"Looking Ahead" - an extract from Wolfgang Streeck's Buying Time


Wolfgang Streeck's
Buying Time: The Delayed Crisis of Democratic Capitalism places the 2008 economic and financial crisis in the context of the long neoliberal transformation of postwar capitalism that began in the 1970s, which turned the tax state into a debt state, and from there to the consolidation state of today. In the excerpt below, drawn from the book's conclusion, Streeck examines how the relationship between democracy and capitalism might change, in Europe and elsewhere, in the coming years.

The present financial, fiscal and economic crisis is the end point so far of the long neoliberal transformation of postwar capitalism. Inflation, public debt and private debt were makeshifts allowing democratic politics to sustain the appearance of a capitalism that delivered growth, with equal material advances for all, or even a gradual redistribution from top to bottom of market and life chances. Each, however, exhausted itself after roughly a decade, once the beneficiaries and administrators of capital began to find them too costly, making it necessary to replace them. 

What now?

Can the buying of time with the magic of modern money – the periodic extension of the old promises of a socially pacified capitalism, long after they have lost their foundation in reality – continue in and after the great crisis of the early twenty-first century? Half a decade on from 2008, that is precisely what is being tested in a worldwide field experiment. The only money still available for it is the fiat money of the central banks; and the main authority left for the governance of once-democratic capitalism, now moving into its Hayekian phase, is the authority of the central bank presidents. The private money factories have been lying idle since their borrowers took on too much debt and they no longer know which of their outstanding loans can be repaid. Governments are blocked by their parliaments and what remains of their democratic constitutions: in the United States by a polarized Congress, which uses public debt as a pretext for abolishing public government; and in Europe by the growing resistance of voters to the demand that they pay the bill for a neoliberal growth regime from which the great majority have gained nothing.

So, for the immediate future at least, power is migrating to the Draghis and Bernankes and their technocracies, who have it in their hands to pamper the banks (and the profit-dependent classes) with never-ending injections of self-printed money and to refinance governments at low rates regardless of their debt. New tricks keep being found to buy a second spring, however brief, for the debt capitalism that failed so spectacularly in 2008. In Europe, a former Goldman Sachs director elevated to the position of Central Bank president has been searching since his arrival in office for ways to enable buyers and sellers of government bonds to continue their brisk trade with each other. In autumn 2012 connoisseurs clicked their tongues over a state-of-the-art plan for the ECB to purchase unlimited bonds in high-debt countries, at a fixed price and with freshly minted money, although only from banks that had previously (perhaps half an hour previously) bought them from the government concerned, with money from the central bank. While this maintains, without actually respecting, the ban on direct ECB funding of governments, ‘the markets’ are able to buy from the respective governments unlimited promissory notes for, let us say, 96 per cent of their nominal value, and then to sell them on immediately afterwards to the ECB for a guaranteed 96.5 per cent.

Of course, whether this can postpone the legitimation crisis of contemporary capitalism for another decade or more may well be doubted. There is much to suggest that the time to be bought in this way will be all too brief. By pouring in ECB money as a final confidence-building measure in relation to the – rising – debt mountains, the state runs the risk that this too will fail, that state self-financing will be seen as internal trading – an attempt worthy of Baron Münchhausen to pull itself up by its own bootstraps – and that the ECB will become one huge ‘bad bank’ with an electronic printing press attached. The enlistment of the ECB in the role of government of last resort may suit leaders such as Angela Merkel, who are hindered by contradictions and resistance in their national democracies from taking what the finance markets consider ‘responsible’ action; transferring government business to the ECB can save them much of the drudgery of securing political legitimacy. But the trust and reputation for professionalism normally enjoyed by central banks, and hence their actual political usefulness, must super if their policies degenerate into improvised and unprincipled crisis management, pettifogging circumvention of the law, and clientelist rewarding of ailing banks for the purchase of government securities at a guaranteed profit.[1]

