Lies, hubris and neo-liberalism

Barry Winter examines how capitalism went from boom to bust and where it leaves us


I begin this introduction with what may seem like a diversion. I want to take us briefly back to the horrors of the First World War in which often enthusiastic, armies of young men across Europe were sent into battle by their elders.

Reflecting upon the tragedy, the loss of almost a whole generation of men, the poet Rudyard Kipling wrote the lines:

If they asked us why they died
Tell them that their parents lied

In the poem the dead are asking the living to explain why they were sent to the slaughter. Kipling had every reason to feel guilty. When his son was rejected as unfit for active service in the army, he went to great lengths to have the decision reversed. He succeeded and as a result, like so many others, the young man never came back.

But, behind what Kipling describes as his and others ‘lies’, there is for me something even more significant. What was it that made the lying and deceit seem perfectly permissible, the right thing to do? I’d argue: an incredible self-confidence. Rather like the supreme arrogance that claimed two years earlier, in 1912, that the Titanic, that masterpiece of human engineering, was ‘unsinkable’.

We are talking about imperial arrogance – the kind of self-assurance that grows out of power, wealth and success, and blinds its adherents. The Greek word used to describe this kind of overweening self-assuredness is ‘hubris’; the tragedy of pride that comes before the fall. Not insignificantly, this heightened pride came about at what was the height of 20 years of capitalist growth at the end of the 19th century.

The writer, John Gray, uses the same term to describe what happened to Margaret Thatcher, for many of us the scourge of the trade union movement and the matriarch of neo-liberalism. He says: “a circle of folly and hubris had closed around Thatcher and her advisers. By the time her regime had toppled a callow new right ideology had become pervasive in government thinking.” Her fall was a result of her increasing detachment from reality, argues Gray (and he writes as a former supporter of hers).

As he recognises in his book, False Dawn, this conceit has a much wider application than simply to Maggie and her chums.

Similarly, in his recent study on the present crisis and recession the socialist economist, Andrew Gamble, uses the term ‘hubris’ to describe the behaviour displayed by investment bankers and neo-classical economists at the height of the credit boom – while noting that hubris is not absent from the enemies of capitalism either, citing as an example, the opening paragraph of the Communist Manifesto.

Gamble writes of the “euphoria of the markets” at the seemingly endless expansion of credit, partly due to cheap labour in China keeping inflation low in rich countries; a euphoria which equally infected the regulators, he adds; in other words the very people who were meant to keep a critical eye on developments were themselves too busy celebrating.

He notes what he calls the ‘irrational exuberance’ of the financiers and bankers as various bubbles came and went without damaging the system itself. As they gambled with the future, our futures, the financial elites thought they were Masters of the Universe, according to the authors of the book, The Gods that Failed (2009).

Thus, reviewing the economic prospects for 2007, the Financial Times cheerfully proclaimed:

“Rarely has the world had it so good. If most of the economic forecasts are correct, global growth in 2007 will exceed four per cent for the fifth year running, economic fortunes in advanced countries will continue to power ahead. Such a sustained run of good news has not been seen since the early 1970s.” (in Glyn, 2007: 184)

As Gamble writes, even when the crunch, which came shortly afterwards:

“Many senior people in the Bank of England and government ministers had not expected that the crisis was going to worsen … and they could not believe that the engine of the growth model of the last 30 years, the financial services industry, which had been held in such awe for so long, could not be restarted. They kept waiting for the growth model to spring back to life.”

Perhaps the most supreme conceit, what John Gray calls the ‘perilous conceit’, is clearest when the political elite of one state claims to be the universal nation; historically it has happened with France, Russia and the UK, but more recently it has been the United States which has seen itself as the model for the rest of the world.

A taste of the kind of thinking this can lead to comes from the book by George Soros. It is an account of a visit by a leading journalist to the White House. The journalist writes:

“In the summer of 2002 … I had a meeting with a senior adviser to Bush. He expressed the White House’s displeasure [about a book I’d written about the president], and told me something that at the time I didn’t fully comprehend – but which I now believe goes to the heart of the Bush presidency.

“The aide said that guys like me were ‘in what we call the reality-based community’, which he identified as people who ‘believe that solutions emerge from your judicious study of discernable reality’.

“I nodded and murmured something about enlightenment principles and empiricism. He cut me off. ‘That’s not the way the world really works anymore,’ he continued. ‘We’re an empire now, and when we act, we create our own reality. And while you are studying that reality – judiciously as you will – we’ll act again, creating other new realities, which you can study too… We’re history’s actors … and you, all of you, will be left to study what we do.’”

