Theses on the Crisis of 2008

November 2008
Since 2007 the Rosa Luxemburg Foundation has been following the developing crises intensely and analytically. Based on both research results collected from the circle around the Foundation and from the Foundation itself, we now present several theses which may be useful in the continuation of the debates. This paper is compiled from contributions and information provided by Sabine Nuss, Judith Dellheim, Mario Candeias, Rainer Rilling, Katharina Weise and Lutz Brangsch. In addition, use has been made of contributions and positions from the circle around the Rosa Luxemburg Foundation (e.g. conference reports), from the network transform! and from the Bundestag fraction of the Left Party. The theses presented here, which have been developed as a working tool, take up these positions without directly reflecting the positions of any specific author. Responsibility for this compilation lies exclusively with Lutz Brangsch.
We are acting on the assumption that crises express the impossibility of continuing ‘business as usual’. In order to return the social system to stability, fundamental changes in the political system are required. Ideally, the social contradictions that are expressed in crises are provided with a new scope of action through new political constellations, redistribution processes and the destruction of capital assets. In the worst case, societies themselves can be destroyed. There are historical examples for both approaches to crisis management. Left-wing movements are not spectators who merely wait for society to collapse and then build a new tomorrow upon the ruins of yesterday. What we need to do is to analyse the constellations of interest that manifest themselves within these crisis processes as they unfold and, thereafter, formulate appropriate short and long-term objectives.

1. Findings on the background of the crisis

The approach taken by the Rosa Luxemburg Foundation, which from the beginning has consisted of focussing on the interdependency between the mortgage, credit, financial and economic crises, has been validated by subsequent developments. The immediate catalyst for the crisis, namely the mortgage crisis, proved itself to be an expression of deeper contradictions within the economy in general. These contradictions were in turn intensified by upheavals within the conditions of production, neo-liberal policies, shifts in power relations within society and on the international level, as well as by speculation.
Not least, the background to the current crisis included changes in the financial needs of companies in the industrial and service sectors. The introduction of new production concepts over the past three decades, important technological changes, as well as the new demands that are being placed on the security of products and techniques and, finally, the growing pressure to innovate in ever shorter periods of time have all transformed the manner and means by which enterprises finance themselves. At the same time, the trade unions and with this also the position of the employees has been decisively weakened. On this basis, vast redistribution has occurred to the benefit of the enterprises, the asset holders and upper levels of management.
As such, the appearance of ‘innovative financial market products’, which was the most important catalyst for the crisis, has in turn been determined by mutually dependent factors and should be examined against the following background:

First, as a financial instrument. Private wealth, largely accrued due to massive redistribution and money collected in pension funds, can no longer be invested easily in the classic sense without risking a loss of revenue. Banks and newly emerging financial enterprises intercept these funds and redirect them into risky holdings and ‘innovative financial products’. This entails seemingly irrational and highly speculative forms of exploitation (e.g. weather derivatives), but also the emergence of forms of regulation brokered by the financial market, such as the trade in emission rights (the environmental crisis is made negotiable and exploitable through state guarantees).

second, as a direct result of a general deregulation of the financial markets

third, as an instrument to redistribute capital; as an instrument to accelerate the concentration and restructuring processes of (and within) enterprises

fourth, as an opening up of the public and community spheres as an accumulation sphere under pressure from the dogma of budget consolidation

This all played out in an environment where the financial oligarchy started to write its own rules by establishing rating agencies and general deregulation, and as such the supervision of the financial sector itself became privatised.

This background also includes the fact that the actors on the economic stage have themselves changed and have been joined by new actors. Of particular significance here are the various financial enterprises where the relative independence of various capital cycles vis-à-vis one another has become manifest. In the new enterprises existing tendencies in the banks’ business policy are taken to their logical conclusion. Enterprises normally included in the ‘real economy’ are themselves actors in the financial market; for example, in some car companies. This human and capital integration results in the forming of a new interest in terms of a new ‘ideal total capitalist’ which, despite the many contradictions that may arise, legitimises and promotes the relative independence of financial cycles within the financial oligarchy.
If one examines the individually stated processes within their own context, it is evident that the background to this crisis consists of long-term tendencies of capital accumulation and reproduction that arise from ‘business as usual’ and ‘politics as usual’. The crisis did not infringe on the real economy from the outside, but has, instead, been growing out of the peculiarities of the reproduction of capital relations within the given concrete situation. And yet the thesis that the real economy is related to the crisis is not identical with the thesis that the concrete cause of this crisis is located in the real economy. That would be an impermissible simplification. The cause is always to be found in the interdependencies of the reproduction of total capital. The crisis has made manifest the totality of the contradictions of these processes.
Important causes of the crisis, such as the growing competition between globally active monopolies, the deregulation of the financial industry, repression of employees, nepotistic human networks between companies in various industries, both between one other and between them and the state, have shown themselves to be crisis-worsening factors. ‘Exporting’ the crisis into the Third World is no longer possible, since even there global enterprises have developed that are pursuing their own interests.

