Not the death of capitalism, but the birth of a new world order*

The free-market model has been discredited and now its champions are
panicking at what might emerge in its wake

          o Seumas Milne
          o The Guardian,
          o Thursday October 23 2008

As the dust of the credit crash clears and the real world recession
kicks in, the ideologues of capitalism are scaring themselves with
spectres. "He's back," the Times warned its readers on Tuesday over a
portrait of Karl Marx. Not only are sales of his masterwork Das Kapital
booming, but the virus of the newly fashionable revolutionary has, it
seems, spread to the heart of the capitalist camp: the French president
Nicolas Sarkozy has had himself photographed leafing through its pages
while Marx's analysis of capitalism has been hailed by everyone from the
German finance minister to the Pope.

In the US, John McCain has been lashing out at Barack Obama for his
supposed "socialism", the High Tory writer Simon Heffer excitedly dubbed
the state bail-out of the banks "neo-sovietisation", and the BBC
broadcast a prime-time debate last week on whether the crisis signalled
the "death of capitalism". Meanwhile the Economist, the Pravda of the
neoliberal ascendancy, has been trying to mobilise true believers for a
fightback: "Economic liberty is under attack", its current issue
thunders. "Capitalism is at bay, but those who believe in it must fight
for it."

Of course, they are running ahead of themselves in a panic. If Marx's
central ideas about class and exploitation were really taking hold
across the western world, you can be sure the mainstream media wouldn't
be running quirky, cartoonish pieces and debates about them, but
something much more ferocious and alarming.

It's certainly true that the events of the past few weeks have exposed
deregulated capitalism as bankrupt and its ruling elites as greedy and
inept. But it is the free-market model, not capitalism, that is dying.
That is reflected in public opinion: a Financial Times-Harris poll
conducted across the advanced capitalist world this month found large
majorities believe the financial crisis has been caused by "abuses of
capitalism", rather than the "failure of capitalism itself" - only in
Germany did the proportion blaming capitalism as a system rise to 30%.

As Sarkozy has pronounced: "Laissez-faire is finished." It is not Marx
who has really been rehabilitated in short order, but John Maynard
Keynes, out of dire necessity. In the wake of the largest-scale acts of
state economic intervention in capitalist history, politicians are now
having to make a virtue of it. "Much of what Keynes wrote still makes
sense," the chancellor Alistair Darling declared at the weekend, as he
announced plans to bring forward large capital projects and the prime
minister defended higher borrowing to counter falling demand.

The symbolic significance of this official return to Keynesianism
shouldn't be underestimated. It's 32 years since the then Labour prime
minister Jim Callaghan bowed the knee to monetarism, nearly three years
before Margaret Thatcher came to power, and announced to his party
conference: "We used to believe that we could spend our way out of a
crisis, but I tell you ... it is no longer possible." Faced with
financial collapse and the threat of a full-scale economic depression,
such fancies have now had to be consigned to the dustbin of history.

But claims that the current crisis signals the end of capitalism or the
birth of a new socialism simply set up a straw man and divert attention
from what is in fact at stake. If we're talking about socialism as a
systemic alternative, that is clearly not currently on the agenda in the
heartlands of capitalism - or elsewhere, with the arguable exception of
Latin America. And both its post-communist collapse of confidence and
the weakening of the working class as a social and political force make
it difficult for the left to take full advantage of capitalism's stark
failures.

That has led some, such as the historian Eric Hobsbawm, to conclude that
the main beneficiaries of the crisis will be the right, as in the 1930s.
There's certainly a danger of growing support for rightwing populism on
the back of mass unemployment; but if the new enthusiasm for Keynesian
intervention and public ownership can be channelled to protect those
most vulnerable to the crash - rather than make them pay the price for
it, as now seems more likely - that need not be the case.

What the crisis is bound to do is increase the demand for alternatives
both within capitalism and beyond it. It has already discredited the
economic model that has dominated the world for a generation at a cost
of endemic instability, rampant inequality and environmental
devastation. In its defence of free-market capitalism this week, the
Economist argued that, in the past 25 years of market liberalisation,
hundreds of millions of people have been lifted out of absolute poverty
and speculated that this decade may see the fastest growth of income per
head in history.

But most of that growth and poverty reduction has been in China's
state-directed and still heavily publicly-owned economy, while India's
lesser capitalist success story is so grotesquely unequally distributed
that the proportion of its children who are malnourished - at 47% a
global leader - has remained almost unchanged for a decade. For the rest
of the world, growth was faster and far more equally shared in the
postwar decades of Keynesianism and socialism.

An opportunity has now opened up for those political leaders prepared to
use this meltdown to reshape the economic system, from Obama to Hugo
Chávez. It's often said that the left has no alternative model after the
implosion of communism and traditional social democracy. But in reality
no economic and social model, left or right, has ever come pre-cooked:
all of them - from Soviet power to the Keynesian welfare state and
Thatcherite-Reaganite neoliberalism - have grown out of ideologically
driven improvisation in particular historical circumstances. Marx
himself famously offered no blueprint.

Instead, the pressure to respond to economic need - as in the New Deal
or postwar Europe - will shape the way the new economic order develops.
Already, the forms of intervention have been sharply different from past
crises, with bank nationalisations offering a potentially powerful new
economic lever. We are no doubt heading into a new kind of capitalism as
well as a period of growing support for more far-reaching social
alternatives. But what form it takes will be decided by pressure, from
above and below.