Is Production a Panacea? Reviewing Stolen and The Case for People’s Quantitative Easing
by Sahil Dutta (@sahildutta) on November 19, 2019



When Lehman Brothers collapsed a decade ago an obscure YouTube documentary called Zeitgeist became an unexpected, popular touchstone of critical analysis. Though released a year earlier, its hotchpotch collection of conspiracy theories and anti-Semitic allusions provided a seductive story about the ‘real’ causes of political economic collapse.

With mainstream analysis locked in morality tales about injudicious bankers and reckless borrowers, Zeitgeist offered a dark alternative. There was no such thing as ‘free markets’ in finance because national governments were in cahoots with the bankers.

Banking does indeed depend on private institutions intertwining with state authority. That makes finance a domain especially susceptible to conspiracist cranks. Look at the power of vastly indebted states like the US, and it is clear governments aren’t always the hapless subordinates of their creditors. Similarly, examine how global banks unleash great torrents of credit and we see how national governments their central banks undergird the whole process. These facts are so obvious they are easily ignored, especially by critics who routinely pit global financial markets against national democratic states.

Zeitgeist may have been boilerplate racist conspiracy, but it corrected that misreading. And its success showed how, one way or another, populist stories about finance will take hold. This cannot be the preserve of the far right.

Stolen

It is in this light that Grace Blakeley’s Stolen makes its most important contribution. Stolen tells a story about the rise and demise of the finance-led political settlement that has defined the last four decades, and clearly articulates the political power at work.

The crash was not (just) a story of bad regulators, greedy bankers and faulty economics. Instead it was a deeper crisis of capitalism. As capitalist manufacturing profitability declined through the 1970s, debt grew, and over the last 30 years especially, it substituted for profits, wages, and the welfare state. In short, the Keynesian settlement of the post-war era was privatised through financialisation.

Yet financialisation came with inevitable risks. Debt could only get so high before it had to come crashing down. Which it did in 2008, taking the legitimacy of the broader Thatcherite political economy with it.

Stolen is an explicitly populist account, focussed almost entirely on Britain and America, and anchored by the argument that in the post-crisis world, socialist populism is the only alternative to capitalist barbarism. As such, rather than the mechanics of banking, Stolen aims to reveal the politics of financialisation. It tries to explain why financial markets have come to play such a big role in the organisation of all aspects of society, from housing to education to elderly care, and succeeds in making a complex history digestible. To do so, the book hinges on the idea of the ‘rentier’.

Rentiers are those who make their money more from wealth than they do work (either organising or doing it). Rather than creating something new, rentiers charge others for the use of existing scarce resources. Simply by owning what others need - houses, companies and most importantly credit - they can take for themselves a cut of the value generated in production.

Their power to do that comes from their ability to redirect their assets – such as investment - whenever and wherever they want. A government insufficiently subordinate will see investor money whipped away and bond-yields climb. Companies that don’t deliver sufficient ‘shareholder value’ will face investor ‘exit’ on the capital markets, and see stock prices tumble.

The analysis lays bare clear antagonisms: work against wealth, producers against extractors, industry against finance, debtors against creditors.

This particular framing of political struggle is central to the emerging Anglo-American Left, where the sheer dominance of financial institutions within the English and American national economies makes financial markets feel crucial to domestic wealth. It is why ownership reform is such a key demand for left Labour Party and Democrat members and is why there remains such optimism about the possibilities of a progressive state.

If productive enterprise is being hampered by unsupportive, footloose financiers, then the state can steward instead. This not only removes the apparently feckless rentier but can grant producers the space to address urgent social needs, like the unfolding environmental catastrophe.

The strategy then, laid out in Stolen and elsewhere, is to tackle rentier domination by transforming workers into asset owners. This will be achieved through nationalisation of key utilities, Inclusive Ownership Funds that compel companies to give a proportion of equity to their employees, and the creation of a People’s Asset Management company and citizen’s wealth fund. This is a sovereign wealth fund that slowly amasses private equity assets and returns dividends to the public sector. If everyone is an owner, no-one is a rentier.

For all its political clarity, however, the rentier category is analytically more ambiguous. Most rentiers are not single individuals, they are different institutions, often in competition with one another, who manage different assets on behalf of different customers. Is the school teacher taking early payouts from their pension a rentier? Is the pension fund stewarding workers’ savings by investing in BlackRock a rentier? Is the BlackRock executive investing pension fund money in corporate equity the ultimate rentier? Stolen recognises this conceptual tangle, but it is hard to resolve.

Moreover, in the case of financial investors especially, it is not clear that their power of ‘exit’ is really such a threat. In a financialised world credit is not so scarce a resource. Indeed the sheer abundance of credit is why many investors are paying to save. Given there are negative yields in both corporate and government bonds, what does it mean to speak about ‘rentier capitalism’?

