The new ideological crisis of capitalism

By Steve Wallace

The financial events of 2008–2009 inaugurated not only an economic but a new ideological crisis of capitalism. How deep this crisis will become depends on the development of the economic situation and the intervention of the political left. The character of this crisis, however, can be seen most clearly by placing it in an historical context.

Twenty years ago, in 1989–91, capitalism achieved enormous victories. It overthrew the non-capitalist economies in the USSR and Eastern Europe. The opportunity to achieve this was created by the final failure of the policy of ‘socialism in one country’ inaugurated by Stalin – with its economically utopian attempt to create a fully developed socialist society within the framework of a single state, its introduction of a fully planned economy in a short period by administrative means, and the political repression that followed from such policies. 

Within the former USSR the objective result of this capitalist victory was, in literal terms, the greatest economic catastrophe in peacetime in history. The former USSR’s economic output fell by half, large parts of the former system of social benefits were destroyed, male life expectancy fell by almost ten years, tens of millions of women were forced out of work while prostitution and social degradation acquired massive dimensions, and war broke out in the southern states of the former USSR as the systems of economic and social protection that had protected the population of the Soviet Union were destroyed. The stupidity of those within the former USSR who had introduced this programme of capitalist restoration in the belief that it would ‘revive’ Russia after the Brezhnev ‘period of stagnation’ was shown in the fact that alongside this economic and social catastrophe the former Soviet Union was destroyed as one of the world’s great powers and it became subject to many new threats – which the US promptly started to exploit. The restoration of capitalism in the USSR therefore created an economic, social and political disaster for its population.

But for the consciousness of large parts of the population of the world the facts of this objective economic disaster were overwhelmed by the claim ‘socialism had failed.’  According to the famous article of Francis Fukuyama of that period what had been witnessed was ‘The End of History’. It was widely asserted, and widely believed, that liberal capitalist market democracy, or at least the capitalist market, was to triumph everywhere. Fukuyama and others proclaimed total capitalist ideological hegemony.

According to the rationale of bourgeois ideology such a scale of capitalist victories as in 1989–91 should have been followed by a new progressive development of the world. However, as in fact the opposite took place, it took almost no time for cracks to appear on the moral and political front in the proclaimed new capitalist hegemony.

Capitalist victories were followed not by a new wave of liberalism and reform but by imperialist military violence and the re-exhuming of some of the most reactionary and racist ideologies. An attempted rhetoric praising ‘progressive imperialism’ was launched. War followed in the Gulf (twice), in the former Yugoslavia, and in Afghanistan, while US military bases spread across central Asia – a process now extended into Latin America and Colombia. Attacks on the welfare state multiplied. Attempts were made to roll back the progress made by the most oppressed sections of society – women and black people. A wave of racism, and the rise of extreme right wing parties, spread like a stain across Europe.

Given such developments the moral and political bankruptcy of capitalism, and the emptiness of the claims it had made to justify itself during the Cold War, rapidly became apparent to rather large numbers of people. On these fronts the virtually unchallenged moral and political hegemony of capitalism lasted only a handful of years. Mass movements against imperialist war, and more generalised opposition in forms such as the World and European Social Forums, spread. In Latin America forces of the left were on the offensive in Venezuela, Bolivia, Nicaragua and a series of other countries.

Growing understanding of the issue of climate change created another issue in which the moral bankruptcy of capitalism became evident – its willingness to sacrifice the future of the planet, and potentially the lives of hundreds of millions of people, to its regulation of the economy by profits.

But nevertheless on the economic terrain capitalism still appeared hegemonic. It had been restored in Eastern Europe after the economic failure of a Stalinist alternative popularly presented as, and proclaiming itself, socialist. A few specialists outside China’s borders understood that county was a non-capitalist economy but, prior to the 2008 financial crisis, the mass of the population in many countries accepted the claim by bourgeois ideologues that in fact capitalism had been re-established in the most populous country on earth – and that this accounted for its economic success. Overwhelmed by this capitalist hegemony, most of the economic demands of the anti-globalisation movement, in reality, were not much of a break with capitalism, but merely a condemnation of specific aspects of it, or were confused and utopian.

The result was that the ‘anti-capitalist’ movement was largely overwhelmed by the outbreak of the financial crisis. Utopian and impractical programmes centred on local banks, micro-finance or an attempt to retreat into national capitalism were totally ineffectual when confronted with an economic typhoon – rather like an attempt to deal with the spread of bubonic plague by handing out Kleenex. Consciousness lagged far behind reality.

