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‘‘Telling An Ugly Tale’’

‘Bankocracy’ by Eric Toussaint

Avishek Konar

The Great Recession, from the middle of 2007 onwards, has rocked the global economy. This has led to at least a couple of things. The legitimacy of neo-liberalism in the west–qua 'there is no other alternative'—has been shattered, and vast majority of people are now looking for other political alternatives which partly explains the rise of the popularity of Bernie Sanders in the US and Jeremy Corbyn in the UK. This has also laid bare the inability of mainstream economics to explain, let alone predict or foresee, any of these crises. In November of 2011, 70 students walked out of N Gregory Mankiw's (who has authored the most widely used undergraduate textbook of economics) in protest that alternative theories are not taught in the curriculum. It is clear that neoclassical economics has very little to offer to explain the current crisis. Nobel laureate Robert Lucas, who had declared in 2003 that "central problem of depression-prevention has been solved", in 2008 said that
"I am skeptical about the argument that the sub prime mortgage problem will contaminate the whole mortgage market, that housing construction will come to a halt, and that the economy will slip into a recession. Every step in this chain is questionable and none has been quantified. If we have learned anything from the past 20 years it is that there is a lot of stability built into the real economy".

Sadly, for millions of people Lucas' prediction proved to be wrong. There have been, however, quite a few interventions in Marxist, and heterodox economics tradition to grapple with the crisis, and Eric Toussaint's Bankocracy [Resistance Books, IIRE, CADTM, published in India by Aakar Books, 28E, Pocket IV, Mayur Vihar Phase I, Delhi-110091, Price : Rs 595] is a fantastic addition to this debate and conversation, and a must-read for anyone interested in living in a better world.

There are alternative character-siations of capitalist crises. The Monthly Review school adheres to what is known as the under consumptionist argument. In a nutshell the argument goes as follows. In the late nineteenth century and twentieth century, capitalism has transformed from small competitive firms to a monopoly capitalism which has led to erosion of competition. This means that firms breed stagnation by charging monopoly prices and at the same time suppressing wages of workers. The onset of a crisis is often deferred by the credit mechanism to boost demand, which eventually will lead to the bursting of a credit bubble. The political implication is very similar to a Keynesian interpretation which says that the economy can and needs to be steered out of the crisis by resorting to public spending to boost demand.

Eric Toussaint locates the origins of the crisis in the capitalist economic structure. The crisis manifests itself in 2007/08 in the form of a severe credit crisis, i.e. inability of banks and other financial institutions to borrow money and roll over debt. However, the origins of the crisis lay in a structural understanding of capitalist society. The neo-liberal counterrevolution of the 1970s-80s was a response to a structural crisis in capitalism that emerged in the 1960s at the end of what is called the 'golden age of capitalism'. The rate of profit peaked in Europe and US in the 1960s and then it began to fall for the next decade and a half. Why?

This can be located in an inherent contradiction in the rate of growth and technological change that is characteristic of the structural logic of capitalism. The logic of competition drives firms to always seek higher profit and thereby look for opportunities to drive down the cost of production. The golden age was an era of regulated capitalism and hence the share of wages in the economy was high in the post-war period which provided an incentive to mechanisation or adoption of labour saving technology. This meant that the marginal productivity of capital fell while that of labour rose as the ration of capital to output rose.

The profit share of output remained constant throughout the golden age. Output per capital is nothing but the marginal productivity of capital, which was falling after the 1960s. Thus, the structural logic of capitalism led to a fall of the profit rate which meant that the neo-liberal counterrevolution was necessitated by underlying features of the economy.

The elections of Margaret Thatcher in 1979 in UK and of Ronald Reagan in 1981 in the US ushered in the assault of neo-liberalism on working people. The financialisation of the economy increased sharply, regulations were dismantled, and the power of labour as an organised force in society that had built up in the decades following the World War II was decimated to make sure wages could be suppressed to increase the rate of profit. This provided the underlying conditions for the need for debt and credit. The increased profit that corporations earned by paying less could now be cycled back as a supply of credit which would now be taken up by the same working people who have to deal with increased cost of living and declining provisions of public good.

This supply of credit proved to be a source of unprecedented profit opportunity for private multinational corporations and banks. Increased financiali-sation of the economy proceeded apace with the shredding to pieces of all banking and financial regulations that were put in place in the 1930s in the wake of The Great Depression. The ratio of debt to income rose, and the long term building up of debt led to financial fragility which first led to the rise of asset price bubble and eventually the burst and a severe crisis.

Bankocracy documents in meticulous detail the financialisation of the economy in the US, and UK; the dismantling of regulations in cahoots with the politicians at the helm who acted in the interest of the banks and large corporations. The book brings to bear careful empirical analysis that explains the increased leveraging of banks, the willful manipulation and getting rid of regulations in place to increase risky speculation and short term profits, often with the full knowledge that an eventual crisis is down the road. Bankocracy is an indispensable tool for all those who want to understand the workings of finance capital and banking and may not have prior technical expertise on the subject. It explains core theoretical concepts lucidly without sacrificing rigour. More importantly it provides empirical evidence at each step so the reader never loses sight of why they are reading the book. Yet, this book is not simply a theoretical exercise because at the end Eric Touissant provides a set of well thought out and adequately argued alternatives which
"...proposes to socialize the banking and insurance sectors and to place them under citizens' control. It then examines ten farther measures to reverse the crisis in the interests of the majority of the people; stopping austerity plans; repudiating all illegitimate, unsustainable, odious and illegal public debt; canceling all illegitimate and illegal private debt; increasing the resources of public authorities; reducing inequality by establishing fiscal justice; setting up legitimate government borrowing; developing and extending public services; strengthening the pension system based on inter gene rational solidarity; radically reducing working hours to guarantee jobs for everyone and adopting an income policy that will bring about social justice; questioning the basis of the euro and taking nation to build a different Europe, which would mean replacing the current treaties through true democratic process involving all the people of Europe".

Understanding the economic logic of the crisis is too important a topic for working people to be left to specialists alone. This is why Bankocracy is so important.

[Avishek Konar is an Assistant Professor at the Jindal Global Law School at O P Jindal Global University <akonar@igu.edu.in>]

Frontier
Vol. 50, No.49, June 10 - 16, 2018