2. The character of the current crisis

We now stand at the beginning of a comprehensive global economic crisis. Regardless of how deep this crisis ultimately becomes – i.e. whether it will genuinely lead to a global collapse or merely to a ‘normal’ recession – it is nevertheless characterised by certain specifics:

• It is the first crisis to develop upon an entirely new social foundation that was primarily created by the neo-liberal changeover of the 1990s. It concludes this changeover. In this sense it is genuinely a crisis of neo-liberalism (in the existing sense of the term) that may bring about a tangible modification of the ruling system and the accumulation regime.
• In recent weeks, the crisis has expanded into a crisis of state finance (including local finance) in many countries. In Germany at least, the crisis is also a crisis of the public banking sector, and has called this sector itself into question and/or provides it with opportunities for privatisation.
• The current financial and economic crisis is developing in an organic conjunction with global crisis processes, such as the climate crisis, the water crisis and the food crisis. As such it also directly entails a crisis of lifestyles. The global crises will significantly determine the path to crisis resolution.
• For all its many new aspects, it is also revealing itself as a classic process of the reallocation of capital and its redistribution from bottom to top.
• It is remarkable that it had previously been largely possible to prevent serious crises for large scale populations in the countries of the First World. It remains to be seen to what extent this can be explained by specific unsimultaneities of crisis processes in various sectors of the economy and/or the combination of unsimultaneities of the crisis process and state intervention.
• It is a crisis of American leadership claims and an expression of the redefinition of the relationship between the ‘old’ metropolises and their new competitors – particularly from the BRIC and Gulf States. This is the first crisis in which the Eurozone will be called upon to demonstrate its viability and stability.

What is unique to the current cyclical crisis is the interaction of a large number of factors (particularly the linkage with global crisis processes), which have only emerged in this form over the last ten to fifteen years. These factors also represent the difference between now and the crises of the 1990s and 2000s, or the dotcom crisis. It has led to new manifestations of the crisis as well as to new forms of crisis management. As a crisis of lifestyles (i.e. one that in equal measure encompasses production, redistribution, distribution and consumption) it will present a clear challenge to a comprehensive post-neo-liberal policy of stabilisation. Amidst these global crises, such imbalances, which have come to a head in the present crisis, are joined by restrictions in the resolution of the financial and economic crisis. Society is culturally unprepared for the potential complexity of the crisis processes. In order to secure stability on the previous level, a much broader set of instruments will be needed than ever before.
It is part of the character of this crisis that an intensive search has begun among the elites to find new methods of crisis management. The basis for the development of such a set of instruments is just as contradictory as the causes of the crisis themselves. In the twentieth century, a great deal of experience was gathered regarding how to deal with crises. There are now numerous institutions at the international and national level. Contrary to many expectations, the nation-states have proven themselves to be capable of acting. Thus crisis patterns are characterised by relatively new forms of regulation, such as good governance, CSR, BASEL, along with more classic forms, such as nationalisation, share-buying, stimulus packages and intervention via state ownership. The newly created institutions and bodies of experts that have developed in the wake of the crisis to manage the post-crisis order are largely recruited from within the ranks of the finance oligarchy itself.

3. The consequences of the crisis for social power relations and political constellations

Generally speaking, efforts to ensure political stability during the crisis still appear, at the moment, highly concerted.
In order to grasp the consequences in these areas, we must once more examine the crisis-inducing factors and the relevant, to some extent new and/or weakened actors.

• One characteristic aspect of the crisis, its appearance, its progression and the patterns emerging for its resolution, is the continued weakening of the trade unions and/or the position of the industrial working class in social conflicts. Without this, redistribution and privatisation would not have been possible to the current extent.
• At the moment, no consensus apparently exists as to whether a solution to the crisis by accepting the risk of an unfettered impact on the labour market and the welfare system could be a meaningful option. Crisis management calls to account the already existing crisis of legitimacy within the state and the democratic system. As it is, we are already able to witness a process of political delegitimation, as manifested by poor voter participation. Generally speaking, therefore, the idea of a balanced ratio of inclusion and repression is an informing factor in attempts to find a resolution to the crisis.
• The privatisation of public enterprises and social services (insurance) has not only created spheres of investment but has also redefined interests in wide sections of society. The behaviour of the American pension funds, in which a third of all invested wealth in the world is said to be concentrated, shows how quickly privatised financial market-based forms of social security can be transformed into threats to the social system.
• A new finance oligarchy has arisen, not alongside the old elites, but, in fact, as an expression of their transformation. This finance oligarchy has taken root all the way into the municipalities and the social security providers. Once more, the dogma of budget consolidation plays a central role in the way they define themselves. In this way both privatisation and transactions by local administrations on the financial markets are legitimised. A further characteristic lies in the fact that thanks to the growing significance of expert bodies in the area of political consultancy, the separation between regulation and scholarship is becoming increasingly blurred. Scholars are increasingly becoming part of the regulation process itself. Thus this group continues to reconstitute itself as an international finance oligarchy. This does not mean that this oligarchy pursues homogeneous interests. On the contrary, the inclusion of more and more actors into this social space is likely to increase the contradictions considerably.

