Simon Mohun – “A protracted transition”. 2 June 2016.

Simon Mohun, 2 June 2016

In 2008 you could “not see how the neoliberal world order will be re-established”, and you expected “a move to a much more state-managed economy”. There was indeed a wave of nationalisations and of discussions for new regulations. Eight years later, though, governments are avid for new privatisations and new strippings of worker protections from the labour market, and the new regulations on banks and finance look weak. The IMF’s Global Financial Stability Report (October 2014) finds that “most broad estimates point to a recent pick-up in shadow banking activity in the euro area, the United States, and the United Kingdom… In emerging markets, shadow banking continues to grow strongly, outstripping banking sector growth”. Why do you think it is that neoliberal finance has proved so resilient and so able to fend off criticism and efforts to restrain it?

In one sense you’re right. At the same time I still think that I was right in saying that the 2007-9 crisis presaged the end of the neoliberal era. Only, as I already said back in 2008, any transition will be long and protracted.
My evidence would be that the metropolitan advanced capitalist countries just haven’t recovered from 2008-9. The only “Western” economy that has had a half-way decent recovery is the USA. Most people put that down to the Obama stimulus package, which dwarfed fiscal stimulus packages in other countries. Britain has been one of the worst performers, and that failure is laid at the door of Osborne’s austerity policies. I think it’s an open question, but a coordinated Keynesian stimulus might well have worked in around 2010. In any case, the advanced capitalist economies just aren’t recovering. Even the US recovery has been much weaker than from previous downturns.
As a result, ideas that used to be considered anathema are being discussed in influential circles. The IMF Research Department has taken quite a progressive stance in suggesting more stimulus. The OECD has published reports on similar lines. The Bank of England has published research with ideas a million miles from conventional economic textbooks. In a whole range of institutions, there is the idea that current policies just aren’t working. And so extraordinary measures are being considered, like helicopter money [the central bank printing extra cash to distribute free to households] or People’s Quantitative Easing [extra cash printed directly to pay for investment in housing and public transport]. Adair Turner, who was chair of the Financial Services Authority from 2008 to 2013, has called for helicopter money to be considered as an option [bit.ly/at-heli].
My analogy would be the recovery after 1929-33. It really wasn’t for another 13 or 14 years after 1933 that one could say that the US economy had recovered. Any analogy is obviously complicated by the facts of fascism and World War 2 in that period. But you see with Roosevelt’s New Deal that he was making policy on the hoof. He’d try one thing, and if it didn’t work he would scrap it and try another. He didn’t have a very coherent strategy. It took a long time before a more or less consistent new regime of capitalist strategy emerged.
For now the alternatives are weak, and the transition will be protracted, but I would reiterate that the neoliberal era is dead. One indication that I would point to as significant is that rise of alternative political movements, of different stripes, which are united by contempt for the political establishment. In Spain, Podemos and the mayoral coalitions; in Greece, Syriza, though in many ways that’s been a disaster; in the USA, the supporters of Trump and of Sanders, in their different ways; and in Britain, the support for Jeremy Corbyn, though here it is complicated by the widespread utter contempt for the whole political class ever since the parliamentary expenses scandal [of 2009]. Another and more dangerous indication of course is the rise of the far-right (for much the same reasons of frustration and ‘dead-endedness’ that are behind the rise of the left).

But the contrast with the 1930s is that then there were relatively few “talking heads” proposing new ideas, and yet governments tried new policies. Now there are many such dissident “talking heads”, and yet all governments and all official oppositions stick quite close to established neoliberal policies. In the right-wing populist movements ascendant in recent years – Ukip, the Front National, the BJP in India… – there is little social demagogy compared to their similars of the 1930s. Their promise is less that they will bring prosperity as that with them people will still be miserable but after all properly “British”, properly “French”, or properly “Hindu”. And on the left, even before taking office in 2012, Syriza, with its Thessaloniki platform, had renounced any direct challenge to neoliberalism in favour of a promise to negotiate a better deal with the EU and distribute the proceeds in social alleviation.