It is that kind of thinking which lies behind the tragedy of Iraq war, the subsequent imposition of neo-liberalism on Iraq, and the supreme folly of the ‘war on terror’. It is this kind of perilous conceit, particularly after the fall of Communism, that believed American capitalism had triumphed – that it was the future; that it was unsinkable. And so, regardless of the odd squall, it steamed ahead, taking us at full speed into the credit crunch and recession. ‘Thankfully’, most of the bankers were able to reach the lifeboats, not so everybody else.

As a footnote to this introduction, I should add that not all were swept along with this mood of collective joy and the doubters often came from surprising sources.

As early as 1985, the then Pope, John Paul ll, declared that the foundations of world economy were unstable.

Perhaps more significantly, that wily old hedge-fund manager and political philanthropist, George Soros, wrote in 1995: “The collapse of the global marketplace would be a traumatic event with unimaginable consequences. Yet I find it easier to imagine than the continuation of the present regime.”

This warning was cited favourably by John Gray in his book False Dawn: The Delusions of Global Capitalism and we will look at this account shortly. Before that and to start the second part of the talk on the crisis, I want to  explore an argument advocated by a tough-minded Marxist.

Explaining the crisis

Put simply, the current crisis has been through three phases: the credit crunch of 2007, the financial crash of 2008, and the recession of 2009 (Gamble, 2009: 42), and who knows how long it will continue?

According to the greying American Marxist economist, Rick Wolff, this is the greatest crisis of capitalism in his lifetime.

For him, however, this is not simply a financial crisis, an explanation which he says turns the symptoms into the malaise. Nor is it about the excessive greed of the bankers. He argues, somewhat crudely I believe, that these are a smokescreen produced by the media to take our attention away from the central issues.

He says that the crisis did not start with finance and it won’t end with finance. To answer his question ‘How did we get into this mess?’, he concentrates on American workers’ wages.

From the 1820s to the 1970s, he says, US workers’ wages rose steadily along with increasing productivity and profits. Real wages increased in every decade, which meant 150 years of rising consumption. This gave rise to an expectation among the working class that their lives would continue to improve materially; that life would be even better for their children and better still for their grandchildren. As a result, they became utterly wedded to consumerism.

However, in the 1970s the world changed for the American working class and it has stayed that way for the last 30 years. As a result of global competition, their wages started to level off. American companies moved overseas in search of cheap labour and employed cheap, migrant labour at home. In addition, women were encouraged into the labour force and all these changes led to wages stagnating and, in some cases, falling.

On the other hand, productivity and profits in this period continued their upward trajectory creating huge surpluses of capital that had to find profitable outlets. For employers, it was like a dream come true, he argues.

For a working population, long used to measuring success and social standing through increasing consumption, this presented problems. How do you maintain your living standards when your wages are not keeping pace?

One way is to work longer hours – many men took second and even third jobs. Another way is for more family members to enter the labour market, particularly women and teenagers. As a result there was a 20 per cent increase in working hours with all the pressures that entails.

At the same time, the American working class went on what he describes as the greatest binge of borrowing in its history, courtesy of the bloated financial sector. This increased stress levels because, for many, debts became unsustainable.

Oddly, what Wolff does not mention is the rise of neo-liberalism, nor the strategic role played by the Reagan presidency in these developments. But he is certainly not alone in addressing the issue of wages, work and mounting debt.

For example, Andrew Gamble says in his recent book, Spectres at the Feast:

“Although the last two decades have been very good for some Americans, for the majority real wages have barely risen at all. The self-image of Americans, that every generation is better off than the previous generation, has been challenged. To the extent that living standards have continued to advance it has been through the piling up of debt.”

As John Gray (probably best described as a social conservative with green inclinations) declared a decade ago:

“The United States is the only advanced society in which productivity has been steadily rising over the past two decades while the incomes of the majority – eight out of ten – have stagnated or fallen. Such a growth in economic inequality is historically unprecedented.” (1999:114)

Arguing that this has not happened to the same extent in the UK, Gray notes that between 1973 and 1995, the average weekly earnings of 80 per cent of rank-and-file US workers fell by 18 per cent. Meanwhile, between 1979 and 1989, corporate executives’ annual pay rose by 19 per cent. One per cent of the population owned 31 per cent of nation’s wealth in 1983, and just six years later they owned 36 per cent.

The point is not lost on the British radical conservative, Philip Blond, who last year wrote this about the UK in the Independent:

“The real story of the last 30 years of neo-liberalism is not rising prosperity for all, but rather the utter destruction of the wealth and savings of the bottom half of the population. Outside of property, 50 per cent of the population now own just one per cent of the wealth, whereas in 1976 it was 12 per cent.

