Apparently, a virus named after a crown not only euthanized neoliberalism but also resuscitated the Nation-State. Some tremble at the sight of Leviathan, others hope to demolish a neoliberal fortress, which at its core, had always been a social slaughterhouse. After a decade which rediscovered Karl Polanyi, the idea of enlisting the State to re-embed markets within society now has a solid support base. In the Anglosphere, that project comes in two flavors: State capitalism and Monetary Sovereignty. Both are presented as alternatives for a post-neoliberal future: The former revives the old idea, abandoned to the Global South, of mandating the nation-state with the task of giving political direction and social purpose to capitalism. The latter, championed by the Modern Monetary Theory (MMT) camp, proposes to abandon neoliberal monetarist obsessions with budgetary austerity to unleash the transformative potential of public spending. From a progressive perspective, a healthy dose of skepticism is in order: while neoliberalism as a hegemonic ideology is dead, it survives in socially and environmentally disastrous accumulation strategies. Neither state capitalism, nor monetary sovereignty are inherently incompatible with the reproduction of neoliberal growth. Truly emancipatory possibilities necessitate global coordination instead of statist retrenchment and democratic ownership of the means of production instead of mere nationalizations.
The Logic of Neoliberal Growth
Displacing Keynesian demand-driven capitalism, the neoliberal era produced two strategies for growth: a credit-driven and an export-driven variety. Alan Greenspan’s chairmanship of the US Federal Reserve between 1987 and 2006 formalized the credit-driven variety, which still typifies the US and the UK. Greenspan’s strategy relied on low Central Bank interest rates and deregulated finance: The former flooded markets with cheap credit, while the latter engineered high-return investment opportunities such as the mortgage debt bubble of 2008 or speculation on weather forecasts. Cheap credit also allows firms to mimic growth by buying their own shares to inflate their value: between 2009 and 2018, US corporations spent US$ 4.3 trillion on stock buybacks. Driven by higher interest rates than in the North, another stream of excess capital is channelled to the Periphery where this “tsunami of liquidity” finances public debt and short-term, high-return investments such as construction and real estate bubbles which eventually burst.
The export-driven model applies to Germany and its supply chain extensions in Central Europe, alongside South-East Asia clustered around Chinese manufacturing. This model relies on domestic wage compression to maintain export competitiveness and/or national currencies undervalued relative to the dollar. The complementarity between the two neoliberal models reproduces global capitalism: surpluses in export-driven countries are reinvested in the US to purchase greenbacks (appreciating the dollar to support American purchases of exports and/or depreciating exporting country currencies to maintain their competitiveness), US government debt and securities, driving the meteoric rise of shares and derivatives. Linking the two models is the particular status of the US dollar as the world’s reserve currency: without this position, the US financial sector couldn’t count on export surplus countries’ insatiable appetite for dollars.
Greenspan’s cheap credit strategy ran into the ground when interest rates bottomed at 0%. Following the 2008 crisis, the world’s largest Central Banks reached a zero-interest rate policy (ZIRP), beyond which interest rate manipulation is ineffective. After ZIRP, quantitative easing (QE) opened a new floodgate for money creation: QE is a temporary authorization for Central Banks to buy government- and corporate debt, injecting the corresponding amount of money in the private sector. Between 2008 and 2018, the American, European and Japanese Central Banks thus injected US$ 11 trillion in the global economy in response to the Great Recession. The COVID-19 crisis further radicalized QE: the European Central Bank has created 750 billion euros, the Bank of England £200 billion, while the US Fed effectively lifted any ceiling on the purchase of public and private debt on March 23. However, these unlimited “bazookas” of money in response to the COVID-19 crisis are not a critical juncture: only extraordinary by their volume, they are outgrowths of the cheap credit strategy championed by Greenspan in the 1980s.
Neoliberal growth models have produced disappointing outcomes for global capitalism. Whereas the average annual labour productivity rate was at 2.54% in the US and 4.86% in Europe between 1950 and 1972, it shrank to 0.87% and 0.63% respectively between 2005 and 2015. Even with access to virtually free money at 0% interest rates, the private sector refuses to invest correspondingly. Declining investment rates and productivity gains translate into slow growth: mainstream economists began speaking of a global “secular stagnation” after Larry Summers argued at the IMF in 2013 that money creation was a failed strategy and governments should turn instead to the Keynesian alternative of government spending. A new consensus emerged around the failure of cheap money to sustain capitalism: stretching from Marxists to ultra-orthodox neoliberals of the Austrian School, there was hardly anyone left to defend Greenspan’s legacy. Heeding Summers’ call for government spending as a more sustainable source of growth, the IMF itself declared that “monetary policy cannot be the only game in town”.
Statist Alternatives to Neoliberalism
By promising to harness government spending productively, state capitalism and MMT are enjoying a moment in the sun: at the time of writing the Financial Times features Emmanuel Macron’s call to revive industrial policy next to a piece announcing that the time for Stephanie Kelton’s MMT proposals has come.
Associated today with Asian developmental states, state capitalism was also once the blueprint of Western industrialization: it implies nationalized banking, state-owned enterprises (SOEs) and public utilities, subsidies to strategic sectors protected by tariffs (industrial policy) and government planning. Pictures of visible hands corrupting free markets in the Orient are misleading: the staunchest Western adversaries of Chinese state capitalism are also its strongest supporters at home. President Macron is thus pleading for protectionism against Chinese takeovers and wants an EU industrial policy capable of producing European giant competitors to Chinese SOEs. Paris and Berlin converge on the need to burn EU competition policy which stands in the way. In the US, Republican Senator Marco Rubio similarly hopes that strategic industrial policy could save US hegemony.
