A political morality play

Friday, 10 April 2009 

Honoured guests, honoured friends, people of good heart, good mind and good conscience gathered here at St Paul’s, it is fitting that we gather today in this great cathedral to reflect together on the great events of our time.

K Rudd St Paul’s Cathedral, 31 March 2009

When Rudd stood up at St Paul’s Cathedral to deliver his sermon strategy for economic recovery, he was giving probably one of the most coherent political responses to the economic crisis from any western leader – and it is a moral one.

To make a morality play out of this economic crisis it is first necessary to make it a financial one. Rudd’s speech shows how the idea that this is at heart a financial crisis is riddled throughout economic discussion nowadays. When Rudd talks about the unfettered free markets that became “worshipped as a god” and must now be regulated, he isn’t talking about the used car market or the world market for steel, he is talking about the financial markets. When he talks about “extreme capitalism and excessive greed” he is not talking about the vast fortunes amassed in mining or property, or even the inherited fortune of James Packer, he is talking about the financial industry. As Rudd summed up the prevailing view of where the blame lies, in his Monthly essay, the financial crisis has “become one of the greatest assaults on global economic stability to have occurred in three-quarters of a century.”

Nor is this confined to the left. The right may be more defensive about it, but they have totally accepted the terms of the debate, with even free-market supremos like Costello telling anyone who’ll listen how it was he who regulated the banks after the Asian crisis etc.etc. The only real difference between left and right is where in the financial system they think the evil lies, for the left it is in Wall Street under Bush, for the right it was on Main Street with the lending to the Great sub-prime Unwashed under Clinton.

It may appear that the downturn was caused by the financial system as it started with the failure of the sub-prime housing market in the US and the collapse of the world’s largest mortgage lender, Fannie Mae, before spreading to the meltdown in Wall Street and now hitting the ‘real’ economy – but it doesn’t explain it. The reason why the financial meltdown has been so devastating, is that the global economy was so reliant on it. This was less the financial system “assaulting” economic stability but no longer able to prop it up against the distortions caused by the increasing uncompetitiveness of the developed economies, especially the US, against the new emerging ones.

Take probably the clearest example of the US’s structural weakness against the emerging industrial nations, the US auto industry, a critical industry for any major industrial power. Does anyone seriously believe the problems of the US auto industry stem from Wall Street rather than the auto industry itself? The crisis in the US auto industry may have only become apparent after the financial meltdown, but it was hardly caused by it. Instead the relationship is the other way round, it was Wall Street so hated by the left, and middle income credit so hated by the right, that enabled the auto industry to be financed at the corporate level and sell their goods at the showroom. The removal of that prop meant the industry had to go to the only one left, in Washington.

The trouble was that for the political class in Washington it was a bit harder to moralise about the problems of the US car industry than it was for the financial industry. It might be feasible for politicians to have a go at claiming that the massive pay-out to Lehman’s CEO was somehow a driver of the bank taking risks that led to its collapse. But it is a bit harder to do the same for GM. The huge salaries of the auto industry’s CEOs may look out of line with its poor profitability, but they hardly caused it. Senior management in Detroit could be paid nothing and the car industry would still be in a mess.

Not only does moralising about the financial system do nothing to solve the problems of the ‘real’ economy, without doing so, it doesn’t even get the right result in the financial system itself. Getting the banks recapitalised to start lending again has been identified as one of the most important government priorities, but as shown by the non-result in London last week there is still little progress. But the real problem is probably clearest in Australia where the banks’ capital position is strong. Turnbull’s constant refrain since the government supported the banks’ capital position by guaranteeing their capital raising, is that the banks still aren’t lending to business. Here’s an insight. It’s because they don’t think it’s profitable to so.

By focussing almost wholly on the financial system rather than the real economic problem, both sides of the political class end up contradicting themselves. On the one the hand they castigate the financial system for taking risks, on the other they demand it take even more risks by lending to business at a time when profitability is going south. Making a moral case out of the financial system may not make much economic sense nor do much to address the economic crisis. But it does help alleviate the political crisis, and give the politicians something more to do than join the Deputy Prime Minster on Jobless Watch.

