Neclberlsm u Crss `+

This article argues that the current global crisis is a crisis !" neoliberal
capitalism, although this is not - yet - a crisis oI neoliberalism. The article
examines Iive aspects oI Iinancialisation in order to locate neoliberalism and the
crisis historically. These include the Iinancialisation oI capital accumulation, the
global economy, the state, ideology, and the reproduction oI the working class.
The crisis is then contextualised in terms oI the contradictions oI these aspects oI
neoliberalism. The article concludes with a review oI the key limitations oI
neoliberalism, and the challenges and alternatives open to the leIt at this juncture.
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Keywords: Economic crisis, Iinancialisation, neoliberalism, social re-
production, global economy, leIt alternatives
* This article is based on a lecture at the Department oI Political Economy oI
Gyeongsang National University, October 24, 2009.
** ProIessor oI political economy, Department oI Development Studies, School oI
Oriental and AIrican Studies, University oI London.

This article argues that we are going through a crisis in neoliberal capital-
ism, although this is not - yet - a crisis oI neoliberalism. ThereIore, it is nec-
essary to start Irom what is neoliberalism, and why it is in trouble.
Neoliberalism is oIten conceptualised primarily as an ideology, or as a set
oI economic and social policies. I disagree with these interpretations. In my
view, neoliberalism is the current conIiguration (instantiation, phase, or
mode oI existence) oI capitalism, or, alternatively, a system oI accumu-
lation(Saad-Filho, 2003).
1)
Neoliberalism emerged in response to the struc-
tural problems oI capitalist reproduction aIter the displacement oI
Keynesianism in the rich countries, the disintegration oI developmentalism
in the middle income countries, and the implosion oI the alternative oIIered
by the Soviet Bloc(Saad-Filho, 2007).
Neoliberalism is based on the systematic use oI state power to impose
ahegemonic project oI recomposition oI the rule oI capital under the guise oI
non-intervention`, at Iive levels: domestic resource allocation, international
economic integration, the reproduction oI the state, the hegemonic ideology,
and the reproduction oI the working class. These are brieIly described and
examined below, in order to locate the contradictions leading to the crisis.
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Under neoliberalism, state capacity to allocate resources intertemporally,
1) The system oI accumulation is determined by the economic structures and institu-
tional arrangements that typiIy the process oI capital accumulation in a speciIic re-
gion, and in a certain period. This is a relatively concrete concept, with no direct rela-
tionship with more abstract concepts such as mode oI regulation. The accumulation
strategy includes the economic policies associated with a given system oI
accumulation.
Neclberlsm u Crss `+9
intersectorally and internationally was gradually and systematically trans-
Ierred to an increasingly globally integrated Iinancial sector, in which US in-
stitutions exercise a disproportionate inIluence. This transIer allows the Ii-
nancial system to exercise a determining inIluence on the level and composi-
tion oI investment, output and employment, the structure oI demand, the Ii-
nancing oI the state, and the pattern oI international specialisation. In other
words, Iinance commands the attributes oI industrial policy, and controls the
main sources oI capital in the economy. This has increased enormously the
role oI Iinance in the allocation oI (global) capital. Simultaneously, and in-
evitably, it also led to the rapid expansion oI Iinancial transactions primarily
Ior speculative reasons. Among several possible examples, the new Iinan-
cial markets in currency derivatives and interest rate swaps grew Irom al-
most nothing in 1990 to about three times global GDP in 2006`(Harvey,
2009).
The Iinancialisation oI accumulation was not a distortion oI pure capital-
ism`, or a Iinancial sector coup` against productive capital. Similarly, Ii-
nance was not a parasitic structure primarily capturing industrial proIits or
workers` incomes while not contributing much to real accumulation.
Financialisation is a structural Ieature oI social reproduction under
neoliberalism. It encompasses the reproduction oI industrial capital, the re-
production oI the state, and the reproduction oI the working class.
Consequently, it plays a !"#$%&%'%&() (that is, causally determinant) role in the
capital relation in the current (neoliberal) phase oI capitalism.
It is because oI their strategic position at the core oI accumulation, and so-
cial reproduction more generally, that the Iinancial institutions - including
the banks, insurance companies, mutual Iunds, hedge Iunds, stock brokers,
and many other Iinancial Iirms, as well as the Iinancial arm oI industrial cap-
ital, especially large automobile manuIacturers, supermarkets, and other con-
glomerates - have appropriated an increasingly large share oI surplus value.