But nevertheless the financial crisis created a jagged rip in the economic legitimacy of capitalism. For the first time the view that there is not merely something unjust and immoral in capitalism but something fundamentally unstable and economically disfunctional gained far wider currency – at a whole series of levels.

The tip of the iceberg, ultimately one of the least important parts of this development, was the new storms and rows in professional/academic economics – The Economist carried a rather amusing account of these.1 Those who had held out against neo-liberal orthodoxy within the economics profession suddenly acquired new legitimacy. Joseph Stiglitz, who had previously been regarded as far out, became the most academically cited economist in the world. The committee awarding the Nobel Prize for Economics, which had spent most of the last decade awarding it to Friedman, Hayek, and the formulators of the entirely unrealistic assumptions of general equilibrium theory, the cornerstone of economic neo-liberalism, suddenly decided it was necessary to award the prize to Paul Krugman – a fairly mainline but socially liberal Keynesian. A flood of works rehabilitating Keynes appeared – summarised in the title of Robert Skidelsky’s Keynes, The Return of the Master. President Sarkozy, in an unguarded moment, was photographed reading Marx’s Capital. Authors who had questioned the idea that the neo-liberal consensus would work, and put forward genuinely Keynesian views, such as Graham Turner, for the first time received some mainstream coverage. Writers who had persistently attacked the neo-liberal consensus, such as Larry Elliot in the Guardian, no longer appeared wholly isolated.

Further to the left sales figures showed interest in Marx’s economic writings soaring in Germany. An online poll in The Times asking the question ‘Karl Marx: Did he get it right?’ received the answer that 51.6% said ‘yes’.

This academic and professional economic turmoil itself helps create ideological rifts through which deeper and more powerful forces can express themselves. But the most important trend is that an assault on living standards is going to take place over a prolonged period and will continue regardless of whether in the short term there is a recovery of the capitalist economy or whether it continues to deteriorate. Such an assault is entirely inevitable, as all the superficially different capitalist programmes to solve the economic crisis in the end simply come down to one thing – living standards must be reduced in order to boost profits. Consequently those who were not responsible for the crisis – those with average incomes and the worst off – must pay in order to rebuild the economic position of those, capitalists and bankers, who were in fact responsible for the economic mayhem.

The forms of this assault on living standards are many – increasing unemployment, wage reductions, cuts in social benefits and social spending standards – but they all come down to that common feature – living standards must be reduced so profits can increase. In another article on this site, ‘No butter, just guns’, an analysis was made of how this process works itself out in the most powerful capitalist economy – the US. But the same process, in different combinations, operates in all the capitalist economies. Given this ongoing assault on living standards, there is no basis for eliminating currents questioning the economic system of capitalism. It is for this reason that a new front in the more widespread undermining of the ideological legitimacy of capitalism has opened.

From the political left this requires that alongside mass resistance to the attacks on the living standards of the population there has to be waged an offensive on the economic front against capitalist ideology. This will not gain immediate global success, and the situation in different parts of the world is very different, but its essential principles are clear.

The first issue in this ideological struggle is to form a united front of all those who oppose, for whatever reason, the present attacks on the living standards of the population. In economic terms Keynesians, post-Keynesians, ecologists, feminists, anti-imperialists, Marxists and others, whatever their theoretical frameworks, oppose the agenda of cuts and reduced living standards. Theoretical differences therefore must not get in the way of united initiatives. Theoretical discussion is very necessary but must not impede united practical action. This process will, of course, proceed unevenly internationally.

Undoubtedly the most advanced economic policies, both in terms of their practical effect in raising living standards and developing the economy, and their theoretical coherence, are those coming out of China. China has shown an economic model that works and whose elements can be copied by other countries. However, for its own reasons, China does not seek to promote its own model internationally – although neither does it try to prevent anyone else taking it up. Vietnam has taken over the essential elements of China’s economic policies with almost equivalent success – demonstrating such policies’ international viability. But while there is at present great international understanding of the practical economic success of China, the reasons for these achievements  are much less clearly understood internationally. Correcting that weakness is an urgent task.

This issue is particularly important in Latin America. There for a decade the left has been on the offensive. However a major new imperialist counter-offensive in the region has been launched with the financial crisis. The political advances of the Latin American left have not been accompanied by equivalent coherence in economic programmes – the socialist left in Latin America is far less developed in terms of its economic policies than the communist left in Asia. For example the Latin American left continues to confuse patriotism, a highly progressive political position in Latin America confronted with US imperialism, with a closed economic self-sufficient system. A necessary fusion of Latin American political currents with Chinese and Vietnamese economic thinking has not taken place. Such a development would change the situation on a world scale.

