As the slow-moving crash engulfs the global economy Graham Turner’s paperback The Credit Crunch claims to offer an understanding of the roots of the crisis and proposes policy measures “to ensure that there is no repeat of the flawed economic policies that have created the biggest credit bust since the 1930s.” Review by Gerry Gold
Graham Turner has a vested interest in understanding the global financial crisis. GFC Economics, the consultancy Turner founded after a decade working for Japanese banks, has more than 60 clients among the world’s major financial institutions. So he needs to be right more often than he is wrong.
Turner – an occasional contributor to BBC’s Newsnight, and an influential member of the Left Economics Advisory Panel (LEAP) has a better track record than most in predicting the course of the credit bubble bust, though, in a Q&A session in the Spectator he admits it took three years longer coming than he expected.
His book correctly chastises the mainstream press for failing to address the underlying causes of the massive accumulation of debt that exploded in the sub-prime crisis of 2007 and the credit crunch that followed. Turner is right to say that this is “out of fear that the contradictions and flaws with the economic philosophy they have espoused will be exposed.” By which he means the neo-liberal philosophy of unrestricted free trade which has dominated the global policy agenda for the last period.
The full extent of Turner’s own foray into underlying causes is contained within the short introduction, including a sideswipe which amazingly accuses Bob Bernanke, US Federal Reserve chairman, of Marxist tendencies! Turner’s argument runs something like this: The growth of credit that produced the inflation in house prices was a necessary component of the incessant drive to expand free trade at all costs. Corporations driving economic expansion grew to become the dominant power.
As regulation and workers’ rights were eliminated, corporate profits grew at the expense of workers whose wages fell as a proportion of “national income”. Globalisation, or what Turner calls the abuse of free trade, meant that competing companies moved production and jobs to sources of cheap labour in China and elsewhere, leaving workers in the West with reduced ability to buy imported commodities. In order to remain in power, governments in Western countries conspired to encourage and allow debt to rise and house prices to inflate so that workers could continue to consume and the path of growth could be maintained.
This has something of the ring of truth about it. But a deeper analysis of the underlying causes of corporate growth is absent. So that’s more or less the last time we get to see any mention of the corporations. Rather than tracing the ballooning of credit and debt as the necessary expression of, and complement to the relentless expansion of capital, as we show in A House of Cards, Turner’s subsequent interpretation claims the whole problem is the result of policy errors by governments.
With his Keynesian spectacles jammed firmly on his nose, he leaves behind the radical-sounding cover and, for the rest of the book, returns to more familiar ground. While many others have traced the growth of a global network of transnational corporations which have transformed the role of national governments, and some even, like Leslie Sklair, have shown the development of a transnational capitalist class, Turner ignores it all. Instead he takes an anti-historical view, preferring to see the world as it was when Keynes lived and breathed. Turner’s is a macroeconomic world of nations competing in a system of more or less free markets.
If only they’d followed the interventionist theories and advice of the economist John Maynard Keynes, governments could have kept the corporations under control and sustained a nice balance between corporate power and workers’ interests. For Turner, financial authorities ignoring Keynes and failing to learn the lessons of erroneous action during previous crises could lead to a repeat of the unending, decade-long Japanese depression, but on a global scale.
Turner’s account of the historical build-up to the current crisis takes in the 1920s and 1930s Great Depression, but leaps over the Second World War and its role in the unprecedented destruction of capital made necessary by the investment frenzy that led to overproduction and the 1929 crash. This historical blindness is the hallmark of many similar interpretations which can’t admit that the creation and elimination of surplus productive capacity is an essential component determining the boom-bust trajectory of the capitalist economy.
After the Second World War, apparently, “a strong consensus emerged for a more equitable distribution of income, replete with greater rights for workers.” You couldn’t wish for a more anodyne rewriting of the revolutionary implications of the outcome of the war. The “consensus” referred to was forced on the ruling classes as a result of the triumphs of the Red Army and in 1945 the ejection of Churchill from power by troops and workers determined not to return to the 1930s at any cost.
Turner’s New Keynesian alternative turns out to be nothing more than the left arm to the neo-liberals’ right. Both are constrained by the sleeves of the same “there is no alternative” capitalist straitjacket. Whilst praising free trade as “a good thing”, Turner blames its promoters for allowing corporate power to grow at the expense of labour, and castigates policy-makers and regulators for turning a blind eye to the reckless explosion of unsustainable debt.
In reality, policy-makers and corporate power represent a division of labour within the capitalist system as a whole. The globalisation process propelled them into each other’s arms, transformed the roles of the IMF and World Bank, institutions created at the post-second world war Bretton Woods conference to manage relations between nations (in which Britain was represented by Keynes), and created a process which led to global institutions like the World Trade Organisation. All now became subject to legions of corporate lobbyists serving the self-developing expansion of capital. If mistakes were made, their origin actually lies in the accumulation process of capital itself, an objective process reflected in the heads of policy-makers.
Turner’s pie-eyed big idea – to rebalance the power relationship as a way of keeping profit levels high – is an appeal to the ruling classes to do everyone a favour. It assumes they are in control, when they are patently not, and Turner knows it. Rather than launch a bold leap to social ownership as the solution to the crisis, even as domestic and commercial property prices tumble around the world Turner hopes that central banks and governments can prevent the debt-induced collapse of asset prices.
Turner’s approach means that we would be obliged to retain the fundamental relationships of capitalist exploitation intact as the biggest economic disaster of all time looms. That indeed would be a major policy error.