Posted by The Piping Shrike on Friday, 10 April 2009.

Filed under Key posts, Tactics

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9 responses to “A political morality play”

  1. Ric on 10th April 2009 12:25 pm

    Excellent post as usual. Rudd as a clergyman fits quite well, even if he Scores when in NY.

    I keep looking at the auto press and the rightwing dingbats telling us that Australians (and Americans) “love” big cars. What I keep missing though, is if they “love” big cars, why don’t they “love” them enough to keep the market for them profitable.

    Why is it the only Australians who do this “loving” are government fleet managers, and when challenged, they tell you they are forced to buy them, and would happily buy Toyota Echos or whatever if they were allowed to.

    Most of the “hoons” you see on the roads these days are youngies with no memories of big Ford GTHOs or Holden Toranas, and the myths are confected by the media. There will always be hoons but they will hot up whatever appears on the road. And do we base an entire subsidised industry around what are effectively the desires of cashed-up bogans?

  2. Thomas Paine on 12th April 2009 2:26 am

    Turnbull isn’t in the debate. It is Rudd producing a narrative and Turnbull vaguely shaking his fists in return. All the people will remember of Turnbull is a continuous stream of negativeness. But none would have a clue what the Liberal Party was about.

    Rudd has now effectively gazumped the whole debate with his RuddNet and got them fist shaking and chasing their tails all over again. Rudd looks good for it, Turnbull returns to script.

    The biggest problem the Liberal Party has is a sycophantic media that gives them a false sense of relevance and competence. Rather than point out the realities that might cause them to rethink themselves.

  3. Ozymandias on 12th April 2009 6:55 am

    Whilst sympathising with retrenched workers, let us weep no tears for the death-throes of the US car industry. For decades it has failed to invest in -or worse, actively suppressed- the development of alternative technologies, artificially maintaining the primacy of its favoured petroleum-powered engines. Rather, let’s appreciate the irony as we witness the Big Three internally combusting.

  4. Tad Tietze on 12th April 2009 12:35 pm

    Your blog continues to be one of the most incisive about the crisis of mainstream politics. This is confirmed by the fact you have cut through the rubbish about the financial system being the root cause of the current economic meltdown.

    It seems pretty clear that when Greenspan & co encouraged the property-financial bubble it was as a way of salvaging the US from recession in 2001, but without dealing with the underlying problems in manufacturing and other productive sectors.

    However, I wanted to take issue with one point you make. While the US economy’s position compared with emerging giants like China and established economies like the EU has certainly declined, this is not just a crisis of relative weakness.

    Rather, despite one of the most vicious and successful campaigns of cuts to labour costs in history over the last 35 years or so, as well as the massive and painful restructuring of key sectors in the early 1990s, the US business and political elites haven’t managed to restore the kinds of rates of growth that were commonplace in the 1950s and 60s.

    While gross profits increased out of sight prior to the current collapse, the rate of return on investment in the 2000s didn’t even make it back to late 1970s levels (i.e. after the first oil shock). It is no wonder the US investors were lured by the apparently easy money of a property bubble rather than invest in the long term good of the economy.

    Now that the mirage has evaporated, a sizeable section of big business is screaming for open state capitalist measures to save its bacon. Rudd has managed to seize this moment to “save capitalism from itself” by equating state capitalist bailouts with the human face of Keynesianism.

    The interesting thing to see is how well this has been received by the public at large, obviously hungry for a genuine social democracy. The ALP’s base may have frayed and degenerated with 30 years of neoliberal experiments, but I think the mass sentiment for “old Labor” politics is alive and kicking.

    The problem for the political class is that such far reaching state capitalism (even if it is largely in the service of the rich) opens the space for popular demands for a more radical project of state-directed social change–one Rudd has no interest in pursuing.

