Читать книгу Crisis and Inequality - Mattias Vermeiren - Страница 11

In 2008 the world economy was shattered by the deepest financial crisis since the Great Depression of the 1930s (and, according to some criteria, even the severest financial crisis in global history). For more than a decade, capitalism in the advanced market economies has been in the throes of a threefold crisis.¹ The global financial crisis was first and foremost a banking crisis stemming from the fact that private banks extended too much credit to households, creating bubbles in housing markets. When these bubbles collapsed, many large US and European banks had to be bailed out by their governments. Public debt ratios skyrocketed in the wake of the crisis as governments had to borrow massive amounts of money to save the banking industry and stabilize the economy, triggering a fiscal crisis in the weaker member states of the Eurozone. To reduce the public debt burden and regain the confidence of the markets, governments in the entire advanced capitalist world imposed drastic cuts in social spending and other harsh austerity policies on their citizens. This resulted in a crisis of the real economy, which manifested itself in persistently low economic growth (or even stagnation) and, in some countries, stubbornly high unemployment levels. The economic fallout of the lockdown measures in 2020 to contain the spread of the coronavirus further deepened these instabilities and plunged advanced capitalism into the worst existential crisis since the Great Depression of the 1930s.

The ‘Great Lockdown’ of 2020 came as an external, ‘exogenous’ shock to the advanced capitalist system. The structural causes of the global financial crisis of 2008, by contrast, were ‘endogenous’ to this system: what happened in 2008 has to be understood as an outgrowth of the financialization of the economy and the outcome of growing levels of income and wealth inequality. In almost all rich countries, since the 1980s the gains of economic growth were distributed unequally. In 2016, the share of total national income accounted for by just the top 10 per cent of earners (that is, the top 10 per cent income share) was 37 per cent in Europe and 47 per cent in North America (even higher than in Russia and China, where the top 10 per cent income share was respectively 41 and 46 per cent of total national income).² From 1980, income inequality increased rapidly in North America, while inequality grew more moderately in continental Europe. From a broad historical perspective, the rise in inequality marks the end of a post-war ‘Golden Age’ of egalitarian capitalism. Many lower- and middle-class consumers in the United States and other Anglo-Saxon countries like Ireland and the United Kingdom increasingly had to borrow to maintain and finance their consumption patterns in the face of stagnating incomes. In this way, the rise in inequality contributed to the global financial crisis of 2008 by leading to an unsustainable rise in household debt. Fiscal austerity reinforces these dynamics of inequality by cutting spending on social programmes that primarily benefit the bottom half of the income distribution. Finally, high levels of inequality can be a cause of low economic growth and ‘secular stagnation’, as even mainstream neoclassical economists at the Organisation for Economic Co-operation and Development (OECD) and the International Monetary Fund (IMF) have increasingly acknowledged.³

There is a growing consensus that excessive levels of inequality could also endanger the endurance of liberal democracy. Based on their analysis of recent public opinion data, political scientists Roberto Stefan Foa and Yascha Mounk come to a sobering conclusion:

Citizens in a number of supposedly consolidated democracies in North America and Western Europe have not only grown more critical of their political leaders. Rather, they have also become more cynical about the value of democracy as a political system, less hopeful that anything they do might influence public policy, and more willing to express support for authoritarian alternatives.⁴

Since the 1980s, both voter turnout and trust in democratic institutions such as independent parliaments and judicial courts have sharply declined across the established democracies of North America and Western Europe: ‘As party identification has weakened and party membership has declined, citizens have become less willing to stick with establishment parties. Instead, voters increasingly endorse single-issue movements, vote for populist candidates, or support “anti-system” parties that define themselves in opposition to the status quo.’⁵ An increasing number of recent studies claim that the rise in ‘populism’ in most Western societies is closely connected to the rise in income inequality, the stagnation of middle-class wages and growing economic insecurity linked to financial and economic globalization.⁶