In the Middle East, Israel continues a policy of aggression and massacre, but Palestinian resistance continues and international understanding of Israel’s role is slowly increasing. The imperialist attempt to create an international offensive against Iran is clearly being stepped up. In the Middle East, as present, it is political and military conflict, rather than economic, which dominates.

In Europe, in the immediate situation, the left is on the defensive. All the backwardness in consciousness created by 500 years of colonial and imperialist expansion, heightened by the disillusion created by the failure of Stalinism in Eastern Europe, is imploding in widespread outbursts of racism and a political swing to the right. This is a historical dead-end but at present it remains the dominant mass trend across the continent. There are important developments to the left of social democracy in Europe, such as Die Linke in Germany, the Parti de Gauche, and to a lesser extent the Nouveau Parti Anticapitaliste, in France. But overall it is the right, including a large component of the racist right, which has so far most gained from the financial crisis. Progressive developments internationally may well be necessary to turn this round – and one of the most decisive, and possibly successful, tasks of the European left is to prevent the European imperialist powers reinforcing the US in its reactionary international offensives.

In the US the initial impact of the financial crisis was to move politics to the left with the crushing victory of Obama over McCain – and the election of the first black US president itself remains a landmark. But Obama in practice has in a whole series of fields scarcely modified the policies of George W. Bush – more troops are being sent to Afghanistan, the military coup in Honduras has de facto been backed by the US, Israel has not even been slightly reined in. Only the wilder extremities of George W Bush’s policies, such as the attempt to stage a confrontation over missiles with Russia, when not even the wildest inhabitants of the US mainstream right envisage a nuclear showdown with Russia, have been abandoned. Objectively the role of Obama has been to attempt to gather US working class support around his attempt to remove the worst waste of the US health system, which is so extreme and economically irrational that even major sections of the capitalist class oppose it, while maintaining the overall imperialist thrust of US policy. As US imperialism continues overall to be in a situation whereby it cannot deliver butter to the US population, but merely guns, such policies are rapidly undermining Obama’s popularity. The resurgence of overt policies of the George W. Bush type therefore remains likely in the US.

Overall, therefore, so far China, and to a lesser extent Vietnam, is strengthening its position. Latin America remains the area where the left has made great steps forward but where it now faces a major counter-offensive and where its absorption of the economic lessons of China and Vietnam is urgent. In Europe, and probably strategically in the US, the left remains on the defensive. Major struggles will continue to unfold as the attempts by capitalism to strengthen itself after the financial crisis unfold.

But due to the financial events of 2008–2009 a rip has been made in capitalist ideology not only morally, politically, and in terms of its contempt for the future of the planet, but now in terms of belief in the rationality and coherence of its economic system. Whatever the short-term victories and defeats, that rip can only be overcome by a return of capitalism to creating improving living standards – and that is simply not possible in the immediate future.

A new front in the crisis of capitalist ideology has been opened up. It is the task of the left to utilise it to the maximum.


1. As The Economist noted of these new polemics: ‘Robert Lucas, one of the greatest macroeconomists of his generation, and his followers are “making ancient and basic analytical errors all over the place”. Harvard’s Robert Barro, another towering figure in the discipline, is “making truly boneheaded arguments”. The past 30 years of macroeconomics training at American and British universities were a “costly waste of time”.

‘To the uninitiated, economics has always been a dismal science. But all these attacks come from within the guild: from Brad DeLong of the University of California, Berkeley; Paul Krugman of Princeton and the New York Times; and Willem Buiter of the London School of Economics (LSE), respectively. The macroeconomic crisis of the past two years is also provoking a crisis of confidence in macroeconomics. In the last of his Lionel Robbins lectures at the LSE on June 10th, Mr Krugman feared that most macroeconomics of the past 30 years was “spectacularly useless at best, and positively harmful at worst”.’

The ideological fights and changes were summed up in the fact that Robert Lucas, one of the chief architects of anti-Keynesianism, had declared in 1980: ‘At research seminars, people don’t take Keynesian theorising seriously anymore; the audience starts to whisper and giggle to one another.’ Post-crisis he conceeded: ‘Well I guess everyone is a Keynesian in a foxhole.’