One issue that is under-theorised is this: what has been the point of public policy over the last eight years or so? The usual answer is that government have a responsibility to get the economy going again, and policy pursues that aim. But then you have to ask why Osborne doesn’t see that his policy does not achieve that aim. The answer may be that the purpose of neoliberal policy has nothing to do with growth and expansion. It’s to do with recasting the role of the state in the economy and an assault on the working class, as regards wages, the state underpinning of living standards (the welfare state), and job security. Specific policy aims are about changing the norm of what’s expected for a reasonable standard of living.
But changing norms is complicated and difficult. Different norms change at different speeds. The norms of how gay people are treated in our society have changed very dramatically and fast. Other norms (including I think what is expected of a reasonable standard of living) change very slowly.
There are other under-theorised issues. Finance capital, as the dominant form of capital, and very mobile internationally, does not really have a national home and therefore may not be particularly interested in what happens to the British (or any other national) economy per se. Also, in terms of profitability, capital has been doing pretty well right through the neoliberal era. One measure of that is the way that the big corporations are swimming in cash. Why aren’t they investing the cash in new operations? Are they short of profitable investment opportunities? That does not seem convincing. Is it to do with the fact that investment costs less these days than it used to? For example take investment to do with computing power: falls in the cost of total investment do not correspond to falls in the amount of ‘stuff’ that is invested.
Those are under-theorised aspects. I don’t think the perspective of what I said in 2008 was wrong. But I do think the transition will be long and protracted. The big contrast here is with the late 1970s. The proponents of the neoliberal “revolution” knew what they wanted, and got it very quickly. That contrasts with today. Take Corbyn and McDonnell today. Do they have a coherent idea of the economy they want? Maybe, but I doubt it. Do they have a coherent idea of how they’re going to get there? I don’t think so.

In their books The Crisis of Neoliberalism and La Grande Bifurcation, Gerard Duménil and Dominique Lévy suggest that the crisis may lead to neoliberalism being replaced by a new form of managerial capitalism. In fact, they propose that the labour movement should make an alliance with the managerial class to bring that about. What do you make of that idea?

Duménil and Lévy have essentially a three-class model of society: capitalists, managers, workers. It’s a reasonable one. In a recent article I’ve made estimates for the distribution of personal income in the US economy. In 2012, the capitalist class covers the top 1.4% of the income distribution, managers the next 15.6%, and working class the rest (the bottom 83%), which seems quite plausible [Mohun, 2016]. It is also plausible that in the 1970s and 80s the managerial class switched to support for finance capital. But the approach of Duménil and Lévy is a bit mechanical. The social-democratic regime was workers and managers against capitalists, neoliberalism is capitalists and managers against workers, and so a different future can only be workers and managers against capitalists again. If any new alliance is created, it won’t be in the same form as before neoliberalism.

Hasn’t neoliberalism and financialisation changed the composition and orientation of the managerial layers, too? These days, a vast number of workers with only modest supervisory duties, probably little different from those that a skilled manual worker would have over workers helping him or her a century ago, are labelled “managers”, but at the same time higher managers have been brought closer to the capitalist class proper, and their orientation has been changed. The Wall Street Journal reported in 1998: “Ten years ago, a bedrock American company… wouldn’t have dreamed of having an outsider as CEO. Today, they all do. Ten years ago, chief executive officers were rooted in one business and rarely strayed from it. Today, increasingly, they hopscotch around corporate America and across all industry boundaries… Call them the portable CEOs. They are the antithesis of the 1950s-style company man” (article by John Helyar and Joann S. Lublin, 21 January 1998). More recent figures confirm that picture. The turnover rate for CEOs was 16.5% per year in 1998-2005, up from 10% in the 1970s (Steven N. Kaplan and Bernadette A. Minton, NBER Working Paper 12465, August 2006). “In 2012, 27.1 percent of S&P 500 companies that faced a CEO succession hired an outsider for the top job…” (CEO Succession Practices: 2013 Edition – The Conference Board). These managers, by training, by personal interest, and by culture, are as “financialised” as the financiers. They are surrounded by, and often are the same people as, the new flood of highly-paid non-executive directors. “A steady increase in the representation of independent directors on the board [of publicly-traded firms in the USA], from approximately 20% in 1950 to approximately 75% in 2005… Circa 1950, director compensation was low and sometimes nonexistent… As it became desirable for firms to put ‘outsiders’ on the board… significant compensation became common; indeed, it became increasingly lavish…”, now around $200,000 a year in big companies (Jeffrey N Gordon, The Rise of Independent Directors in the United States 1950-2005, Stanford Law Review, Vol. 59, No. 6, April 2007).