For example, in the United States the proIits oI Iinancial companies jump-
ed Irom below 5 per cent oI total corporate proIits, aIter tax, in 1982 to 41
per cent in 2007.`(WolI, 2008: 4). These proIits are, necessarily, transIers
Irom the non-Iinancial corporate sector and Irom the working class, and they
have contributed to the sharp polarisation oI incomes in most countries un-
der neoliberalism.
The exceptional proIitability oI Iinance has notbeen a reward Ior its con-
tribution to resource allocation. In Iact, the expected acceleration oI growth
through Iinancial and capital account liberalisation has Iailed to materialise
in most countries: growth has actually tended to slow down, especially in the
early stages oI the neoliberal transition. Conversely, growth accelerations in
the age oI neoliberalism have normally been unrelated to changes in Iinan-
cial sector regulations. An alternative approach to Iinancialisation may be
more plausible: Iinance has primarily helped to globalise the operations oI
large conglomerates and to stabilise global neoliberalism through continuing
threats oI capital Ilight. Both have been achieved by moving capital across
borders and centralising and redistributing the surplus value generated
around the world, and especially in the poor countries(Fine, 2008).
Despite its signiIicant strengths, the Iinancialisation oI capital accumu-
lation is limited at three levels:
1. The Iinancialisation oI the operations oI industrial capital and the spec-
ulative pursuit oI Iinancial gains, crowd out productive activities,
which undermines the sources oI aggregate proIit(Lo and Zhang,
2009).
2. Financial deregulation, the Basel II Iramework, and mark to market`
accounting rules have created incentives Ior raising leverage in the op-
erations oI the Iinancial institutions, and Ior their growing reliance in
short-term wholesale Iunding rather than retail deposits. This leIt the Ii-
Neclberlsm u Crss `51
nancial system increasingly vulnerable to changes in liquidity in the
run-up to the current crisis.
3. During the boom in the early 2000s, it was expected that securitisation
would distribute risks to those better able to hold it, and increase the re-
silience oI real accumulation. However, the opposite happened: the Ii-
nancial institutions lost the incentive to evaluate the risks in their credit
operations because their papers were being packaged and sold rapidly,
while those buying the loans relied on meaningless credit ratings to dis-
guise the Iact that they had little idea oI what they were purchasing.
This merry-go-round with other people`s money was very proIitable in the
good times, but it was incompatible with a generalised retrenchment oI the
Iinancial markets.
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The transnationalisation oI accumulation is underpinned by the inter-
nationalisation oI individual circuits oI capital. Under neoliberalism, Iirms,
Iinancial institutions and individual circuits oI production and Iinance spill
over and link up across borders, in a process that is commonly, iI im-
precisely, summarised under the rubric oI globalisation`. These develop-
ments enticed and were, simultaneously, the outcome oI the liberalisation oI
international trade, investment and capital Ilows, and the transIer to the Ii-
nancial sector oI the management oI Ioreign exchange trading and the deter-
mination oI the exchange rate in most countries.
Transnationalised accumulation has recomposed the previous national`
systems oI provision at a higher level oI productivity, reshaped the macro-
economic integration oI the world economy, and Iacilitated the introduction

oI new technologies and labour processes while compressing real wages (see
below). At a Iurther remove, the Iinancialisation oI the global economy has
supported the recomposition oI US imperialism through the imposition oI
voluntary` (i.e., Iinance-driven) compliance with US state, industrial and Ii-
nancial capital interests as the peg oI the neoliberal global economy.
2)
The
recomposition oI US imperialism includes not only the imposition oI neo-
liberal discipline on rogue`, Iailed`and most other states through trade, aid,
Iinancial, military, cultural and ideological pressures but, more Iunda-
mentally, through the restructuring and global integration oI production.
These processes have led to a much tighter integration oI the international
capitalist elites, while the national` working classes have been restructured
globally.