MMT proposes a new framework to think about money, starting with the perennial “who will pay for it?” question, which is irrelevant for public budgets since government spending finances itself: as a state first spends its currency before it can tax it back, government spending creates tax revenues, not vice versa. Provided it operates in a floating exchange rate system, and as long as it enjoys Monetary Sovereignty – i.e. it issues debt in its own currency – a state cannot run out of money to service its debt. The public sector’s deficits being by definition private sector surpluses, fiscal deficits finance private growth, while debt isn’t a tax on future generations: fiscal deficits actually create excess reserves in the banking system, “naturally” driving interest rates down to 0%, making it easier to finance debt. While MMT principles are not intrinsically leftist, MMT found a political outlet on the left of the US Democratic Party to champion progressive causes made possible by permanent fiscal deficit spending: Job Guarantees to end unemployment, a Green New Deal to transform the US into a carbon-free economy, or the decommodification of public goods via universal healthcare and free higher education.
State capitalism and MMT converge on a statist paradigm: Macron has de facto embraced MMT by calling for “thinking the unthinkable” in reference to a Green New Deal financed with deficit spending. Conversely, MMT proposals to nationalize banking and strategic industries are explicitly modelled after the French post-war state capitalist experience.
Portrayed as incompatible, state capitalism and neoliberal growth are in reality perfectly complementary at both national and global levels. At the national level, executive-dominated state capitalist regimes such as Hungary, Turkey or Egypt expanded governmental oversight and public ownership over the last decade while reproducing neoliberal engines of growth such as construction and housing bubbles fed with cheap foreign capital inflows. Corrupt public procurement contracts in construction help stabilize the clientele of authoritarian executives, while real estate bubbles sustain the illusion of growth. At the global level, state capitalist regimes feed Western financial sectors: Chinese business elites are deeply embedded in Western corporate networks, state-driven BRICS economies accelerate neoliberal commodification, while Germany’s export crown jewel, the automotive sector, is bankrolled with Arab capital from the Gulf.
One may also question whether MMT’s quest to justify deficit spending is enough to displace neoliberal growth: by naturalizing 0% interest rates, MMT mirrors the world of cheap credit where QE and related monetary instruments vomit ever larger quantities of money in the private sector, where financial vultures such as BlackRock reap profits by advising Central Banks to direct QE money towards securities they control. The era of cheap credit engineered by Greenspan is still standing, still enriching the financial sector, still financing housing price bubbles bound to burst: keeping interest rates permanently at 0% hardly changes that.
Besides, MMT doesn’t travel well beyond the US: Monetary sovereignty doesn’t exist in monetary unions such as the Eurozone, or in emerging economies forced to issue debt in foreign currency to offset creditors’ uncertainties about exchange rate fluctuations. If you are an emerging economy, MMT is of little help. This points to a key weakness of MMT, which provides few ideas for international monetary and economic coordination: as a progressive spin on Realism, it reifies a world of segmented nation-states.
There is little to suggest that industrial policy or direct state ownership, public works programs, and permanently large fiscal deficits would automatically displace neoliberal growth. Nothing prevents right-wing nationalism from embracing the creed of industrial and monetary sovereignty: in fact, the right is better positioned for packaging economic and monetary sovereignty as an emancipatory project. Authoritarian state capitalism and neoliberal growth already recombine into new monsters: some call it neoliberal authoritarianism, others speak of authoritarian neoliberal statism. In Orbán’s Hungary for instance, a large-scale renationalization of banking only reproduced construction and housing bubbles with the executive now controlling the circuit of credit from a re-politicized Central Bank down to state-owned retail banks. Mirroring MMT recommendations, the Hungarian state is also an employer of last resort thanks to a Public Works Program (PWS) which “solved” unemployment: Far from a progressive utopia, PWS coerced “beneficiaries” into low-skills and low value-added work without prospects of reintegrating the formal labor market.
Democratic Ownership Beyond Statism
State capitalism and MMT propose a post-neoliberal, statist future, yet this state-market dichotomy is eminently misguided: there is no hydraulic logic to decreasing neoliberalism by increasing state intervention. Amidst the hardships of the present pandemic, it is easy to imagine that nothing will ever be the same, but neoliberal growth is resilient and might also thrive in a new, statist reality. MMT holds progressive promise: for monetarily sovereign countries such as the US or the UK, nationalizing finance and public utilities, financing productive public programs with long term deficits is a step in the right direction. For emerging economies forced to issue their debt in foreign currency, MMT is of little use: they might be better served by shifting their growth models from exports to domestic consumption. Ultimately, MMT’s most progressive contributions are not necessarily those in the limelight but the ones at the margins. MMT-ers recognize for instance that prioritizing fiscal over monetary policy is not enough: the entire banking system needs to be nationalized if credit is to be channeled for productive use. But nationalization itself is only a partial solution: to quote the Greek Marxist Nicos Poulantzas:
Even if it is so extensive that virtually the whole of capital is juridically nationalized, statization of the economy does not fundamentally break with capitalist relations of production (exclusion of the workers from real control over the means of production and from mastery of the labour processes).
This hasn’t been lost on some of the less exposed figures of the MMT galaxy such as Robert C. Hockett who began exploring Jeffersonian utopias of democratic control over finance and production. MMT might do well to recover the lost paradigm of Yugoslav self-management and the cooperative form prophesized by John Stuart Mill for it is only by putting the democratization of the means of production at the centre of its project that MMT can aspire to be more than a template for authoritarian state capitalist dystopias.
First Published online as “State capitalism and monetary sovereignty after the coronavirus” for Rosa Luxemburg Stiftung and Trademark Belfast” (28 April, 2020).