The economic instability of capitalism and its inherent tendency to fuel inequality are therefore topics that should be of interest to any student and scholar in social sciences. This book aims to deepen our understanding of these two central challenges of advanced capitalism from a political economy perspective. Political economy is a field of study that is based on the assumption that it is impossible to say much sensible about the economy and the functioning of ‘markets’ without taking into account the broader political and institutional context in which these markets are always embedded. It is a research tradition whose principal objective is to break down disciplinary boundaries between economics, political science and sociology and to ask basic questions about the distribution of resources in capitalist ‘market economies’. Thus, political economy applies Harold Lasswell’s classic definition of politics – the study of ‘who gets what, when and how’ – to the economy and is, as such, a research approach that is ideally suited to identify the political and social causes and consequences of rising inequality and instability.

Perhaps the best way to clarify the distinctive features of political economy as a field of study is by setting it against its main contender: neoclassical economics, which has become the dominant approach to study the economy in our contemporary society: it is the research tradition in which most economics students are nowadays educated. Neoclassical economics has become increasingly formalistic, developing mathematical models and quantitative methods that are completely detached from the social, political and historical context of economic dynamics in the real world. The global financial crisis exposed the failures of neoclassical economics.⁷ Understanding and deepening our knowledge of the global financial crisis and its longer-term causes and consequences should be central objectives in the social sciences, but neoclassical economics seems to have failed in reaching these objectives. In a famous event symbolizing this failure, Queen Elizabeth II of the United Kingdom asked, during a briefing by economists at the London School of Economics in 2008, why nobody had seen the crisis coming. Since then a growing group of students (and teachers) have started to complain that existing textbooks in economics had not done a sufficiently good job of explaining what exactly had happened and – even more importantly – why it had happened. In many countries, groups of students have demanded an overhaul in how economics is taught, with more pluralism and more emphasis on real-world problems like inequality and financial instability.

Critics of neoclassical economics have argued that the assumptions behind its mathematical models are often simplistic and unrealistic, revealing a conservative bias that is overly optimistic about the efficiency of free markets and pessimistic about the effectiveness of government intervention. The homo economicus is one of the most contested of these unrealistic assumptions: individuals are seen as rational and self-interested actors who maximize their utility by making decisions that are based on full information. This assumption allows neoclassical economists to design mathematical and law-like models of human behaviour and economic decision-making: these economists tend to engage in a logical exercise based on assumptions that are adopted because they can be quantified and modelled, not necessarily because they are true or even sensible. For example, in order to predict consumer behaviour, neoclassical models assume that all people have perfect information about all of the goods that they might want to buy: they know all of the prices and qualities involved and they know how much satisfaction they would receive from every product. Another assumption of neoclassical economics, closely associated with the first one, is that free markets balance supply and demand in the long term and are self-adjusting: it is presumed that the economy disturbed by a shock will always return to a new equilibrium (see chapter 1 on the meaning of market equilibrium). There is, obviously, a liberal bias to this line of thinking: if markets are assumed to be stable and self-correcting, it is better to allow them to function on their own, without excessive government intervention. This efficient market hypothesis provided, as we will see, ideological support for the excessive deregulation of the banking system, which – together with the rise in inequality – was an important cause of the global financial crisis.

In response to such criticisms, neoclassical economists usually reply that the main purpose of their mathematical models is to predict economic behaviour rather than formulate realistic assumptions about how the world really works. In his essay on the methodology of positive economics, US economist and Nobel laureate Milton Friedman argues that it does not really matter that the assumptions behind a theory are unrealistic as long as the theory’s predictions are correct:

the relevant question to ask about the ‘assumptions’ of a theory is not whether they are descriptively ‘realistic’, for they never are, but whether they are sufficiently good approximations for the purpose in hand. And this question can be answered only by seeing whether the theory works, which means whether it yields sufficiently accurate predictions.⁸

Friedman’s argument was reiterated by William Prescott – another Nobel laureate – in his 2016 paper RBC Methodology and the Development of Aggregate Economic Theory: ‘Reality is complex, and any model economy used is necessarily an abstraction and therefore false. This does not mean, however, that model economies are not useful in drawing scientific inference.’⁹