To a large extent, the global integration oI production in the last Iew years
has revolved around the recycling oI US current account deIicits, especially
aIter the East Asian crisis. In the wake oI this crisis, and the sharp adjust-
ments demanded by the US Treasury Department through the IMF and other
multillateral organisations, several East Asian economies sought to keep
their currencies relatively undervalued in order to support economic growth
and Iacilitate the accummulation oI Ioreign exchange cushions to avoid a
repeat` oI the crisis. Cheap East Asian exports Ilooded the US, while US
current account deIicits peaked at 7 oI GDP by 2006. The ensuing outIlow
oI dollars was recycled back into the USthrough purchases oI shares, Iinan-
cial derivatives and T-bills, reinIorcing the undervaluation oI East Asian cur-
rencies and supporting US mass consumption.
The Fed lowered the Iederal Iunds rate signiIicantly aIter the collapse oI
the dotcom bubble and aIter 9-11, which reinIorced these destabilising
tendencies. Since inIlation remained low, partly because oI low commodity
2) For a detailed discussion, see the articles in the Socialist Register (2004, 2005).
Neclberlsm u Crss `5`
prices and cheap East Asian imports, the Fed decided that US interest rates
were right`, and kept them too low. These low interest rates and high Ior-
eign demand Ior US Iinancial assets Ied consumer credit and Iinancial spec-
ulation, inIlating a vast real estate bubble. The counterpart to these processes
was the accumulation oI reserves across the so-called emerging markets`,
which grew by US$5.3 trillion between the end oI the 1990s and July
2008(WolI, 2009).
The bizarre subsidisation oI the US economy through cheap goods and Ii-
nance Irom much poorer countries supported the notion that the Ii-
nance-driven neoliberal restructuring oI capital had been successIul, and that
the economies which had gone Iurther along the neoliberal road (especially
the US and the UK) did consistently better` than their more reluctant Iol-
lowers (Ior example, France, Germany, Italy and Japan). These Ilawed anal-
ogies helped to legitimise neoliberalism politically, and disguise the Iact that
the boom was, in Iact, due to unsustainable debt-led growth supported by se-
riously misaligned exchange rates. In this sense, the current crisis reveals the
limitations oI Iinancialisation as the driver oI the international accumulation
oI capital.
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The Iinancialisation oI the state plays a signiIicant role in the transition to
neoliberalism and the stabilisation oI the neoliberal system oI accumulation
at three levels. First, ideologically, only the state can lead the campaign Ior
the transIer oI control over the sources oI capital to the Iinancial institutions
and rationalise the neoliberal transition. Second, politically, the state must
provide the institutional platIorm supporting the neoliberal transition, be-
cause it is predicated on signiIicant legal and regulatory changes and re-

quires the repression oI dissent Ior an extended period. Third, economically,
the state supports the consolidation oI the new institutional structure includ-
ing industrial and Iinancial capital, and the Iinancialisation oI the economy,
through a variety oI incentives. These include the increasing reliance oI the
state itselI upon Iinancial market processes and standards in a growing num-
ber oI areas oI public policy. For example, the erosion oI social provision
Iunded by general taxation, privatisations, the introduction oI public-private
partnerships, commercialisation oI the remaining public services, the im-
position oI private sector perIormance requirements and credit ratings` on
state institutions, means-tested beneIits,and so on. These are supported by
the shiIt away Irom progressive taxation and the imposition oI inIlation con-
trol as the paramount goal oI state policy, ultimately through inIlation target-
ing and central bank independence (with Iiscal policy becoming a residual or
adjustment variable). Presumably, this should be suIIicient to deliver low in-
Ilation and balance oI payments equilibrium simultaneously. A deregulated
labour market should clear spontaneously, and a liberalised economy should
deliver rapid and stable growth - presumably, just as it did beIore 1929.
In doing this, the state increases its reliance on the Iinancial markets
through the public debt and its trading in secondary markets, which plays a
Iundamental role in the proIitability oI the Iinancial institutions, and the sta-
bilisation oI the Iinancial sector. The Iinancialisation oI the state is not only
essential Ior the reproduction oI neoliberalism; it has also been shown during
the current crisis that the state remains the ultimate guarantor oI the viability
oI neoliberalism.