  5. The Piping Shrike on 12th April 2009 9:58 pm

    Hi Tad, I agree with much of what you say on the difficulties in restoring growth rates of earlier decades although I would see the attempt to do so only partly through wage restraint but also through the expansion of credit with financial deregulation. There has also been state subsidy, which has involved the state partly stepping back and allowing the market to come in, but in a way that the state subsidises the market and actually gets involved in its operation like never before. The right may have posed this as the free market but actually is a compromise between the market unable to do it on its own, but business unwilling to finance the state to do the whole job as well (it’s ironical how despite Rudd’s rhetoric, the financing of broadband again showed the government trying to find a ‘neo-liberal’ solution but forced into the usual government/private mish-mash).

    Where I would more differ is on the return of Old Labor. It would be lovely for the political class if this were so and there was some mobilising of the electorate towards government action. But while there is a widespread assumption the government should do something, I also think there is a widespread expectation that the government can’t. It’s why Rudd has no trouble in saying there is no silver bullet to the economic crisis but that he will do the best he can. This impotence does raise the question of what the government is for and I think lies behind the increasingly moral stance Rudd is taking. But there is a contradiction here that will have to work itself out.

  6. The Piping Shrike on 12th April 2009 10:06 pm

    By the way, given that Old Labor had the White Australia Policy as a core plank, I certainly hope we don’t see it come back!

  7. Tad Tietze on 13th April 2009 3:26 pm


    Of course the desire for “Old Labor” is always for an idealised version of the same–a mythical “genuine” social democracy (rather than actual social democracy in practice, which is full of distortions, some as bad as White Australia or support for military adventures or mass privatisations, etc.) Even Whitlam’s brief tenure was full of as many such distortions as it was the rapid reforms that have made his legend.

    The point about examining the popular wish for a return to such policies is to see the tension between the hope for progressive government and the lack of delivery of such. I think both those excellent Social Attitudes survey books and analyses of long-term voting trends like the one by George Megalogenis in Saturday’s Oz point to a leftward shift by the electorate in the absence of a Labor Party interested in putting those aspirations into action in any serious way.

    While Rudd’s panicked state interventionism is unlikely to save capitalism from itself, he has allowed a big genie out of the bottle after governments on both sides have spruiked the need for the small state for so long. If so much money can be thrown at guaranteeing bankers’ profits and hiring private contractors to build broadband, why can’t the state directly act to create health, education and service jobs, build renewable energy industries and take over failing childcare centres in the interests of the majority of the population?

    Nothing is preordained, but the possibilities of mobilising a new Left (outside Labor) have certainly grown in my estimation, even if “because he is doing something” that sentiment may at first see Rudd as its expression. As the contradictions in such a scenario play themselves out, it will take the conscious intervention of those on the Left to try to give them shape and coherence.

    PS I agree with your general analysis of neoliberalism in practice as state-enabled markets rather than some true laissez-faire as promoted by its advocates. But it is the ideological shift involved in openly turning to the state to save capitalism that has cracked open the Washington Consensus, not a shift in whose bacon is being looked after–it’s still the elites who are being helped out. 🙂

  8. Bill Kerr on 13th April 2009 6:45 pm

    “This was less the financial system “assaulting” economic stability but no longer able to prop it up against the distortions caused by the increasing uncompetitiveness of the developed economies, especially the US, against the new emerging ones.”

    I agree with your morality play analysis of Rudd, the impotence of our political class and that there is more to the current crisis than a financial crisis

    A Marxist analysis would say that the something else is an overproduction crisis and that this is a recurring problem within capitalism, for example, Brenner

    Your analysis of the something else being enhanced developing world productivity is no doubt part of the mix but begs the question of how to interpret this or what to do about it

  9. The Piping Shrike on 14th April 2009 6:28 pm

    I think then the two key questions here is whether we are seeing a return of Keynesianism and a move to the left in the electorate. I thought it best to put in a separate post why I think the answers to both are no.

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