Nonetheless, neoclassical economists have a bad track record in making correct predictions. The global financial crisis of 2007–9 caught most neoclassical economists by surprise. As Ben Bernanke, former president of the US central bank, conceded, neoclassical economists ‘both failed to predict the global financial crisis and underestimated its consequences for the broader economy’.¹⁰ To be fair, some experts warned about the dangers of housing bubbles. But in the final analysis, the consensus was that the situation was not as bad as it seemed. In the wake of the crisis, research staff at the IMF or central banks have also been notoriously wrong regarding their projections of economic variables like gross domestic product, inflation and unemployment. Political economy as an academic discipline might be equally bad at making predictions about the future, but tends to be much better in explaining post hoc why economic events occurred in the way they did. The reason is that political economists do not base their theories on unrealistic assumptions and that they take into account non-economic factors that all too often ignored by neoclassical economists.

One of these factors is power and politics: political economists are critical of the neoclassical presumption that economic phenomena can be separated from relations of power and politics. Neoclassical economists believe that someone’s wage or income is a reflection of the marginal productivity of his or her labour – that is, the additional revenue a firm gets from hiring that particular individual (see chapter 1). As a typical example from neoclassical reasoning, consider the following statement by Greg Mankiw – author of one of the most famous introductory handbooks in neoclassical economics, Principles of Economics:

Most of the very wealthy get that way by making substantial economic contributions, not by gaming the system or taking advantage of some market failure or the political process … Take the example of pay for chief executive officers (CEOs). Without doubt, CEOs are paid handsomely, and their pay has grown over time relative to that of the average worker … [However], the most natural explanation of high CEO pay is that the value of a good CEO is extraordinarily high.¹¹

Yet this neoclassical conception of CEO compensation ignores the role of the government, the legal system and all other institutions and norms that underpin the political power of CEOs and might have played a role in helping them receive high incomes. For instance, the highest federal marginal tax rate in the United States fell from 91 per cent for all personal income in the 1960s to less than 40 per cent in the 2000s. Such changes in the US tax system were vital in boosting top incomes of CEOs. In their book Winner-Take-All Politics: How Washington Made the Rich Richer – and Turned Its Back on the Middle Class, political scientists Jacob Hacker and Paul Pierson argue that the dramatic increase in income inequality in the United States since 1978 has been the result of political forces, rather than the natural and inevitable result of technological innovation and increased competition associated with globalization. They note that the balance of political power shifted sharply in favour of those at the very top of the economic ladder. Financial and economic elites have used their political clout to dramatically cut taxes, dismantle social welfare and liberalize labour markets, reduce the power of labour unions and deregulate the financial industry.¹²

In the following chapters of this book, we will provide a comprehensive overview of the many policy and institutional changes that have shifted political power from workers to the top managers of firms and their shareholders and have contributed to the rise in inequality in income and in wealth. These changes fall under the rubric of neoliberalism – a set of policies grounded in neoclassical economic theory and aimed at maximizing the role of markets in the allocation of economic resources and reducing the role of the state to the principal enforcer of ‘market efficiency’ in the economy.¹³ Neoliberalism tried to undo the Keynesian compromises of the post-war era of egalitarian capitalism through a process of marketization – such as lifting restrictions on international economic transactions and subjecting governments and workers to the discipline of global market forces (see chapter 2). The compromises of the Keynesian era arose from the Great Depression of the 1930s, which had created a new consensus among economists and policymakers that activist state intervention in the economy and a more equitable distribution of income and wealth were the most effective ways to sustained prosperity:

The key to full employment and economic growth, many at the time believed, was high levels of aggregate demand. But high demand required mass consumption, which in turn required an equitable distribution of purchasing power. By ensuring sufficient income for less well-off consumers, the government could continually expand the markets for businesses and boost profits as well as wages.¹⁴

This Keynesian consensus unravelled during the economic crisis of the 1970s, giving rise to a neoliberal turn in economic thinking and policymaking that heightened income and wealth inequality and ultimately contributed to the global financial crisis of 2008. In this book we will trace neoliberal transformations in four policy domains that have played a pivotal role in fuelling economic inequality and financial instability over the past four decades:

1 macroeconomic policy, which refers to the tools of the government to manage the business cycle, fight unemployment during economic recessions and maintain price stability;

2 social policy and industrial relations, which is about the organization of the welfare state and labour market;

3 corporate governance, which consists of formal and informal rules and norms shaping firms’ business strategies and the distribution of profits between their main stakeholders (i.e. shareholders, managers and workers); and

4 financial policy, which is about the regulation of the banking and credit system.