“Similarly, wages for those at the bottom have stagnated – and the much vaunted minimum wage is set so low that the state must subsidise it through tax credits.”

It is for these reasons that so many people have turned to credit, Blond argues. He continues:

“The causes of our present indebtedness go back much further than Brown or Blair. On a global level, they originate in the abolition of capital controls by Thatcher, Reagan and Clinton.

“The casino opened its doors in the 1980s, not with the election of new Labour in 1997. As financial globalisation took off, it created mortgage debt and allowed it to multiply and infect the whole system.”  (Blond, 2008:31).

What I find interesting here is that it is these other commentators, who share Rick Wolff’s view of what’s happened to wages, also widen the political and economic context in order to understand what’s been taking place. Perhaps one of the first in-depth attempts to predict that it would all go wrong came from John Gray, who many dismissed as being merely curmudgeonly at the time.

He warned: “We are at present in the midst of an experiment in utopian social engineering whose outcome we can know in advance.” Later, he added: “The natural counterpart of a free market economy is a politics of insecurity.” (1999: 16 & 17).

Here is a taste of his argument, or rather, analysis:

“According to the Washington consensus, democratic capitalism will soon be accepted throughout the world. A global free market will become a reality. The manifold cultures and systems will be merged into a single universal free market.

“Transnational organisations animated by this philosophy sought to impose free markets onto the economic life of societies throughout the world. This is a Utopia that can never be achieved; its pursuit has already produced social dislocation and economic and political stability on a large scale.”

One might note here that Mexico, currently struggling with drugs crime on an unprecedented scale, joined the free market NAFTA in January 1994. By December 1994, it faced economic meltdown and was only saved by huge funding sanctioned by the Clinton administration.

Argentina, once seen as the most economically advanced economy in Latin America, and best placed to adopt neo-liberal measures, also spiralled from a banking crisis into a wider one. It had to be bailed out by the IMF. To survive, many workers took over and ran their bankrupt factories and people invented their own currencies and sophisticated systems of barter.

Gray makes the point: “In the US, free markets have contributed to social breakdown on a scale unknown in any other developed country. Families are weaker in America than in any other country. Social order is propped up by a policy of mass incarceration.”

He continues: “Free markets have also weakened or destroyed other institutions on which social cohesion depends in the US. They have generated a long economic boom from which the majority of Americans has hardly benefited. Levels of inequality in the US resemble those of Latin American countries more than those of European society.”

In a postscript to the second edition of his book in 1999, Gray was even more explicit.

He notes the smug view held in the West about the Asian crisis – a crisis which I should point out left 22 million more people impoverished. He claimed that it would not end there. Pointing out that personal debt and bankruptcy were running at historic levels in the US, he says that for many Americans, present consumption has come to depend, not only on the stock market remaining high, but on its continuing rise. When it turns down these people will feel – and be – considerably poorer.

Gray puts succinctly what others, more recently, have explored in much greater detail: “The enormous, practically unknowable virtual economy of financial derivatives enhances the risk of a systemic crash.” (1999: 198)

And yet, he wryly says earlier, America sees itself as the “model for a universal civilisation.”

For him, economic globalisation undermines the free market. Nothing remains to buffer the system against the strains that will arise. The rapid rise and fall of industries, and therefore livelihoods, the sudden shifts in production and capital, “the casino of currency speculation” – amount to a highly combustible mix.

As an historian, he compared the situation at the time of writing with the ‘golden era’ of late 19th century, laissez-fair capitalism, the period from 1870 to the outbreak of the First World War. And he says: “Today’s worldwide free market lacks even the checks and balances that existed in the earlier period and the current regime is likely to be even briefer.” But few listened and fewer still took him seriously.

As people here will know, neo-liberalism in its various manifestations emerged as a successful attempt to resolve the 1960s and 1970s, resulting from what Andrew Glyn depicts as conflicts between employers and workers, and, I would add, the combination of economic stagnation and inflation.

While there is not the space here to examine that period in detail here, suffice to say that the defeat of the labour movement laid the foundation for a new economic and political regime. Today’s instabilities by contrast arise from what Glyn calls “the bubbles and crashes in unfettered financial markets” (2007: 51).

Or, as George Soros puts it: “One can date the super-bubble to the 1980s because that is when market fundamentalism became the guiding principle of international finance.” (2008:93). He says this is when financial innovation began to run amok and banks began to take bigger and bigger risks.

Thus, in major crises capitalism mutates, as it has done in the past. One set of contradictions is to an extent resolved but only by creating another set of structural tensions, and the process of creative destruction then continues apace until the next time.

Thus neo-liberalism reordered capitalism but it cannot deliver social order. Indeed, it corrodes the political and social institutions needed to sustain order and political legitimacy, leaving a dangerous legacy of anger, confusion, volatility and dangerous disillusionment.