All the greater is the ECB’s fear that, if it openly switches from monetary policy to the funding of governments, it will lose its non- political aura. Were the Central Bank recognized as what it has become – a government – it might find itself having to justify its decisions politically, rather than simply on technical grounds, and to mobilize consensus behind them.[2]  This would overstretch it in a democracy, not only because it is an institution standing outside the democratic process, but also because even the immense funds at its disposal would not suffice to buy the appearance of social justice for a neoliberal economic order. On the other hand, central banks really can become de facto governments in periods of political crisis. One interesting example occurred in Italy in the 1990s, when the governors of the Bank of Italy, Guido Carli and Carlo Azeglio Ciampi, temporarily served as prime minister, finance minister and state president, after the party system collapsed in 1993 under the weight of corruption scandals during the ‘years of sludge’. Italy has a tradition of government by a strong central bank – one which Mario Draghi, governor of the Bank of Italy from 2006, after his time at Goldman Sachs, until his appointment as president of the ECB, continues today at EU level.[3]  In the 1990s, it should be noted, the extensive transfer of government powers from the discredited party system to a central bank independent of it was possible in part because fulfillment of the entry conditions for the European Monetary Union was seen as an overarching national interest.

In Europe as in the United States, crisis therapy based on artificial money could be successful in the short run: that is, bankers’ bonuses and shareholders’ dividends might recover, and the risk premiums required by ‘the markets’ for the purchase of government securities might again be affordable after the central bank takes over the risk. But it is far from certain that this would help to ensure long-term growth – especially growth able to sustain a democratic-capitalist peace formula by narrowing, or at least concealing, the gap in Europe between rich and poor or North and South, and somehow reconciling market justice with social justice. One is struck by the ECB president’s insistence that, for all the help beyond its legal mandate that the bank is ready to give in a crisis, it cannot spare governments the task of ‘structural reforms’. Nor do neoliberal politicians offer anything different, in fact, when attempts are made to find a new growth regime that will prevent an expansion of money and debt (this time by the Central Bank itself) from once more leading to overheating and collapse in the financial markets or a repetition of the worldwide inflation of the 1970s.

If crisis management is not to be the prelude to the next crisis, if post-crisis is not to mean pre-crisis, there will have to be another growth spurt – and one, as things stand politically, that can take place only under the aegis of neoliberalism, as a result of ‘reforms’ aligned to the remodeling of the state in the last few decades. This is why the governing central bank combines its beneficence with strict political conditions. Whether it can impose them is another matter, of course; governments, in particular, may also be tempted to speculate that they are ‘too big to fail’.[4] Nor can anyone guarantee that supply-side policies will actually work: witness the four-year stagnation in the United States, the country where a combination of looser central bank money and neoliberal ‘flexibilization’ – like that now taking shape in Europe – had for decades brought only a pseudo-growth liable to implode in periods of crisis. And even if growth were to pick up again, it has long ceased to be the case, as in the Keynesian welfare state of old, that ‘a rising tide lifts all boats’.[5] After the market-induced self-elimination of redistributive politics– however deceptive its methods may have been in the end – and after the forced self-limitation of governments to the protection of market freedom and property rights (especially in government bonds), even growth would ultimately not be capable of calming the distributive conflict inherent in a capitalist market society; rather there would be a growing danger that the long-term losers in the regime of cumulative advantage would finally realize they were being taken for a ride.

If growth did nevertheless pick up again, to have its old calming effect it would have to be quantitatively and qualitatively different from that of the previous two or three decades. The moving average of growth-rates in the industrial countries fell constantly from the second half of the 1980s on. At the high point of the cycle, in 1988, growth still stood above 4 per cent, but by the year 2000 it had dipped to 3.4 per cent and by 2007, the year of the crisis, it was down to 2.7 percent. In the three years from 2009 to 2011, the average growth-rate remained stalled at 1 per cent. New growth capable of ensuring the stability of democratic capitalism would require a fundamental reversal of this trend, and there is no sign of how that might come about.[6] Since the 1990s, ever higher debt ratios have been necessary to produce even the levels of growth seen before the crisis period. Thus, total debt in the USA – private households, private and public enterprises, finance industry and government – stood in 1980 at less than five times GDP, then kept increasing until it stood at nine and a half times in 2008. The development in Germany was astonishingly similar – partly driven, to be sure, by reunification. This suggests that even more debt will have to be injected than previously if the desired effect is to materialize. It seems questionable whether, without help from already heavily indebted public and private households, the central banks of the USA and EMU will manage to pile up the debt mountains necessary for late twentieth- century capitalism to gain another temporary lease of life at a higher level. But even if they achieved this, the result would probably be no more than a move from the frying pan of economic stagnation to the fire of boom-and-bust, with the danger of ever more frequent and dramatic losses of political confidence and corresponding economic downturns.