This book is the first to give a comprehensive and systematic overview of neoliberal transformations within these four policy domains since the 1980s and show how these transformations have made advanced capitalist societies in Europe and the United States both more unequal and unstable.

The book will examine these changes from a ‘growth model’ perspective. It will provide a synthesis of a nascent comparative and international political economy literature that has linked the global financial crisis to the formation of two mutually dependent but unsustainable growth models: the Anglo-Saxon liberal market economies (LMEs) as well as several Southern European mixed market economies (MMEs) pursued debt-led growth models, whereas the Northern and Western European coordinated market economies (CMEs) adopted export-led growth models. The development of these growth models was deeply connected to distinctive patterns of income and wealth inequality in these advanced capitalist countries – patterns that have been shaped by divergent institutions that both reflect and shape the bargaining position of various classes and groups in these countries. From the growth model perspective elaborated in this book, these institutions reflect temporary and fragile attempts to resolve structural tensions and conflicts between different classes and groups, making the capitalist system intrinsically unstable and prone to crisis.

The book is structured in eight chapters. In chapter 1 we introduce various economic concepts and measures needed for a systematic study of these challenges. The most important objective of the chapter is to give a comprehensive and empirically grounded overview of the cyclical patterns and interlinked nature of economic instability and inequality since the birth of democratic capitalism in the beginning of the twentieth century. We will discuss different measures of income inequality, highlighting the important distinction between personal income distribution and functional income distribution and their connection to wealth inequality. Empirically, we will show that dynamics of inequality are deeply connected to varieties of capitalism: the Anglo-Saxon LMEs have more unequal personal income distribution and experienced a much sharper increase in the national income share of the top 1 per cent than the Northern and Western European CMEs, which witnessed a starker decline in the share of national income going to labour (which is the main measure of functional income distribution). Moreover, we discuss the neoclassical interpretation of rising inequality in the advanced capitalist world since the 1980s and criticize its neglect of power relations, the role of institutions and the structural instabilities that permeate capitalist economies. As such, the chapter explains why (comparative and international) political economy is needed for a deeper understanding of rising inequality, and of how it is connected to the global financial crisis of 2008 through the development of two unsustainable growth models.

In chapter 2 we give an overview of the rise and fall of egalitarian capitalism, which is linked to the expansion of the Keynesian welfare state (KWS) during the 1950s and 1960s and its subsequent demise since the 1970s. The KWS, which arose in the wake of the Great Depression, was based on a wage-led growth model that had three features: (1) there was a cross-party political consensus that achieving full employment via activist macroeconomic policymaking had become a central responsibility of the government; (2) the KWS aimed at expanding social security and advancing collective bargaining, empowering labour unions in ways that ensured wages grew in line with average productivity; (3) the KWS was supported internationally by the Bretton Woods regime, which established rules for managing post-war international financial relations and offered a conducive external environment for domestic state intervention. In this chapter we also discuss how the KWS came to a halt in the wake of the breakdown of the Bretton Woods regime and the stagflation crisis in the 1970s, which undermined the legitimacy of the Keynesian paradigm and set the stage for the rise of neoliberalism as a new framework for economic policymaking in the advanced capitalist world. The KWS collapsed due to inflationary pressures associated with intensified industrial conflict in the 1970s and longer-term secular trends of globalization, deindustrialization and financialization, which forced governments in the advanced capitalist world to find a replacement for the wage-led growth model in the form of either debt-led or export-led growth. In chapter 2 we sketch out why a post-Keynesian account of these growth models is more suitable to clarify the linkages between rising inequality and the global financial crisis than the account delivered by the ‘varieties of capitalism’ literature.

