Timid left-wingers should be full of regrets over 2008

Capitalism’s near-death experience with the banking crisis was a golden opportunity for progressives — but they blew it

By Larry Elliott  /  The Guardian

Tue, Sep 04, 2018 - Page 9

Placards are being prepared. Photo ops are being organized. A list of demands is being drawn up by a coalition of pressure groups, unions and non-governmental organizations. Yes, preparations are well under way for protests to mark this month’s 10th anniversary of the collapse of Lehman Brothers.

Make no mistake, that events will take place in all the world’s financial centers is no cause for celebration. On the contrary, it is a sign of failure. The banks were never broken up. Plans for a financial transactions tax are gathering dust. Politicians toyed with the idea of a green new deal and then promptly forgot about it.

There never was a huge swing of the pendulum away from the prevailing orthodoxy, just a brief nudge that was quickly reversed. The brutal fact is that the left had its chance, and it blew it.

September 2008 was a near-death experience for global capitalism. At one point, there were fears for the entire Western banking system.

In the winter of 2008-2009, there was a naive assumption on the left that the shock of Lehman Brothers was so profound that change would inevitably occur.

If the oil shocks of the 1970s had been the catalyst for the seizure of control by a right-wing political agenda, then the subprime mortgage crisis would do the same for the left.

However, it was not quite that simple, because those who had done well in the decades that followed the revolution of former British prime minister Margaret Thatcher and former US president Ronald Reagan used all their power, influence, financial clout and cunning to resist change. A few tactical retreats were made to safeguard the status quo.

The contrast between former US presidents Franklin D. Roosevelt and Barack Obama is telling. Both men arrived in the White House in desperate times. Both had a mandate for change.

Roosevelt thought that reform was necessary to save capitalism from itself. It was this intellectual framework that resulted in the Glass-Steagall Act, which separated banks’ investment and retail operations, instituted public works schemes for the unemployed and established laws to make it easier for trade unions to organize.

Obama, like most of center-left politicians of 10 years ago, was a technocrat who broadly accepted the status quo and never seriously contemplated taking on finance.

Wall Street detested Roosevelt. It found Obama much more amenable.

The process of challenging business-as-usual lacked a unifying analysis of what had caused the crisis — Obama deserves a bit of sympathy. Every radical period requires a philosopher king to help to provide a political framework for action.

For the first generation of free-market liberals, the gurus were Adam Smith and David Ricardo. For Russian revolutionary Vladimir Lenin, it was Karl Marx. In the 1930s, it was John Maynard Keynes. In the 1970s, it was Milton Friedman and Friedrich Hayek. Ten years ago, there was no one.

There was a green narrative, a Keynesian narrative and a Marxist narrative, all of which had merit and all of which had their adherents, but the upshot was that progressives all headed off in their own directions. That left the door open for a narrative that few would have expected to emerge triumphant in September 2008: That the crisis had been caused by the government spending too much.

There are plenty of lessons that need to be learned. One is that progressives have to win the battle of ideas, and that means taking back control of how economics is taught. Some steps have been taken to address this issue since the financial crisis, with billionaire investor George Soros bankrolling the Institute for New Economic Thinking, a forum for heterodox thinking.

However, even though the collapse of 2008 was the result of failed economics, those responsible for the duff theories remain well dug-in on university campuses. Progress has been slow.

A progressive political agenda starts at the top, with an over-arching critique, and works its way down to specific policies.

That was what worked in the 1940s, when the postwar consensus was built on a simple concept: never again. Control of the commanding heights of the economy and demand management flowed from that.

Progressives have to be clear about what they want. The left remains divided between three groups: Those who think — as former US president Bill Clinton and former British prime minister Tony Blair did — that the only choice was to work with the grain of global capitalism, those who think — as Roosevelt did — that a more root-and-branch approach is needed and those who think capitalism is so rotten that it is beyond saving.

“There was a very short period when the powers that be were on the back foot,” said David Hillman, director of Stamp Out Poverty and organizer of one of next month’s protests. “Progressive forces were not able to take advantage. Nothing substantial has changed and we are sleep-walking into another crisis.”

That just about sums things up. Progressives do not really deserve a second chance, but they might be presented with one all the same. The question is whether they will be better prepared to take it this time.