all we get is more of the same. That means the ultimate solutions will be more painful and destructive and lead to conflagration as this period of human civilisation collapses.
The poly crisis has been driven by a planned strategy by capital to increase its power and ability to reap more real income from the distribution system after several decades after the Second World War of ‘social democracy’ that provided conditions for reduced income and wealth inequality, better access to employment, increased access to public health, education and transport systems, increased worker capacity to access real wages growth in line with productivity growth through the agency of stronger trade unions, and more.
Capital clearly felt threatened by these developments and by the late 1960s, even before the OPEC oil price hikes, which set off the inflation that would last for the next decade and a half (only the 1991 recession really ended that), the various employer and industry groups were demanding governments increase unemployment to repress the capacity of workers to enjoy wages growth.
My colleague Victor Quirk documented Australian developments in this regard in his 2004 Working Paper – The problem of a full employment economy – which was part of his doctoral work.
He documents how senior industry leaders “publicly urged” the Australian government “to increase unemployment”. He quotes a journalist at the time, reporting a major speech made by “a central figure within Australia’s corporate establishment”:
Sir Colin warned that Government action to curb over-full employment would be ‘very unpleasant’ but the role of businessmen should be to back the government in the unpopular steps which had to be taken.
It is going to be very unpleasant. All the consequences of deflation are.
And on the global stage, we saw the creation and prosecution of the so called the – Powell Manifesto – which was a strategic document titled ‘Attack of American Free Enterprise System’, written by a US lawyer for the US Chamber of Commerce.
The Memo was a major turning point in the way the corporate sector approached the political system.
Nixon appointed him as a judge of the US Supreme Court soon after his memo was published and history tells us that he (ab)used his position as a Supreme Court judge to put high far right ideological belief into practice.
Prior to assuming that position, Powell had represented the Tobacco industry in many cases.
The book by Clements, J. and Moyers, B. (2012) Corporations Are Not People: Why They Have More Rights Than You Do and What You Can Do About It, San Francisco, Berret-Koehler Publishers – is worth reading in this respect.
I wrote about Powell’s memo and the strategic shift it prompted in this blog post – The right-wing counter attack – 1971.
People accuse those who construct these types of events and shifts as being conspiracy theorists, which is a put down and often related to beliefs in ‘little green men coming to Earth in steel disk-like aviation devices’.
But, the evidence is all there.
History tells us that dominant groups (Capital in this era) are strategic in the way they maintain their hegemony – working through networks, lobbying and the rest of it – to ensure they get what they want.
The social democratic era was a blip where workers had more capacity to moderate the excesses of capital.
The policycrisis is a demonstration that the gains workers made were limited and have been steadily retrenched as capital reconfigured the state to act in its interests rather than be a more ‘societal’ player.
And the major economic institutions that were erected after the Second World War, ostensibly to aid the social democratic aims, such as the IMF and the World Bank, have morphed into neoliberal attack dogs under pressure from corporations and governments in the thrall of corporations.
On its performance alone, the IMF should be scrapped.
But because it is a totem for corporate power on the world stage it maintains its voice and influence.
Last week (July 16, 2022), the G20 Finance Ministers and Central Bank Governors met in Bali as pat of the G20 meetings there.
The IMF Director addressed the group – IMF Managing Director Kristalina Georgieva Urges G20 Leadership to Address ‘Exceptionally Uncertain’ Global Outlook.
One would think we were back in the early 1970s with all the talk about the need to create higher unemployment to discipline the current inflationary pressures.
First, let me just state that we should be celebrating the low unemployment rates that have emerged as a result of the way in which governments initially addressed the pandemic.
I get a lot of E-mails attacking me for refusing to acknowledge that the inflationary pressures are the result of ‘excessive fiscal and monetary stimulus’.
I wrote about that in these blog posts (among others):
1. http://bilbo.economicoutlook.net/blog/?p=49480 (March 28, 2022).
2. Central banks are resisting the inflation panic hype from the financial markets – and we are better off as a result (December 13, 2021).