In chapter 3 we examine the neoliberal shift in macroeconomic policymaking, from the Keynesian focus on full employment towards a ‘sound money’ consensus about the necessity to pursue low inflation and public debt levels. Monetary policy was delegated to politically independent central banks with a principal mandate to maintain price stability, leading to a regime of monetary dominance in which fiscal policy was subordinated to that mandate. The shift towards neoliberal macroeconomic policy is often interpreted as the result of the deficiency of Keynesian ideas during the 1970s stagflation crisis and the fiscal crisis of the welfare state during the 1980s, which set the stage for monetarist and neoclassical views on macroeconomic policymaking that eventually culminated in the New Keynesian macroeconomic policy paradigm. We go beyond such an ideational interpretation by pointing to new institutional constraints on Keynesian macroeconomic policymaking, as well as to the distributional effects of neoliberal macroeconomic policy. By subordinating fiscal policy to the inflation target of central banks, governments became entirely dependent on foreign investors in transnational sovereign bond markets to fund their public deficits. This put new constraints on the capacity of governments to pursue reflationary Keynesian macroeconomic policies, making governments more attentive to the preferences of sovereign bond investors and credit rating agencies for low inflation and public deficits. Drawing on class-based perspectives, we will clarify why restrictive macroeconomic policies served to weaken the bargaining power of workers and labour unions, allowing firms to restore their profitability (and contributing to a falling labour income share in the industrialized economies). Drawing on sectoral perspectives, we will explain why the transition towards low inflation particularly advanced the interests of banks, asset managers and their wealthiest clients.

Conflict between employers and labour unions during the 1970s resulted in a crisis of the wage-led growth model that had been central to the Keynesian Golden Age of capitalism. From a neoliberal perspective, the crisis of wage-led growth and the ensuing rise in long-term unemployment rates were caused by structural rigidities in labour markets – for example, the excessive influence of labour unions in the wage-setting process – and overly generous welfare states. While there continue to be persistent institutional differences between the Anglo-Saxon LMEs and the European CMEs in terms of social policy, the crisis of the wage-led growth model put pressure on all the advanced capitalist countries to liberalize their labour markets and dismantle their social security systems. In chapter 4 we will review different theoretical perspectives on these liberalization pressures. Class-based power resource approaches maintain that globalization and regional integration have forced the CMEs to liberalize their social model by strengthening the exit power of capital and weakening the power of labour and left-wing political parties. Employer-centred varieties of capitalism (VoC) approaches contend that pressures for liberalization predominantly arose in the domestically oriented service sectors, since employers in the internationally exposed industrial sectors of the CMEs continue to benefit from centralized labour markets and relatively generous social security systems. The chapter subsequently traces different pathways to liberalization in the Scandinavian social-democratic CMEs, the conservative-corporatist CMEs and Anglo-Saxon LMEs. By surveying these diverse trajectories of neoliberalization, it will become clear that all varieties of capitalism – even the more social and redistributive CMEs – have evolved into less egalitarian forms.

Neoliberal globalization also fostered a shareholder model of corporate governance, according to which the maximization of shareholder value and returns should be the principal objective of firms’ business strategy. The shareholder model of corporate governance was more eagerly adopted by firms in the Anglo-Saxon LMEs than in other countries, which explains why the national income share of the top 1 per cent rose much faster in the former than in the latter economies. In chapter 5 we will trace these divergent patterns by looking at institutional differences in corporate governance and associated executive compensation practices. First of all, we will attribute the neoliberal shift towards shareholder value maximization in the US economy to growing international economic pressures faced by large US vertically integrated corporations, financial ideas (the growing popularity of the neoliberal agency theory of corporate governance) and interest group politics (weakening of labour unions and rent-seeking by managers). Subsequently, we will link divergences in corporate governance and executive compensation practices in the CMEs and LMEs to the distinctive institutional complementarities between their financial systems (bank-dominated versus capital market-dominated), labour markets (centralized versus decentralized), educational systems (promoting industry-specific versus general skills) and firm innovation strategies (incremental versus radical innovation). By linking the shareholder model of corporate governance to the increasing financialization of non-financial firms, we go beyond overly functionalist and static VoC approaches of corporate governance and discuss regulatory changes – for example, the European Union’s promotion of the shareholder model as part and parcel of its efforts to integrate European financial markets – that portend an at least partial erosion of the institutional complementarities of CMEs.