!"#$%&#'()*)+(*,(-*.(/)#/0#12&/,/34
An essential Ieature oI neoliberalism is the generalisation oI the inIluence
Neclberlsm u Crss `55
oI the law oI value across all spheres oI social reproduction, that is, wide-
spread commodiIication, the diIIusion oI commodity Ietishism, and the gen-
eralisation oI the proIit motive in social exchanges(McNally, 2009).This has
been justiIied ideologically by Austrian and monetarist discourses about the
eIIiciency oI the market, with the Iinancial markets being presented as the
paradigmatic case. More broadly, neoliberalism is imposed, and its in-
equitable outcomes are justiIied, through the consolidation and, eventually,
the naturalisation oI a hegemonic discourse drawing upon two separate but
closely related principles. First, competitiveness`, in the short-termist sense
associated with the immediate interests oI the Iinancial markets(Sum, 2009).
Second, democracy`, in the shallow sense oI competition between shades oI
neoliberalism in the political market. Taken together, economic competitive-
ness and political democracy underpin the neoliberal vision oI the good so-
ciety`and inIorm the norms oI social behaviour compatible with this system
oI accumulation. They include the validation oI the withdrawal oI state sup-
port Ior the poor, higher inequality, and the choice, justiIication, im-
plementation and regulation oI the economic and social policies leading to
these outcomes(Fine and Milonakis, 2008; Milonakis and Fine, 2009).
The shiIting role oI inIlation policy is illustrative. In many cases, the tran-
sition to neoliberalism, or its Iirst (shock) phase was justiIied through the
imperative oI inIlation stabilisation, sometimes in association with balance
oI payments crises.
3)
At a later stage, once inIlation has been stabilised and
neoliberalism consolidated (mature neoliberalism`), inIlation targeting and
central bank independence become the new monetary policy consensus`
(Arestis and Sawyer, 2005), where interest rate manipulation is the main
economic policy tool, with Iiscal policy being reduced to the role oI adjust-
ment variable (see above). Underpinning these policy strategies is the
3) See, Ior example, Saad-Filho (2005) Ior the Latin American case.

(implicitly) !"#$%&'!%()* role oI localised Iinancial and balance oI payments
instability, because they help to impose discipline on workers, investors and
policy-makers, and reward Iorms oI behaviour compatible with the stabilisa-
tion oI neoliberalism. In this sense, neoliberalism builds a policy environ-
ment which supports its own reproduction over time.
This strategy is limited at three levels. First, even beIore the crisis, the no-
tion that Iinance mobilises and allocates resources eIIiciently and brings pro-
ductivity gains Ior the economy as a whole was absurd(Fine, 2008). Second,
the legitimacy oI the generalisation oI the law oI value across most areas oI
social interaction, and social consent to the neoliberal programme, are
bounded by political constraints and conIlicts which must be continually
conIronted over time. Third, the current crisis has made it clear that inIlation
is not the most signiIicant threat to macroeconomic stability, that interest
rates are limited as a policy tool, and that Iinancial instability can be
destructive. The upshot is that the market imperative has lost a lot oI its le-
gitimacy as the ideological Ioundation Ior economic policy, and the neo-
liberal platIorm is having diIIiculties to recover the initiative.
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9,*--
The working class has always been integrated into Iinancial circuits,
4)
Ior
example as petty commodity producers requiring Iinancial services, as work-
ers whose paychecks are deposited with banks and whose pensions are in-
vested in the stock market, as consumers depending on credit and credit
4) For a detailed review, see Panitch and Gindin (2008) and Panitch and Konings
(2009).
Neclberlsm u Crss `5
cards, and as mortgaged homeowners. These relationships became increas-
ingly prominent under neoliberalism. In this system oI accumulation, the re-
lationship between capital and labour, and the relations between competing
industrial capitals, have become embedded within a Iinancialised Iramework
involving the increasing commercialisation oI social reproduction, including
the private appropriation and economic pricing oI most areas oI social inter-
action and the trading oI these titles oI ownership. This includes not only the
payment oI salaries but also pension Iunds, education, health, and most other
areas oI social provision. Consequently, and as was suggested above, Iinan-
cialisation is not simply the rising power and inIluence oI Iinancial in-
stitutions and the social groups closely associated with them (although both
are well documented). Financialisation is a totality permeating - and, in-
creasingly, constituting - !"" the key Ieatures oI neoliberalism, and rendering
this system oI accumulation historically unique.