A significant number of managers have been coopted into identification with the capitalist class. The unequal distribution of income within the three main categories – workers, managers, capitalists – becomes more unequal as you move up from workers to capitalists, so that within the managerial class there is a very wide distribution of income. At the upper end very many will see themselves as identified with the capitalist class, or even likely to move into that class soon. At the bottom end some may see a unity of interest with the skilled working class; others may desperately fear slipping out of the managerial stratum and will have a different identification.
Another issue is to do with visibility. Britain is very unequal today, but to a considerable extent that’s invisible. On the whole people compare their incomes to those whom they see as their peers or just ahead of them. We don’t know how the top one per cent live. We don’t come across them. They live in a different society. The world’s top 25 hedge fund managers earned $13bn in 2015 (bit.ly/hedge-b). It’s a figure so big it’s difficult to understand.

Your research on the US economy indicates that the counterpart since 1979 of a decline in productive workers’ wage share has been, not a rise in unproductive workers’ wage share, but specifically a rise in managers’ wage share. In some countries, notably Germany and Japan, top bosses’ pay has risen much more modestly than in the USA (Luis Gomez-Mejia and Steve Werner, Global Compensation: Foundations and Perspectives, 2008, p.192). How fundamental a trend in neoliberal capitalism do you think the rise in managers’ wage share is?

Britain and the USA are significantly different because of their huge financial sectors. Britain is in a worse position, because the USA is still a significant manufacturing economy. Germany and Japan, of course, are also significant manufacturing economies. A manufacturing economy involves complex production processes and capitalists having to be concerned with skills, training, and education in the workforce. In Britain, none of that is true. The manufacturing sector is very weak. Education is neglected. The USA is more complicated in that respect because it has a huge university sector, which I think is something to do with being a not-very-old immigrant society with cultural norms that don’t exist in Europe. In the USA there is a social recognition of the need for apprenticeships, education, training. In the UK the epitome would be Dyson, the vacuum-cleaner manufacturers. Its head office is near Swindon, but it employs people in this country only for administration and research and development. Its production is all outsourced in Malaysia.

Does that mean that Britain is the most “advanced economy”, the model towards which Germany and Japan and others will move over time, slowly or fast? Or that Britain is an anomaly?

There are tendencies in that direction, towards the “British model”, but tendencies in other directions too. And if neoliberalism is, at least in one sense, finished, then the trends towards extreme “financialisation” and decline of manufacturing are unlikely to work out in Germany and Japan as fully as they have in Britain or the USA.

In 2008 you argued that “relatively speaking, the US economy is in decline”, though slowly. Do you think events since then have confirmed that judgement?

The USA has not been declining in recent years relative to the UK, Germany, or Japan. But its percentage of world output is falling. It is falling quite slowly, but other areas of the world are increasing their percentage quite fast, especially in south and east Asia.

Yes, the USA’s share of world output has been on a falling trend for a long time, from 27% in 1950 to 18% more recently. The USA became a net importer of manufactured goods as long ago as 1983. But my question is really about whether the USA’s hegemony in the world economy is declining, and that is a different question. Around 1971, when the dollar went off the gold standard, almost everyone interpreted that as a sign of a decline of US hegemony, a decline that would then accelerate. But that was wrong. In fact, up to the early years of the 21st century at least, the USA was able to increase its hegemony. The question is whether that trend has now reversed.

The significant event for US hegemony was the collapse of the USSR. When the Soviet Union existed, the US defined its imperialist ambitions in terms of countering communism, whether one puts it in inverted commas or not. Since the collapse of the USSR, it has been much more complicated for the USA to intervene. Look at the Middle East today. What would constitute a successful intervention in Syria today? US strategists don’t know.

The USA intended its invasion of Iraq in 2003 to be a lever for the transformation of the whole Middle East to make it more secure for the USA and for capital. That failed dramatically, and surely that has weakened the USA in the aftermath. The question is whether that was an episode which will be overcome in time, or part of a new trend for US hegemony to decline. In hindsight we tend to see US hegemony before the 1970s as tidier than in fact it was. Actually in that era the USA failed, or did not even try much, to dominate many particular developments, and yet its overall hegemony remained robust. Maybe the same is still true.

When the dollar was decoupled from gold in 1971, most of the left was talking in terms of inter-imperialist rivalries. In retrospect, everybody massively underestimated the significance of the dollar remaining the world’s reserve currency. That gives the US huge power relative to other countries. It enables it to run huge trade deficits indefinitely, without problems. As long as the dollar remains the world’s reserve currency, any relative imperialist decline will be limited. In the early 2000s, many writers pointed to the fact that China was holding so many US Treasury bonds: China would only have to sell them for the USA to go into complete catastrophe. But China wouldn’t sell them, because they would have as much or more to lose from a collapse of the price of US Treasuries. The left didn’t really take on board what the dollar being the world reserve currency meant; and that is secure for the foreseeable future.