Financial globalization promoted a shift towards market-based banking in ways that increasingly blurred the boundaries between national financial systems dominated by capital market financing and those predominantly reliant upon banking credit. Whereas, in the traditional model of financial intermediation, banking credit is funded by retail deposits, market-based banks increasingly rely on the market to enable their lending (e.g. by financing themselves in wholesale funding markets and/or by developing ‘originate-to-distribute’ techniques like securitization). In chapter 6 we will discuss the emergence of market-based banking since the 1980s and its distinctive manifestation in the Anglo-Saxon LMEs and European CMEs, linking diverging dynamics in household debt and housing markets to diverging patterns of income inequality and growth models. In the United States and the United Kingdom these dynamics have been linked to the formation of asset-based welfare regimes that allowed poor and middle-class households to extract easy credit from the rising market value of their homes. In this chapter we will also explain how large banks from the European CMEs were deeply implicated in these dynamics, as they massively invested in these complex securitized assets and funded these investments by borrowing from other banks in short-term US money and eurodollar markets. By offering an overview of these developments in the European financial system, we will challenge the core assumptions on which the bank-based/capital market-based dichotomous framing in the comparative political economy (CPE) literature – especially in the VoC tradition – rests. Moreover, we will highlight strong growth in household debt in several CMEs (especially the Netherlands and Denmark) and clarify why the accumulation of household debt in these countries did not culminate in a fully fledged housing crisis like those in the United States and the United Kingdom.

Two distinctive growth models ensued from these changes in macroeconomic policy, industrial relations, corporate governance and financial policy: debt-led growth models in the LMEs and Mediterranean MMEs and export-led growth models in the CMEs, all of which have been shaped by distinctive patterns of income inequality. Chapter 7 reviews recent analytical approaches to CPE that focus on the relative importance of different components of aggregate demand and dynamic relations among these demand drivers of growth, thereby paying due attention to the instability of these growth models and their diversity within distinct groups of varieties of capitalism. We will sketch out the main political-economic pillars of these growth models and explain how the mutually interdependent relationship between debt-led and export-led growth gave rise to unsustainable macroeconomic imbalances that were an important source of the global financial crisis of 2007–8 and Eurozone debt crisis of 2010–15. Furthermore, we examine the varying capacity of the industrialized countries to avoid the burden of macroeconomic adjustment after the crisis, highlighting the importance of monetary sovereignty – that is, the capacity to issue debt in a currency controlled by the national central bank. The Eurozone countries have surrendered this capacity by issuing debt in a currency that is controlled by the European Central Bank (ECB), which was more reluctant than the Federal Reserve and the Bank of England to engage in large-scale asset purchase programmes known as quantitative easing (QE; see chapter 7). In the United States and the United Kingdom QE reflected an attempt to minimize the macroeconomic adjustment costs of the crisis by restoring the key pillars of finance-led growth. The ECB’s reluctance to pursue QE offered the northern CMEs a mechanism to deflect the burden of macroeconomic adjustment onto the southern MMEs, which were forced to pursue very painful austerity measures.

The asymmetrical adjustment to the global and regional macroeconomic imbalances after the crisis resulted in persistently weak and fragile economic growth, leading to a revival of the hypothesis that advanced capitalist countries face a period of secular stagnation. In chapter 8 we will discuss the risk of secular stagnation and other key challenges these countries will be confronted with in the near future: the rise in radical right-wing populism, global warming and the economic fallout of the coronavirus crisis. In doing so, the final chapter assesses the prospects for the emergence of a more egalitarian and more sustainable form of democratic capitalism, arguing that a fundamental revision of the neoliberal macroeconomic policy framework should be central to addressing these challenges.