Often it is not a simple story of creditors dictating terms over debtors. Rather, the biggest players in financialised capitalism are those that can acquire and sustain great waves of borrowing. The institutions that can stand between flows of funds, building up liabilities to sustain ever expanding assets are greatly empowered. This can be investment funds like Blackrock, the global consortium banks, and also large financialised corporations. It might all end in disaster, as was the case with Carillion, but until then they capture great profits. Leverage, rather than just credit, drives the show.

As has been argued elsewhere, many of the dynamics of financialisation that Stolen rightly critiques did not come from financial markets, and the market power of rentiers may not be the problem to solve. The fact there is no clear, rentier-free productive ideal to return to (or establish) makes de-financialisation a more questionable pursuit. Indeed, the celebration of productivity as the thing to rescue from the clutches of financialisation risks limiting the radical potential of the book and the ultimate policy programme it lays out.

Peoples Quantitative Easing

Which is perhaps why the proposals outlined in Stolen share some affinities with Frances Coppola’s Case for People’s Quantitative Easing. Though it more narrowly focused on the post-crisis economic stagnation, it too bemoans the collapse of productive investment as the key problem. Much like Stolen, it too sees public authority (central banks specifically) as the most important solution. The key difference is that Coppola presents no political problem in need of resolution.

Instead it is simply that policymakers need correcting. In both the lead up to and especially aftermath of the financial crisis, the financiers were excessively risk averse, refusing to invest in innovative production. Then in the rush to stabilise and de-risk banking system after the crisis, policymakers ended up creating a balance-sheet recession. Highly indebted governments, corporations and households were all trying to deleverage at the same time, hampering productive investment and choking economic growth as a result.

The attempted fix has been a programme of staggeringly large money creation to buy up financial assets (£435 billion of UK gilts, £9.9 billion of corporate bonds), pull down interest rates and stimulate borrowing. New money was created but spent only on those who owned assets. Wealth, again, triumphing over work. Rather, Coppola argues, state money creation could have gone elsewhere: small businesses, indebted households, a sovereign wealth fund.

The possibilities of monetary finance are alluring. In the first Labour leadership election Jeremy Corbyn spoke about Quantitative Easing for the People. Though oddly described as “PFI on steroids” by opponents, the idea had merit. Strict monetary financing of government deficits is prohibited by Lisbon Treaty agreements, but creating money to buy the newly issued bonds of a Public Investment Bank could be an option.

Monetary finance was quickly dropped by the Labour leadership and is now too often a preserve of zealot advocates and opponents. Yet it is a technical policy infrastructure that could be used to support the ownership transformation deemed so necessary. Simply, the central bank could buy up corporate assets - as it has done - and hand these over to a notionally public asset management body. The transformation of finance over the last four decades has greatly empowered central banks, and a progressive state can’t limit itself to fiscal intervention. As both books argue, central bank mandates need urgent reform to reflect this.

Production is not a Panacea

It is clear from both books that change is necessary. Yet whether this is done by overcoming rentier sabotage or policymaker irrationality, enormous faith is placed in the idea that productivity and economic growth can be salvaged from the wreckage of (Western) capitalism. But it is questionable that productivity gains, even if stewarded by the state and undergirded by social movements, can drive a (green) regeneration of economic growth in the way both books aspire.

Growth has, since the 1950s especially, been cast as the solvent to a class difference and social strife. The promise to husband growth has made the state the central actor in economic life. But if we take macroeconomic indicators as the barometer of economic health, then since 1973 advanced industrial economies have performed ever more poorly. GDP, productivity, investment, employment, real wages, all have experienced sustained deceleration. Promising to turn this around is a tall order, and not necessarily a desirable one.

This is because the problem is not that production has sabotaged by financial interests. It is almost the opposite. There is an overcapacity of global manufacturing output that has eroded private sector profitability in highly concentrated oligopolistic producers. As Anusar Farooqui put it, large firms prefer to block competition by building moats that deter entrants into the market, rather than developing new markets. This falling profitability growth has dragged down everything else.

Escaping the twin crises of overproduction and environmental destruction might necessitate not so much a move away from leveraged capitalism and rentier sabotage, but from productivity and economic growth as the categories by which we understand and organise for societal health.

In rooting their accounts to problems with productivity both these books could not confront these urgent questions. Nonetheless what they do provide is a clear, just and necessary critical education on the power and possibilities of finance. This is vital as activists mobilise for the ballot box.


related

Can Labour Resist The Economic Orthodoxy of the Bank of England?

If Labour is to really overturn the prevailing orthodoxy of the Bank of England, it may have to take bolder action to end the Bank’s independence.

Why read "Capital", 150 years later?

Out of all his works, the reputation of Karl Marx as theorist of the socialist tradition is undoubtedly based primarily on his magnum opus, Capital: A Critique of Political Economy.

Can Labour Resist The Economic Orthodoxy of the Bank of England?

If Labour is to really overturn the prevailing orthodoxy of the Bank of England, it may have to take bolder action to end the Bank’s independence.

Why read "Capital", 150 years later?

Out of all his works, the reputation of Karl Marx as theorist of the socialist tradition is undoubtedly based primarily on his magnum opus, Capital: A Critique of Political Economy.