Friday, May 15, 2009

Markets and the State

The latest issue of New Left Review is really worth checking out. It has Zizek on Left strategy (on which Lenin has a good commentary), Wallerstein with reflections on Fanon, a really interesting looking article about imperialism and art history in China, and a good piece from Leo Panitch about the roots of the crisis. Here's an extended quote from the latter.

Financialization functioned in a number of different ways to drive forward the American-imperial expansionism of the 1990s and early 2000s. The development of securitized markets and the internationalization of American finance provided risk-insurance in a complex global economy, without which accumulation would have been significantly restricted. In addition, the global predominance of us financial institutions helped to mobilize cheap international credit for the American economy and so sustained its role as the world’s prime consumer, even as us capital flowed out in the form of fdi and military expenditures. The dollar served as the key store of value and medium of exchange, while us Treasury bonds became the standard for the calculation of value in the world economy at large. As we shall see, financialization also played a vital domestic role, both by integrating subordinate classes into a web of financial relations through private pensions, consumer credit and mortgages, and through facilitating consumer demand in an era of stagnating wages and limitations on the welfare state.

But for all the functionality of financialization for imperial power, it also brought new contradictions. While asset inflation was considerably more in line with the purposes of American capital than the consumer-price inflation of the previous decades, it was also a deeply uneven process that was responsible for enormous volatility. The emergence and bursting of financial bubbles became a common feature of the system, and successful state interventions to contain them reinforced the notion that future bubbles could be managed. Washington’s highly pro-active role in containing domestic and international financial crises from the 1980s on was perhaps the most concrete demonstration that the alleged withdrawal of states from markets was an ideological illusion. If neoliberal policies engendered a great deal of financial activity, the effect of this was not to subordinate state capacities to market forces but rather to make political interventions all the more necessary—not least in fighting fires sparked by financial volatility—as well as more feasible. Financialization enlarged the American state’s role both directly and multilaterally, even as it extended the strategic leeway available to capital. The result was the step-by-step construction of a too-big-to-fail regime, whereby intermediaries that were so large and interconnected that their failure would bring down a significant part of the system could count on the us state, and especially the Treasury, to come to the rescue.

The repeated economic interventions of the American state, while driven by the exigencies of the moment, were never as incidental or exceptional as they were often portrayed. On the contrary, they were part and parcel of the distinctive policy practices of the neoliberal era. Both the Fed and the Treasury, faced with constant financial volatility and intermittent crises, developed a range of institutional capacities to cope with this. But such institutional capacities should not be seen as standing above the financial world that they regulated; rather, they were embroiled in its contradictions. The increasingly enhanced role of the state, including the discriminatory practice of showering liquidity on crisis-hit banks in the North while imposing discipline and austerity in the global South, built up ‘moral hazard’ even as it generated financial innovation and expansion. Although too-big-to-fail policies are often portrayed as a last resort, indicative of neoliberalism’s essential lack of coherence, instances when the us government led the way by stepping in to contain financial crises were hardly exceptions to the rule. In that sense, the massive interventions by the Bush and Obama Administrations in the course of the current crisis are merely the culmination of the long series of interventions that marked the neoliberal era.