In this Iinancialised Iramework, discipline has been imposed upon the
working class in three complementary ways. First, directly and extensively,
through the expansion oI capitalism across Eastern Europe, Asia,
sub-Sarahan AIrica and Latin America and through the closer integration oI
these countries into global circuits oI accumulation, which increased com-
petition between (and within) national working classes. Second, directly and
intensively, through technological innovations and the restructuring oI
(increasingly internationalised) production, as well as changes to the patterns
oI employment and restrictions to the wages, subsidies, beneIits, entitle-
ments systems, and other non-market protections introduced under
Keynesian, developmentalist and Soviet-style socialist regimes, especially
the right to collective action through trade unions and leIt political
organisations. Third, indirectly, through restrictive monetary and Iiscal poli-
cies, which reduced investment, growth and employment creationg, and easy
personal credit, which allowed workers to bypass these some oI these macro-

economic constraints through debt.
The developments outlined above havecontributed to the rise in structural
unemployment and inIormal employment under neoliberalism, as well as to
higher personal debt and Iaster labour turnover in most countries. They can
be summarised as the financialisation of the reproduction of the working
class(Iinance being a key mechanism oI social integration in a low wage re-
gime). The Iinancialisation oI the reproduction oI the working class has con-
tributed to the increase in the rate oI exploitation through the extraction oI
both absolute and relative surplus value(Dumenil and Levy, 2004). Given
this dynamics oI acumulation, it is unsurprising that the average real in-
comes Ior the bottom 90 per cent oI Americans Iell by 9 between 1973 and
2002, whilie the incomes Ior the top 1 rose by 101, and those Ior the top
0.1 rose by 227(McNally, 2009).
In essence, the workers were constrained in what they could obtain
through their labour Ior three decades, with their share in national income
Ialling in most Western countries. In addition to this, there was a steady pri-
vatisation oI the provision oI housing, retirement beneIits, education and
healthcare, as well as a ratcheting up oI pressures to consume more. Under
these pressures, the workers were increasingly drawn into the logic oI asset
inIlation in order to meet their basic needs using credit cards and turning
their homes and pensions into cash machines, so they could pretend to be
earning good salaries.
This is not to suggest that the crisis is due to the Iact that poor US and UK
households were living beyond their means`, or that the poor must now pay
the price oI their collective Iecklessness. Rather, the point is that there was a
shiIt in the mode oI provision oI means oIsubsistence under neoliberalism,
with a decline oI collective provision by the state and a corresponding in-
crease in commodiIied provision Iinanced through personal debt. The Iinan-
cialisation oI reproduction at the bottom oI the distribution scale was mir-
Neclberlsm u Crss `59
rored at the top by the wealthy looking Ior both personal credit and Ior ave-
nues to invest their rising incomes.
The concentrating dynamics oI distribution expanded signiIicantly the
scope Ior selling Iinancial services to households, especially in a macro-
economic context oI persistently low interest rates. Since the nineties, major
Iinancial Iirms drew signiIicant revenues Irom workers through the provi-
sion oI mortgages,equity withdrawals, consumer lending, investment Iunds
and insurance, and Irom the sale oI Iinancial instruments based on those
services. From the point oI view oI the working class, the accumulation oI
debt can impose extreme Iorms oI work discipline. For example, pressures
Ior timely repayment, based on the threat oI losing houses, cars, and so on,
can push the debtors to work long hours in multiple jobs and with casual or
temporary contracts and precarious employment rights, with a well-known
impact on stress levels, among other adverse outcomes.
Consumer lending was not only a compensation Ior lower wages, a mo-
dality oI integration and subordination oI the working class under neo-
liberalism, and a source oI proIits Ior the Iinancial institutions. For the US
and UK governments, it was also a key macroeconomic policy tool, because
lending was essential to maintain economic and social stability in the neo-
liberal low-wage and low Iiscal deIicit economy. In particular, every time the
US and UKeconomies slowed down, their central banks would lower interest
rates to encourage the accumulation oI additional personal debt as well as re-
mortgaging, in order to stabilise consumption and, thereIore, the macro-
economy.