The other possibility is a return of inflation – either by accident or as a debt reduction strategy, gradual at first, then gathering speed and perhaps even turning into an uncontrollable gallop. At first sight, this might look like a return to the beginning of the crisis cycle that started at the end of the postwar period. But in the social world one never steps into the same river twice. Unlike in the 1970s, inflation today would be driven not by the labour market but by central bank efforts to rescue lenders by bailing out debtors; it could therefore not as easily be ended as in the 1980s. And it would not mainly affect the owners of monetary assets – who, in a world without capital controls, can jump much more easily from one currency to another – but rather the, today, much larger numbers of pensioners and social assistance claimants. Workers too would super, since unlike in the 1970s trade unions are too weak now to ensure that wages keep pace with inflation. As an instrument for the taming of mass democracy, inflation would thus probably be used up much more quickly than in the past. The risk of it fuelling discontent and political instability would be immense.

More information about Buying Time


[1]    See  the  ECB’s  Byzantine  explanation  of  why  the  unlimited  purchase  of government bonds on the secondary market does not constitute a (forbidden) funding of governments but is only a form of monetary policy. Building confidence by bending the law is not a strategy with good long-term prospects.

[2]    Very likely the professional deformations of its governors would stand in the way of this. On 17 February 2012 one could read the following on the currentmoment blog: ‘ “In a democracy you have to push people to do things by scaring them.” This past Tuesday, at a roundtable on “the future of the euro” at Harvard University, we heard Lorenzo Bini-Smaghi utter these exact words. His Royal Smaghiness was a member of the ECB executive board until last November, and was advising his audience on more than his personal views. He was giving us a glimpse deep into the technocratic vision that predominates in Europe at the moment, and the particular techniques in play to manage the situation. What stood out in the banker’s comments was, first, an extraordinary ideological commitment to the euro and, second, a somewhat delusional vision of social control.’ See thecurrentmoment.wordpress.com (last accessed 26 November 2012).

[3]    As Italian prime minister, former EU commissioner Mario Monti also fitted into the scheme of a ‘government by experts’ that took the place of government by parties. In any case, given the way the Italian parliament works, or does not work, most laws in Italy are first passed as governmental or presidential decrees.

[4]    As  we  noted  earlier,  the  European  shadow  government  replaced  Berlusconi with Monti because his government had not fulfilled a number of conditions for financial aid that Draghi and his predecessor at the ECB, Trichet, had set in an unpublished letter. Yet in his first year of government, Monti too proved either unable or unwilling to do what was expected of him.

[5]   An expression that seems to have originated among the yachting clubs of the northeastern coast of the United States, and which has been commonly used in US economic policy since the days of John F. Kennedy.

[6]    See the left-wing thecurrentmoment blog on the occasion of Hollande’s election as president on 7 May 2012: ‘The socialist campaign in France was focused on Sarkozy’s record as president. Its own economic programme was far weaker. The main thrust was to halt reform at the domestic level, bringing things back to the status quo ante, and to kickstart growth at the European level by using the creditworthiness of Germany to fund a new round of government borrowing...New governments in Europe, including the French Socialists, are relying on yet more borrowing to promote growth. This is not the end of austerity in Europe so much as a continuation of the underlying trends that brought about the crisis in the first place.’ See thecurrentmoment.wordpress.com (last accessed 26 November 2012).

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