With the supply-side highly constrained and sectoral imbalances acute (rising demand for goods and collapse in services expenditure early in the pandemic), it is obvious that inflationary pressures would emerge, particularly when corporations have market power to push up margins and use it regularly.
Is that a sign that demand (expenditure) was excessive?
In one way, yes.
But think about the situation.
No-one knew what 2020 would bring as the pandemic spread. We didn’t know what the disease would do and the worse case scenarios were diabolical.
Governments had to intervene with income support measures and bond market disciplines (via central bank bond-buying programs).
Otherwise, the Eurozone would have collapsed, and unemployment everywhere would have gone through the roof.
And all the problems that accompany rising unemployment would have become acute – poverty, sickness, foreclosures, etc.
So in saying that governments should have exerted more fiscal constraint in 2020 and 2021 tells me that proponents of that idea have a warped sense of priorities, especially when it is clear that the inflationary pressures are supply-sourced and will dissipate quickly when supply catches up.
If the governments had have attempted to constrain the demand side to match the supply shortfalls, then we would have been left with mass unemployment once the supply constraints eased.
That would have been highly destructive and counter-productive.
And, of course, when policy makers were dealing with the pandemic in 2020, they had no idea that the Saudi-dominated OPEC cartel would go into gouging mode in 2022 nor that Putin would attack Ukraine and dare the West to retaliate (given Putin knew he had the energy control over Western Europe).
The reason we have low unemployment around the world is because governments took fiscal decisions that maintained incomes.
We should celebrate that.
And now?
The IMF boss reverted to form saying that “the global economic outlook … has darkened significantly, and uncertainty is exceptionally high”.
Which is a statement I agree with.
But what is known is that more workers are now working.
And threatening that state because there are supply constraints and other issues beyond government control (Putin) only adds more uncertainty.
But, of course, the IMF only thinks in linear ways.
They are now demanding that governments:
… do everything in their power to bring inflation down … the good news is that central banks are stepping up.
And:
fiscal policy must help – not hinder – central bank efforts to tame inflation … So fiscal policy needs to reduce debt.
Can anyone tell me how cutting public debt through fiscal austerity, which is the only way it can happen under the current orthodoxy, will increase factory production in China, reduce the escalating Covid sickness toll around the world, bring OPEC to heel, and persuade Putin that his war is not in the world’s best interest?
We know what fiscal austerity will do – increase unemployment and poverty.
The combination of rising interest rates and fiscal austerity will eventually create recession.
That in turn will pressure corporations to stop gouging.
It will reduce OPEC’s willingness to push oil prices higher.
But it won’t stop the war nor Covid.
So we won’t solve the inflationary pressures and will just inflict more harm.
The poly crisis will worsen.
The last thing that governments should be doing at present is pursuing policies that will add recession to the mix.
The inflationary pressures are not triggering of wage explosions.
Long-term expectations are still not seeing entrenched inflation.
We should be dealing with the causes of the pressures – reducing Covid infections, supporting those with Covid to ensure transmission is muted, funding better public transport systems to reduce reliance on OPEC oil, tightening regulations of house construction to reduce carbon use, encouraging more local production to reduce the reliance on complex supply chains, and things like that.
We should not be creating unemployment deliberately.
Why isn’t the IMF demanding corporations stop gouging profits?
Why isn’t the IMF demanding that governments do more to reduce Covid infections, like provide free vaccines to Africa etc?
Why isn’t the IMF demand that OPEC behave itself?
The answer is because it is part of the problem.
The IMF boss’s final comment to the G20 was “we cannot lose sight of the most pressure crisis of all: climate change”.
Indeed.
And “Scaling up financial resources” will be required. Except the IMF boss is referring to financial markets rather than public finances.
The reality is that if the financial markets take over the funding of the transitions the poly crisis will worsen.
Conclusion
I am working on a manuscript about the rise of the poly crisis at present.
I will have more to say about it later but I hope to have a new book out sometime later this year or early next year.
That is enough for today!
(c) Copyright 2022 William Mitchell. All Rights Reserved.