In this sense, macroeconomic stabilisation was driven by the manipulation
oI interest rates. As the US economy threatened to slide into crisis in the late
nineties, aIter the dotcom bubble and aIter 9-11, persistently low interest
rates continued to Iuel an asset price bubble allowing households to borrow
increasing amounts while continuing to service their existing debt. At that

time, this policy arrangement seemed to work. For example, the US Bureau
oI Economic Analysis estimated that home equity extractions led to an ad-
ditional GDP growth rate oI 1.5 per year between 2002 and 2007. II you
exclude that, the US would not have grown Iaster than the supposedly scle-
rotic Eurozone`(Marazzi, 2009). These policies have been assimilated to an
asset price Keynesianism`(Brenner, 2009), because, to a signiIicant extent,
private deIicits regulated by the interest rates replaced public deIicits as the
main tools underpinning macroeconomic stabilisation.
!"#$%&'()*+,'+%&-#%.#'/0#10%2+30()2#4%2+,5#607+80
The Ieatures oI Iinancialisation outlined in the previous sections were
both mutually constituting and mutually reinIorcing, and they generated a
speciIically neoliberal modality oI economic and social reproduction.
Financialisation also imposed speciIic mechanisms oI social discipline upon
the state (policy discipline enIorced by the Iinancial markets), industrial cap-
ital (global competition, also Iacilitated by Iinance), the working class
(labour market Ilexibility` supported by personal credit anda residual wel-
Iare state), and Iinance itselI (heavily competitive international integration oI
a bloated Iinancial system under a US-led regulatory and institutional um-
brella), which were underpinned by neoliberal ideology and supporting the
reproduction oI the system oI accumulation.
However, this arrangement was limited at Iour levels. First, it only worked
while house prices rose, providing equity which households can withdraw in
order to support their consumption levels. Second, it required a continuing
Ilow oI global savings to the US, largely to buy shares, T-bills and mort-
gage-based securities. Third, it demanded a continuous appetite Ior credit
Irom households and the state in order to provide outlets Ior the Iinancial as-
Neclberlsm u Crss `61
sets being produced by the Iinancial institutions. Fourth, it required a con-
ducive regulatory Iramework, in which the Iinancial institutions were not on-
ly allowed, but, incentivised by the state to play an increasingly determinant
role in this process.
In the case oI the current crisis, the weakest link turned out to be subprime
lending in the US. However, this trigger was, ultimately, immaterial. Since
the entire institutional and policy arrangement was inconsistent, something
would have to crack. It could have been the recycling oI US current account
deIicits, the pumping up oI personal debt, the response oI consumption to
changes in interest rates, or any other key element in the neoliberal Iinancing
process: any oI these would essentially have led to the same outcome.
It was shown in sections 1-5 that contradictions in all key aspects oI neo-
liberal Iinancialisation played a signiIicant role in the run-up to the crisis.
For this reason, this is both a crisis in neoliberal financialisation and a crisis in
neoliberalism itselI, although it is not (yet) a crisis of Iinancialisation or neo-
liberalism because although the reproduction oI the system oI accumulation
has been shaken it is not, itselI, threatened by spontaneous` collapse
(whatever this might mean) or Iorced into the deIensive by mass movements
pushing alternatives Iorward. In this sense, the current crisis is both a crisis
oI Iinancial sector control oI the main sources oI capital in the economy (at
the levels oI the state, investment and international Iinance), and a crisis oI
reproduction oI the working class. Evidently this does not appear as a social
or economic breakdown but, instead, as a set oI deep localised disruptions
centred on the Iinancial sector, and which have spread across the global
economy.
The claim that the character oI the crisis is both two-Iold (this is a crisis of
financial control of the sources of capital as well as a crisis of reproduction of the
working class) and systemic (aIIecting economic reproduction as a whole and,
consequently, the capital relation itselI) does not imply that the crisis will

spontaneously lead to system-changing outcomes. For, although crises can
create widespread disruption, they cannot directly generate processes oI tran-
scendence, including alternative institutional arrangements or distinct modal-
ities oI economic and social reproduction. This is not surprising - only hu-
man agency can do this. In other words, politics determines how the crisis will
ultimatelv plav out.
!"#$%&''()*(+#,-.#/(-'01(.&'0+2
From the point oI view oI the reproduction oI the system oI accumulation,
neoliberalism is Iacing signiIicant challenges at six levels. First, it is neces-
sary to review the role oI the Iinancial system in the process oI
accumulation. It has been proven that giving Iree rein to short-termist spec-
ulative activities bloats the Iinancial system, but this may not lead to sig-
niIicantly Iaster growth or productivity gains, and it can generate systemic
instability.
