Amid the torrent of books on the 2008 financial meltdown and the North Atlantic ‘great recession’, this important new contribution from Paris stands out as an analytical beacon. A vast amount has been written on the mechanisms that allowed a giant securitization bubble to blow up within the hypertrophied financial system. But Gérard Duménil and Dominique Lévy are always mindful of a point that Marx or Keynes would have insisted upon: systemic crises are generated by the internal contradictions of the capitalist economy itself. The Crisis of Neoliberalism combines a long-run comparative view of capitalism’s crises—the 1890s, 1929, the 1970s, 2008—and successive ‘exits from crisis’, with a detailed, data-rich anatomization of the developments of the past decade: the ‘new’ financial sector, growing global disequilibria, us housing bubble, the ‘seismic wave’ of the unfolding crisis and the rescue measures implemented by the us Treasury and Federal Reserve.footnote1 Duménil and Lévy conclude with a comparison of the aftermaths of 1929 and 2008, an assessment of the significance of the crisis for us hegemony and some sober prognoses on the social and economic order likely to emerge in its wake. The authors aspire to the kind of influence that Baran and Sweezy achieved with Monopoly Capital some forty years ago—and on this reading, they deserve it. Like Monopoly Capital, the analytical framework of Crisis of Neoliberalism uses some Marxian categories and language, but leavened with (often implicit) elements of Veblen, Chandler, Galbraith, Keynes and Polanyi. The result is a highly distinctive—and compellingly radical—approach, which demands serious attention.
The authors, senior scholars at the state-funded Centre Nationale de Recherche Scientifique in Paris, are best known in the English-speaking world for their 2004 Capital Resurgent—first published in France in 2001 as Crise et sortie de crise (reviewed by John Grahl in nlr 9). Here they laid out a three-phase periodization of modern capitalism since its emergence from the crisis of the 1890s, together with an idiosyncratic theory of three-way class struggle somewhat reminiscent of Veblen’s, involving capitalists (‘Finance’), a managerial class and ‘popular classes’, with the managers corresponding to Veblen’s engineers. In this earlier book, Duménil and Lévy argued that the capitalist ‘solution’ to the 1890s crisis involved the creation of a large-scale financial sector and of professionally managed corporations and cartels; in the process, capitalist ownership became separated from daily business management, and a large capitalist–rentier class, owning shares across multiple sectors, differentiated itself from a new class of professional managers and technocrats.
The outcome, from 1900–29, was the ‘first phase of financial hegemony’, in the sense that Finance was in command: there were no checks on the upper fractions of the capitalist class and the large-scale financial institutions, or their capacity to lead. Yet their leadership, and the hectic pursuit of financialization, speculation and self-enrichment that it involved, brought about the Crash of 1929 and the Great Depression. The severity of the 1930s crisis offered opportunities for enhanced managerial autonomy, in alliance with the popular classes, manifested in the New Deal. This ushered in the period of post-war compromise, accompanied by strong workers’ movements, which lasted up to the 1970s, resulting in rising wages, full employment, the welfare state. But this settlement in turn entered into crisis in the 1970s, with falling profit rates and rising inflation. At this point, Finance seized the chance to inaugurate a second phase of financial hegemony: neoliberalism, Duménil and Lévy argued in Capital Resurgent, was driven by the pursuit of income maximization by the upper capitalist layers, in alliance with the managerial class. The public and corporate policies they promoted accelerated the ascent of a finance-led economic model (financialization) and a regime of free trade and international capital movements (globalization), securing spectacular gains in wealth and income for the elites.
In their latest work, The Crisis of Neoliberalism, Duménil and Lévy reiterate and extend this historical model, focusing above all on the American economy and on ‘neoliberalism under us hegemony’. The crisis, they argue, is not merely a result of ill-managed financial deregulation; it is the outcome of contradictions intrinsic to the trajectory of the us economy under this class leadership. ‘The boundless expansion of the demands of the upper classes’, Duménil and Lévy write, ‘pushed economic mechanisms to, and finally beyond, the frontier of sustainability.’ They contend that the top capitalists and their managerial allies have pursued an insatiable ‘quest for high income’ to underwrite their increasingly opulent lifestyles. On its own terms, this programme has to be judged a success. The top 1 per cent of us households, for example, now commands over 20 per cent of income, compared to a mere 9 per cent in the 1970s. Significantly, they have achieved this by increasing their own compensation levels—the rising salaries and bonuses for top managers and corporate officials—rather than by expanding the share of profits in national income. Hence the flagging rate of investment: Duménil and Lévy calculate that, after 25 years of neoliberalism—and despite the ephemeral recovery during the second half of the 1990s—the stock of fixed capital in the us economy is 32 per cent lower than it would have been had previous investment rates been maintained. When non-financial corporations borrowed, it was increasingly not for investment but for share buybacks, aimed at benefiting their stock-market positions.
The macro-economic outcome, then, has been a secularly declining rate of investment spending in the productive core of the economy, together with an increase in consumption, driven by the luxury spending of the wealthiest but also by rising household debt, which Duménil and Lévy read as an extension of the original ‘neoliberal compromise’ between top capitalists and the managerial class to include ‘the upper fractions of wage earners’. The upshot was burgeoning us trade deficits, financed by foreign borrowing on a scale only possible for the world’s premier imperialist power, with the dollar as reserve currency. At the same time, the global ambitions of Finance, together with the ideology of neoliberalism espoused by the managerial class, dictated the deregulation of international trade and capital markets: funds flow abroad, rather than seeking productive domestic investment. In the longer run, this trajectory involved both ‘a de-territorialization of commodity production’ and ‘a gradual penetration of foreign capital within national capital spheres’, raising questions about the future of us hegemony. In the shorter run, macro imbalances, above all household debt, threatened to destabilize the fragile financial structures that had multiplied under neoliberalism, above all after the dot.com crash in 2000, with the exponential growth of securitization and derivatives trading.
The central sections of The Crisis of Neoliberalism track this post-2000 trajectory, from the housing boom to the financial crisis. Analysing the various components of final demand in the fluctuating growth rates after the 2000–01 recession, Duménil and Lévy confirm that the engine of recovery (such as it was) was a wave of residential investment, made possible by a surge in mortgage loans, which were in turn underwritten by securitization and default insurance, with the Federal Reserve’s low interest rates ‘feeding the wave’. From 2004, however, they suggest that the Fed was increasingly ‘losing control of the helm in times of storm’: when Greenspan attempted to reverse course in 2004, Fed officials discovered the failure of a formerly reliable mechanism, the link between the short-term money-market rate that it controls and the long-term capital-market rates that govern residential and business investment. Its ability to influence long-term interest rates, and thus the efficacy of monetary policy as such, was impaired by the torrent of foreign investment pouring into the us from China and Japan—part and parcel, Duménil and Lévy argue, of the global financial restructuring effected by neoliberalism under us hegemony.
The authors then demonstrate how the ebbing of the mortgage wave destabilized the fragile ‘financial-global’ structure, dating the onset of the crisis from the end of the housing bubble in early 2006. The book offers a detailed analysis of the ‘seismic wave’, spreading through the financial sector, from the August 2007 liquidity crisis on the inter-bank market through to the onset of the global crisis in September 2008. Duménil and Lévy see no contradiction for neoliberalism in the massive state intervention to support the stricken financial sector: