Nearly four years after the onset of the worst financial crisis since 1929, a remarkable unanimity as to ‘what is to be done’ appears to prevail among mainstream Anglophone economists. Emergency liquidity supplies to the banks, to keep credit flowing while balance sheets are corrected; a stiff dose of Keynesian public spending, to mitigate the world recession; then a return to deficit-cutting austerity—combined, if possible, with ‘taking advantage of the crisis’ to push through any desirable structural reforms in pensions, retirement age, social provision. The arguments, noisy enough, have been almost entirely tactical, centred on quantities and timings. The strategy itself, aiming to return to business as usual as quickly as possible, has hardly been questioned, despite the fact that the specified measures have shown little sign of working to date—and in sharp contrast to the clash of ideas that followed 1929.
But if mainstream economics has become a depressingly uniform field in the us and uk, across the Channel the landscape remains more variegated. France has a well-deserved reputation for critical economic thought; from the left, there have been important contributions from neo-Marxist and post-Keynesian analysts, as well as the rich and diverse literature produced by the Regulation School. More unusually, there exist powerful critics of neoliberalism on the centre right. Jean-Luc Gréau, a long-time economic advisor at the French employers’ association, is one of the few economists both to have predicted the crisis and to have proposed an alternative set of solutions to those espoused by the G8. Gréau was born in Hadjout, then Marengo, in French Algeria in 1943, and studied economics in Montpellier from 1962. He joined the Conseil National du Patronat Français, as it then was, in 1969—the cnpf would be rebranded as the Mouvement des Entreprises de France, or medef, in 1998—retiring from a senior post in 2004. Gréau has described himself as ‘a mixture of a Keynesian and a Schumpeterian who recognizes his debts to Marx and, above all, to Adam Smith. Difficult to classify.’footnote1 A frequent contributor to Le Débat, his published work takes the form of extended discussion of the general questions of political economy at stake, rather than analytical number-crunching as such.
Gréau’s most recent book, La Trahison des économistes (‘the treason of the economists’) is a scathing attack on the intellectual apologists for neoliberalism. Published in 2008, it has become a best seller in France since the fall of Lehman Brothers. But La Trahison builds on two previous works that were published well before the crisis: Le Capitalisme malade de sa finance (‘capitalism laid low by its finance’—or, more literally, ‘made ill by its finance’) appeared in 1998. As its title suggests, it concentrates on the economic malfunctions associated with the transformation of the Western financial system since the 1970s. L’Avenir du capitalisme (‘the future of capitalism’), published in 2005, extends and deepens the original critique, looking not just at financial change but at the process of globalization as a whole.footnote2
Although there must now be a wide gap between Gréau and his former employers—medef itself has embraced many neoliberal positions—and although Gréau seeks interlocutors across the political spectrum, his remains a voice of the centre right. Gréau wants to restore capitalism, not to replace it. His critique embraces not only the contemporary functioning of the financial markets but also the ‘expenditure-driven state’. He has suggested that government spending becomes unproductive when it exceeds a third of gdp—a limit that would imply massive retrenchment in most European countries.footnote3 Nonetheless, his is a voice worth listening to, for the clear and thorough analysis he articulates and the trenchant critique he offers of the course taken by capitalist development since the late seventies.
Published in the midst of the 1997–98 Asian crisis, and on the eve of European monetary union, Le Capitalisme malade de sa finance kicks off with a ‘simple yet scandalous’ question. If the financial markets really do rule the world, as the mass media suggest, then how and when did they come to assume such a powerful position? What are the limits of their power, and what instruments do the public authorities retain to inflect the advanced economies? As often in critical economic studies, the analysis starts from an account of the long post-war boom, the ‘thirty glorious years’ of Fourastié—although Gréau thinks that twenty-five is a more accurate figure. He argues that there was nothing out of the ordinary about this period: ‘The post-war expansion was not the fruit of exceptional circumstances.’footnote4 Externally, the international monetary order of the Bretton Woods era stabilized exchange rates but allowed devaluations to correct major imbalances, thus supporting the monetary sovereignty of Western states, which also included control over capital flows. (Gréau perhaps underestimates here the role of international organizations in shielding individual states from foreign-exchange pressures: the European Payments Union, in particular, managed the supply of dollars to European countries throughout the 1950s.) Internally, it was not Keynesian fiscal policy but an accommodating monetary policy and, crucially, an elastic supply of bank credit for industry that were the essential conditions for the economic successes of the ‘glorious’ quarter-century. They permitted a sustained period of growth and innovation, which Gréau regards as the normal outcome of capitalism, provided that competition among industrial enterprises is not impaired.
What went wrong? ‘The foundations of the system were shaken externally, by the fragility of the official exchange-rate system; and internally, by an increasingly lax management of both the private and the public sectors, under the influence of the Keynesian theories that had become dominant’.footnote5 It is above all in the external factors, however, that Gréau detects ‘the germs of disorder’. Bretton Woods was a system of fixed exchange rates against the dollar, and different analysts have attributed its demise to each of these terms—growing problems in maintaining fixed exchange rates, or the increasing instability of the dollar—in the context of an increasing liberalization of international capital flows. Gréau follows Robert Triffin by arguing that dollar weakness was the key factor, leading to the final abandonment of their exchange-rate pegs by most European countries in the spring of 1973.
After the breakdown of the fixed exchange-rate system, the narrative of Le Capitalisme malade de sa finance emphasizes the role of rising state indebtedness in propelling the financial transformation. For Gréau, the policies adopted to deal with 1970s stagflation first in the us, with the dramatic monetary tightening of the 1979 ‘Volcker shock’, and then across the advanced economies, ‘threw the baby out with the bath water’. Central banks hardened their policies, using their control over interest rates to deter inflation rather than to promote investment. This destroyed the measured but elastic credit system that had supported growth. The switch in monetary policy made bank credits both more expensive and less secure, leading both firms and governments to place greater reliance on the security markets. An important role was also played by the huge institutional investors, who reinforced the demand for securities and accelerated the retreat of the banks from the direct provision of credit to firms. During the post-war expansion, financial markets had ‘followed a straight path of development: the credit market, the money market and the bond market formed a coherent whole’. The new bond-market system ‘destroyed both continuity and coherence’.footnote6