[Mayworks-org] From the Global Crisis to Canada's Crisis

[The Bullet]

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A Socialist Project e-bulletin ... No. 164 ... December 4, 2008
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>From the Global Crisis to Canada's Crisis

Leo Panitch

The political crisis that has suddenly erupted in Canada adds yet another
dimension to the seemingly unending shockwaves set in motion by the global
financial crisis. The sheer political escapism that led all the leaders
(even the NDP's Jack Layton) to solemnly pledge during the recent federal
election not to run a deficit -- when it was already clear that the
severity of this crisis is such that no government can avoid a deficit even
if it wants to -- has now rebounded on us with a vengeance.

One shock effect of Finance Minister Jim Flaherty's economic statement was
that it so flatly contradicted Prime Minister Stephen Harper's conversion
to Keynesianism on the road to Lima. What the statement showed was that
while the government was going to talk the talk at international meetings,
it was actually going to try to be a free rider on such stimulus as the
Americans would undertake. The other shock was that the statement's
proclamation of old-fashioned fiscal rectitude was tied to an opportunistic
attack on free collective bargaining, pay equity and the public funding of
political parties -- not only narrowly partisan, but also largely
gratuitous.

Without this, the opposition parties may not even have tried to defeat the
government. But the ideological cover Barack Obama and Gordon Brown have
given them in recent weeks must have helped steel their courage, even after
Mr. Harper drew back, to unite behind the claim that their own reconversion
to Keynesianism is more genuine -- and genuinely multilateralist. And all
constitutional precedents suggest that it will be very difficult for the
Governor-General to deny them the chance to form and sustain a government
so soon after a general election in which they together obtained a clear
majority of the vote.

The question remains, however, whether the opposition parties themselves
have taken on board, any more than Mr. Obama or Mr. Brown, just how much of
a break is needed with the basic logic of capitalist markets in such a
severe crisis. Sauve qui peut, each firm lays off workers and tries to pay
less to those kept on; taken together, this has the effect of undercutting
the overall demand in the economy. It's the classic case of micro-rational
behaviour having the worst macro-rational outcome.

It was such illogic that initially led the Tories to use the statement to
try to set an example for the private sector by restricting the collective
bargaining rights of the secretaries and statisticians, cleaners and
computer programmers who work for the government. This was exactly what the
federal Liberal government did in the recession of the early 1980s and Bob
Rae's Ontario NDP government did in the recession of the early 1990s. But
even without this, whatever either any government might now do by way of
direct public spending or adjusting taxes to encourage consumption will
likely not be enough to offset the private sector's own tendencies to
engage in the macro-illogic of cutting jobs and wages, and thus workers'
main sources of income.

The specific problem in this particular crisis is that all the massive
drops of liquidity that governments everywhere have helicoptered onto the
financial system in the past 15 months have not restored the banks'
capacity or willingness to lend at anything like previous rates -- even to
each other, let alone to firms or to consumers. The recent British and U.S.
decisions to infuse their banks with public capital by buying some of their
shares reflected the hope that this would overcome the banks' mistrust of
each other's solvency. Mr. Flaherty's statement showed that the Tories are
prepared, "if necessary," to do the same thing.

But nor does this type of capital infusion work to unclog the financial
system, as may be seen by the latest hundreds of billions the U.S. Federal
Reserve and Treasury committed to buying or guaranteeing the banks' bad
debt, even after their capital infusions. And it was also seen in the Bank
of England's lowering of interest rates by 1.5 per cent, only to find that
the banks wouldn't lower their own rates accordingly. Her Majesty's
Treasury could only use moral suasion to try to get the banks to do so,
while reassuring them that all the state wanted as a shareholder was that
the banks would operate prudentially on commercial criteria.

But it may be that banks cannot lend sufficiently to lead us out of the
crisis. This is precisely because the whole system of securitized finance
that has grown up over the past few decades -- whereby the risk on
mortgages, consumer credit and business loans is sliced, diced, repackaged
and traded around the world -- has imploded. Even the Financial Times now
warns in its editorials that it may not be possible to avoid much longer
the issue of really taking the whole banking system into public ownership,
given its current disfunctionality. Indeed, there has long been a strong
case for turning the banks into a public utility, given that they can't
exist in complex modern society without states guaranteeing their deposits
and central banks constantly acting as lenders of last resort.

In Canada, as the New Democrats prepare themselves for federal office for
the first time in their history, the prospect of turning banking into a
public utility might be seen as laying the groundwork for the
democratization of the economy that the party was originally committed to
when it was founded as the Co-operative Commonwealth Federation, four years
into the Great Depression. But there is no need for the bankers to set up
barricades on Bay Street just yet. As the Globe and Mail reported, the
Liberals took pains last week "to reassure Canada's banks ... that a
Liberal-led coalition would not harm the economy or financial
institutions." And even the NDP has taken it for granted for the past 50
years that all that democratic socialist public ownership stuff was more or
less all behind us.

But as the current crisis goes to show, we are far indeed from the end of
history. Capitalism is full of surprises. And, for that matter, so is
socialism -- which is very likely to be soon heard from again as a serious
democratic political force. When the logic of capitalist markets goes
haywire, people can see the point, and the possibility, of new systemic
alternatives to it.

Leo Panitch is the Canada Research Chair in comparative political economy
at York University. His most recently published books are American Empire
and the Political Economy of International Finance and Renewing Socialism:
Transforming Democracy, Strategy and Imagination. This article first
appeared in the Globe and Mail.


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