Deregulation and financial innovation was the name of the game. Probably, the bankers themselves did not always understand what was going on, but why complain when you are doing so well out of it?

No less important, I’d suggest, is that this ‘financialisation’ has had each of us in its sights too. We were to be remade in its image. Every citizen was to become a new kind of independent financial operator (Gamble, 2009). Why deposit your savings in a fuddy-duddy, boring building society when you could do much better in the exciting, imaginative demutualised world of investment banks? Why save when you could get things on credit; why not have it now: ‘go on, you deserve it’.

Underpinning this process for many people was what has been described as the ballooning of house prices and the frenzy for home improvements. Houses were not so much homes as investments for those who could scramble onto the rungs of the property ladder. Even if it meant borrowing a ‘bit more’ than you should, it would be worth it in the end. Better still, as they told us on the telly, buy properties to do up and sell at a handsome profit. In these ways, neo-liberalism has been penetrating our lives for 30 years.

Just as the normal disciplines of banking were being dissolved into pioneering new ways of money-making, so the social disciplines associated with managing our lives were being cast aside. Just as short-termism gripped the world of production, so we were encouraged to live in the here-and-now, encouraged to buy now and pay later on a much larger scale than ever before. There is a world out there of bright shiny goodies, so what’s stopping you from getting yours?

And, if you will forgive me leaping from the micro to the macro, the new players in the global market were assisting this explosion of credit-led demand. China and India and the newly emerging economies, desperate to improve their circumstances, provided the West with an abundance of ridiculously cheap, consumer goods.

Here we had the miracle of mass demand not leading – in the case of consumer goods – to inflation. In addition, China kindly invested its surpluses into western banking and finance and the whole circuit of capital continued to spin round and round, faster and faster. Of course, the environment, particularly the demand for oil and the depletion of various natural resources, was chipping away at the back of some people’s minds, but this was not the time to be a party pooper.

Consequences and outcomes

Before concluding, it is important to record that in spite of the volatility built into the new global system, it has tended to hurt people globally much more than those of us in English-speaking world – at least up until now. As you will be aware, inequality globally is nothing short of grotesque. According to the UN, there are one billion people living on $1 a day and two billion more living on $2 a day (Gamble). That said, by embracing the market China and India have made great strides in reducing poverty (while accentuating inequality).

Gamble also reminds us that the British economy “grew continuously between 1993 and 2008” (2009: 96). In other words, in contrast to the stop-go cycles of boom and bust of earlier decades, we experienced the longest boom in modern history. This led to the flaws and cracks in the growth model – big as they were – being either covered over or ignored, he says.

Pat Devine, one of the editors of the recent book Feelbad Britain, says that we are experiencing an economic crisis superimposed on a social crisis. We are living through what he describes as a kind of social recession.

Another contributor to the volume, David Beetham, argues that neo-liberalism has weakened democracy. It has hollowed out a commitment to the public sphere and undermined the public service ethos. People, he says, feel excluded from politics and so we are facing a twin crisis of economics and politics.

At the same time, voices calling for a new political morality are also being heard – not just in terms of bankers’ bonuses and MPs’ expenses. The respected social democrat, David Marquand, says it is time to examine issues of what he calls the ‘moral economy’. He recently called for Gordon Brown to acknowledge that the neo-liberal vision is immoral as well as mistaken and that it is time to drive the money changers from the temple.

More recently, the Reith lecturer and philosopher, Michael Sandel addressed the issue of markets and morals. He talked, in particular, of the moral limits of markets.

These emerging critiques of the dominance of market fundamentalism are to be both valued and critically assessed. As yet we don’t know how strong any such challenges will be – what momentum they might develop. This is partly because so much depends on how long the recession lasts. Some can’t wait to get back to business as usual and others are saying that the worst may be over. In contrast, George Soros, say it is the end of an era. Not so, says the Newsnight reporter, Paul Mason, it is merely the end of a period.

All I think we can say with certainty is that we are presented with significant opportunities and also confronting formidable challenges. The longer the crisis lasts, the more opportunities (and dangers) it may present to build up support for alternatives. Yet, at the same time, none of us relishes the idea that it will last for long because of the hardship and dangers it generates for us all.


This is a version of the talk given by Barry Winter at the ILP’s round table seminar, Crunch Times: Politics and the Crisis, in Scarborough on 13/14 June 2009.


  1. […] hallmark of recent economic history. And, as Barry Winter rightly points out in his article ‘Lies, Hubris and Neoliberalism‘, at every juncture before a financial crisis we have had displays of unguarded hubris – […]

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    29 July 2009

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