Second, it is necessary to rebalance the global economy, breaking through
the impasse oI debt-Iuelled consumption, large US Iiscal and current account
deIicits, and vast East Asian surpluses. The restoration oI proIitability will
require a signiIicant devaluation oI the dollar and, oI course, sterling, bank-
ruptcies, plant closings and mass layoIIs in the US and the UK (possibly
tempered somewhat, over time, by the expansionary impact oI the devalua-
tion), and in the other pole oI the wave oI accumulation in the past 25 years,
in East Asia, especially China. However, the contraction in this area can be
limited by Keynesian expansionary programmes and the shiIt to domestic
demand.
Third, a new tool Ior macroeconomic management is needed, since inter-
est rate manipulation has proven to be insuIIicient to stabilise the economy.
Neclberlsm u Crss `6`
Fourth, it is necessary to Iind a new ideological imperative Ior the Ior-
mulation oI economic policy, since the notion oI the supremacy oI the mar-
ket, especially the Iinancial market, has Iailed, which it will make it more
diIIicult Ior politicians and economists to deIend deregulation` and the Iree
markets`(Fine, 2008). FiIth, Iinancing the state is likely to pose major chal-
lenges, Ior both economic and ideological reasons. Most large states re-
sponded to the crisis with aggressive Keynesian policies, lending to support
the banks and expanding demand in order to preserve employment. These
programmes, coupled with the unemployment, lower tax and other costs oI
the crisis, will inevitably destabilise state Iinances. Sixth, a new mechanism
oI social integration is needed, since mass credit is no longer Ieasible. This
also poses the problem oI mass demand, aIter the contraction oI credit and
pensions income Ior low-income groups, and the income decline oI the rich
because oI the crash.
Despite these signiIicant strategic challenges, the main thrust oI the policy
measures adopted in response to the crisis were much more modestly tar-
geted around an enriched Keynesianism, Iocusing on two steps. First, Iinan-
cially, governments attempted to:
(i) ensure that the banking system has access to liquidity; (ii) identiIy and
deal with impaired assets, normally through nationalisation; and (iii) recapi-
talize weak but viable institutions and do something about the nonviable
banks(IMF, 2009: xiii).
Essentially, this means that governments have, on the one hand, given
money away to the banks and insurance companies on the verge oI bank-
ruptcy either as recapitalisation or through the purchase oI their toxic assets,
but always in exchange Ior nothing: no transIer oI property rights, and no eI-
Iective control by the state. Second, states have adopted strongly expan-

sionary Iiscal and monetary policies to prevent a slide into a 1929-like
depression.
This two-pronged strategy has, so Iar, helped to stem the decline oI the
larger economies. Consequently, what will tend to happen, in the absenceoI
signiIicant social pressures, is a more or less rapid adjustment !"#$"%& neo-
liberalism, rather than a Iundamental shiIt '!'( Irom neoliberalism. This
will tend to take place despite the high costs oI this strategy. These costs in-
clude, Ior example, a wave oI unemployment which may take up to twenty
years to be absorbed - condemning an entire generation to be blighted by the
crisis. In addition to this, salvaging the banks will entail signiIicant costs in
terms oI higher taxes and reduced public services, the balance oI which is
currently under debate.
Despite its undeniable successes so Iar, the neoliberal recovery strategy
suIIers Irom inconsistencies at two levels. First, it has never been explained
why and how the US, UK and other governments can "%)#'%#*( Iind several
trillion dollars to support the banks, when even a Iraction oI that could not
be Iound Ior social spending in better times, or to protect employment, in-
comes, living standards and public services now(Fine, 2008). This incon-
sistency oIIers a powerIul indictment oI neoliberalism. Second, the neo-
liberal strategy challenges the mainstream to explain why state ownership is
+,,- only when key sectors oI the economy are going .'-, and why the state
is good enough to rescue banks that were mismanaged to the ground, but not
good enough to direct the public resources that were injected into the Iinan-
cial system to promote public goods, employment generation, the dis-
tribution oI income and wealth, and the recovery oI industrial policy Ior en-
vironmental sustainability.
