The financial crisis of 2008 seemed at the time to herald a shift to the left in the U.S. political atmosphere. Forgetting the decades of free-market preaching, the government raced to bail out the giant banks at taxpayer expense while ordinary homeowners facing foreclosure were left to fend for themselves. The hypocrisy was astounding. By the spring of 2009 the survey company Rasmussen found that about one-third of respondents under age 30 preferred socialism to capitalism while another third was undecided. Even some of the mainstream media shifted away from adoration of the free market, nervously noting that perhaps Marx was right about capitalism’s self-destructive tendencies.
That moment did not last long. Once the banks had been bailed out and the free-fall of the economy arrested by vigorous government intervention, the mainstream political discourse shifted to the right. Neoliberal ideas and policies returned in the guise of austerity, directing attention at the big federal budget deficit that was an inevitable consequence of the financial crisis and Great Recession. The blame for the dismal economy, we were told, should be directed not at the actions of the bankers who had made fortunes while wrecking the economy, but at public sector workers whose overly generous pay and pensions were driving government deficits that would ruin our future.
Despite the resurgence of neoliberal ideas and policies, there is reason to be optimistic about the potential for progressive change in the years ahead. The efforts to revive and extend the neoliberal model cannot succeed in overcoming the current economic stagnation and restoring normal capitalist economic growth without which a capitalist system becomes unstable. A look at similar periods in history suggests that the free-market form of capitalism, which has prevailed since around 1980, is near the end of its life.
The U.S. economy, along with much of the global economy, is stuck in a period of stagnation and economic instability of a sort that has occurred previously about every 40 years or so. Broadly similar conditions afflicted U.S. and global capitalism in the 1930s and 1970s. The way in which past stagnations were resolved offers lessons for today. Every such past period of stagnation, or “structural crisis,” was resolved only after a major restructuring of the economic and political institutions that govern the process of economic expansion in a capitalist system. Such a period of restructuring creates opportunities for the left.
In 1929 a free-market form of capitalism, which had some similarities to the economy of today, collapsed into the Great Depression. There followed more than fifteen years of shifting battles over the future that included left-led trade unions, radical and reformist political parties, and various factions of big business. In the late 1940s a compromise emerged between labor and big business that formed the basis of a restructured “regulated capitalism” with strong trade unions, a major role for collective bargaining, close regulation of banks, and a welfare state. There followed twenty-five years of what is often called the "Golden Age" of capitalism marked by rapid and widely shared economic growth.
In the 1970s regulated capitalism entered a structural crisis, with a decade of rising inflation, rising unemployment, shrinking corporate profits, and international monetary and financial instability. By the early 1980s a new "free-market," or neoliberal, form of capitalism had emerged, a development brought about by a unified business class. The main features of neoliberal capitalism have included marginalization of trade unions and collective bargaining, liberalization of domestic and global markets, deregulation of banks, cutbacks in the welfare state, and privatization of public services. There followed some 25 years of relatively stable, although not rapid, economic growth, of a type that has led to increasing income inequality.
The free-market growth machine gave rise to growing levels of household and financial sector debt along with the spread of toxic financial assets, a process that was unsustainable in the long run. In 2008 the current form of capitalism gave rise to a structural crisis, as had those before it.
With this history in mind, what might emerge today? If history repeats itself, there may be another round of restructuring within the bounds of a capitalist system. One possible version would be a new nationalist and statist form of capitalism that brings renewed economic expansion and stability while maintaining employers' currently dominant position in the labor market, a development that would not be favorable for the majority. If the labor movement and other popular movements gain strength, the prospect of a new form of regulated capitalism based on capital-labor compromise may arise. Big business becomes willing to compromise only when threatened by a growing progressive movement.
Either of the above directions of change could lead to another long period of economic expansion which, while good for job creation, would accelerate the global climate change that is threatening the survival of civilization. Any effective form of capitalism requires, and produces, increasing production of commodities, a process that is no longer compatible with an environment of fixed resources.
Any form of restructuring takes time, and while it proceeds continuing stagnation is likely to eventually spur the growth of popular movements that question whether capitalism itself can any longer meet the needs of the majority. The endless profit drive of capitalism leads to ever increasing production of commodities regardless of human needs and regardless of the environmental consequences. The rebirth of a socialist movement would offer an alternative – a democratic participatory planned economy that could bring a period of rising human welfare for all in an environmentally sustainable manner.
No economic law dictates the outcome in a period of structural crisis of capitalism such as prevails today. While some form of restructuring is on the agenda, the direction of change – reactionary, reformist, or radical – will be determined by the struggles among various groups in the context of an ongoing economic crisis. How this plays out in the coming years will decide the economic and political future for some time to come.