Old man Marx must have been laughing in his grave last week. His forecasts of the imminent proletarian revolution have, variously, been mocked, discredited and disproved almost from the moment he penned them 160 years ago. Yet last Thursday, as the most powerful man in the world went cap-in-hand to beg his political friends and foes to support a state-sponsored mission to rescue America’s falling financial titans, it was hard not to wonder if this was not a revolutionary moment in the history of the West.
Specifically, the proposed $700 billion plan to prop up those U.S. investment agencies facing imminent collapse, a collapse that could likely bring down the American economy with it, signals the end of the neo-conservative, neo-liberal experiment that began more than three decades ago.
Based on the primacy of unfettered free trade and unregulated free markets, the original idea — as embodied in Margaret Thatcher’s rise to power in Britain and almost 20 years of Conservative rule in that country — was that unrestricted capitalism would rescue countries from the oppressive burdens of state-funded social programs (e.g. health, education, unemployment assistance, etc.) and unrealistically high wages then being won by trade unions.
The revolution spread, to America under Ronald Reagan and George H.W. Bush, to Canada under Brian Mulroney and later to Australia under John Howard. What was most remarkable was less the victory of individual advocates of neo-conservatism than the broad rightward shift of the entire political spectrum, most evident in the election of Tony Blair in 1997, whose rebranded “New Labour” in fact accepted and entrenched many of the policies that his Conservative predecessors had initiated. In Canada, a similar process happened with the election of Jean Chrétien in 1993, who quickly dropped his earlier opposition to the North American Free Trade Agreement and the Goods and Services Tax.
The mantra “greed is good” may have caricatured the heady economic times of the 1980s, when fast fortunes could be made on the stock market and governments trimmed back “wasteful” spending on all manner of social programs, but by the 1990s, things had begun to settle down. The excitement of the “new capitalist” era had worn off, as an increasing number of both the working and middle class began to realize that their own incomes had not kept pace with inflation and, in real terms, they were worse off than they had been 20 years earlier.
What was more, new burdens had been placed on people at the same time. The freedom to invest in funds for their own retirement relieved governments from the obligation of having to properly manage and underwrite tax-based pension plans. Private health care options began to creep in in many jurisdictions, as once again government cutbacks diminished the access to and quality of public medicine. Charter schools and home-schooling rose in popularity, as state-run schools increasingly found themselves unable to afford much more than the basics.
At the time, this shift was promoted and sold as providing people with a greater freedom of choice, which in some ways it was. However, even with the availability of tax credits for those who chose these options, the net effect was to place greater stress on their ability to pay.
Back to the present mortgage crisis. At the heart of the neo-conservative revolution was the belief that people — ordinary people — should have the right to own property. Greater home-ownership was to be the symbol of all that was good about the new economy. Owning real estate gave you a stake in society, an asset that only ever appreciated in value, reassurance that you were sheltered from occasional economic downturns.
To encourage new home buyers, central banks fought to keep interest rates low over the past two decades, even if this meant accepting higher levels of unemployment at times, and financial institutions entered a new phase of competition to secure new customers. Terms and conditions of mortgages were eased — notably the reduction of a required minimum deposit — with the result that more people entered the real estate market for the first time. In Canada, some semblance of regulation remained (and remains) in place, but in the U.S. competition broke free of all restraints.
In short, people who should never have been lent money — large amounts of money — were given easy credit en masse by America’s banks and loan houses. As long as house prices rose, this was not a problem. As soon as real estate dipped, as it did in 2006-07, so the rate of defaults and foreclosures shot up, as the initial easy mortgage terms expired and their holders were left unable to meet even minimum payments. Foreclosures reached almost 1.5 million in 2007, leaving financial institutions to absorb losses of over $400 billion by last summer.
Greed got America into this mess. Only the state, it seems — that much-maligned boogeyman of the bad, old economy — can get America out of it. Another mantra of the neo-conservative revolution was that people manage to spend their own money more wisely than governments can. That’s why so many public programs were slashed and destroyed in the 1980s and ’90s. Not so, it now appears. Left to their own devices, people are able to spend money (and it’s not even their money, of course) just as recklessly and profligately as any government.
Maybe that’s their right. However, last Thursday marked the moment when America was forced to face the fact that free, unregulated capitalism had failed. That simple fact, more than any other, should be the key issue in the coming elections north and south of the border.
David Bright has published widely on Canadian social, labour and criminal justice history. He teaches history and politics at Niagara College, Ontario.