Neclberlsm u Crss `65
!"#$%&'#()'%*+,'-.%/
This section suggests a radical programme to address the crisis and weak-
en neoliberalism, based on the takeover of the financial sector and its trans-
Iormation into a public utility. This has been coalescing as thekey policy
proposal among the radical leIt, and it can be justiIied at two levels. First,
there is a serious moral hazard problem when large Iinancial institutions can
capture proIits but socialise losses because they are too big to Iail. The moral
justiIication Ior private proIit is to encourage capitalists to invest wisely be-
cause otherwise they would lose their capital. However, iI the citizens must
pick up the losses, especially when they are large, there is no justiIication Ior
proIits in the Iinancial sector. In this case, the citizens should also get the
proIits. Second, governments are currently giving money to the banks, and
then asking them to lend to businesses and households. But the banks are not
particularly interested in these low-risk-low-return operations, and they are
also having to build up their reserves, leading to the stagnation oI lending
and helping to spread the crisis. This catch-22 is unavoidable given the in-
stitutional structure oI the Iinancial system, the imperatives oI competition,
and the constraints imposed by the crisis.
This is a wholly undesirable situation. A leIt alternative could include, ini-
tially, the nationalisation oI all Iinancial institutions in trouble, without com-
pensation beyond what has already been paid, transIerred or loaned to them;
closing down the hedge Iunds and other institutions trading only between
themselves and perIorming no discernible productive role Ior the economy,
and the abolition oI bonuses and the limitation oI the bankers` compensation
to that oI civil servants with equivalent responsibilities.
The next stage would be to centralise currency trading, abolish the secon-
dary markets Ior public securities, and the nationalisation or closure oI the
remaining Iinancial institutions, with the creation oI a democratically ac-

countable management structure Ior the Iinancial system. In this new scenar-
io, the state would run the banks according to public policy goals, instead oI
having to accommodate short-term proIitability; the banks will no longer be-
come tangled up in socially destructive businesses, and society could be
more certain that there will be no systemic Iinancial crises or regressive bail-
outs in the Iuture. Nationalisation is also important because the ownership oI
Iinancial assets is at the core oI the process oI Iinancialisation and the re-
production oI neoliberalism. Paradoxically, this is also the weakest social re-
lation at this point in time (and, surely, Ior a limited period only), and a large
campaign to nationalise Iinance could destabilise the class relations at the
core oI neoliberalism.
Having set these ambitious goals, it is incumbent on the leIt to recognise
that state ownership oI Iinance does not signal the abolition oI capitalism or
the beginning oI a new Iorm oI society. The state had Iull ownership or sig-
niIicant control oI Iinance in France only a Iew years ago, and in Brazil and
South Korea under military dictatorships, Ior example. Ownership, in and oI
itselI, means very little: what really matters is what these institutions do, and
what class and other interests control the institutions oI the state and exercise
a determining inIluence upon their policies. In sum, the core oI the problem
is political - it is !"#$%"&, much more than (Iormal) ownership.
It is, then, essential Ior the recovery oI the leIt to get a Iirm handle onto
these policy debates, in order to develop a positive programme to transcend
neoliberalism. The leIt ought to recover the capacity to imagine an alter-
native Iuture, based on the values oI democracy, solidarity, satisIaction oI
basic needs and environmental sustainability, and it needs to convince large
numbers oI people that this alternative is both Ieasible and superior to the
depredations oI contemporary capitalism. For the leIt has been dreaming at
the margins Ior too long. It is time to return to the centre stage, which is
where the leIt belongs. The leIt brings together the demands and aspirations
Neclberlsm u Crss `6
oI the vast majority. The leIt has led the most signiIicant transIormative
struggles in modern history: Ior the limitation oI the working day, Ior public
health and education, against discrimination and Ior Iull citizenship rights to
everyone, Ior the extension oI democracy. The leIt should always be proud
oI the Iact that every success in these areas was achieved because oI the tire-
less work oI leIt-wing activists, sometimes at the highest personal cost. The
leIt must reclaim this tradition, and build upon it in the most important strug-
gles Iacing this generation.
(eceived 3u November 2uu9 evised 26 }ecember 2uu9 Accepled 11 January 2u1u)

G!"#"$"%&"'
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