In this crisis, the loss of the trade union base is helping to shift power relations to the benefit of the finance oligarchy. While this may sound paradoxical it is largely due to the conceptual weakness of the Left. The Left is unable to compensate for the legitimacy deficit, since the governments have shown themselves able to react quickly. This could change over time. The obvious inability of the economic elites to act appropriately could strengthen the role of the state and the expectations placed upon it. At the same time, though, it could also legitimise the acceptance of other, more democratic methods of crisis management.
If we include the previously mentioned global crises in this discussion, we arrive at a further significant aspect: They greatly exacerbate the conflicts of objectives – which is evident above all in the area of climate protection. Stimulus measures greatly undermine the GD8’s already soft goals in this area.

4. The financial crisis and the Third World

Those responsible for the initial financial crisis, now more of a global financial crisis, are above all the political and economic rulers in the states of the North and/or West. However, as seen in often extraordinarily brutal fashion in 1979-99, the crisis also impacts states that had no involvement in the catastrophe. These states represent a clear majority of the world’s population. A mere news flash from the EU nation of Hungary (which is suffering from a cash drain to Austria) is enough to make India and China wince. Added to this is the fact that once more it is the stricken innocents who will be the victims of ‘consequence management’ in (or by) the states actually culpable for the crisis. Despite their innocence, those who are already disadvantaged are hit twice. The social impact is incalculable.
The threshold and developing countries

are now even further away from receiving international funds than they were before
are suffering from cash drains, because now the large banks and other major actors are looking for liquid cash – yet in South Africa the share of foreign investment is at 30%!

• are confronted by the fact that money is being ‘destroyed’ on the global stock

markets – in Shanghai the market has dropped by 70%, in Jakarta and Sao Paulo by 50%

• are particularly affected if, like the smaller Southeast Asian states, they are export-oriented and are now faced with dwindling demand – yet even in China shoe factories are being closed at a massive rate
• like Thailand and the Philippines are economically and socially dependent on transfers by their guest workers in Hong Kong etc. to their families back home specifically those of them which export raw materials, like Angola, Sudan and Algeria,
• are faced with enormous pricing pressures
• must fear declining development aid – which, however, is already much too low
• are being hit even harder by the food and energy crisis
• are increasingly having to devalue their internal currencies, which is leading to and/or exacerbating inner conflicts
• generally in turn pass on external effects to the poorest of the poor, who are already living on the edge of their physical subsistence level

Alternative political projects, such as the Latin American integration project ALBA, are coming under increased pressure and are now in danger of complete failure. The independent projects in the banking sector linked to ALBA, which are financing regional economic and infrastructure projects and attempting an independent management of natural resources, are being put into question or are being prevented from realising their goals due to the various crises. This in turn reduces their political latitude.
It is estimated that the financial and bank crises of the past twenty-five years have reduced the income of the developing countries by 25%.
These developments are accelerating the trend towards repressive political patterns in the countries of the First World. This is because the escalation of contradictions and problems has perpetuated migration movements, promoted political instability and as such provided excuses for intervention accordingly. As strategies for the development of capitalist market conditions regardless of their moral claims, the pacification strategies inspired by the notions of the welfare economy (A. Set and others) are better suited to exporting crisis-promoting tendencies into these countries (and/or to reinforcing existing crisis potentials).

Reaction patterns

We currently find ourselves in the midst of a transitional phase, in which various crisis management options are being experimented with. These options represent a combination of deregulation and ‘re-regulation’, of national, regional and global instruments that can also include new authoritarian forms of government. Various types of semi- or non-state regulation are under scrutiny – Rating, BASEL, CSR etc. Such types of regulation will likely gain in significance in connection with good governance approaches. We can observe a remarkable finance and budget-political opportunism that is unmasking such provisions as the Maastricht criteria as arbitrary measures that are aligned to restricted economic (redistribution) interests. We can also see how, without any debate, exhaustively discussed accounting rules can become obsolete from one minute to the next.
It is possible to identify various conceptual approaches towards resolving the crisis. They are being implemented parallel to one another and nevertheless are based on shared premises:
a) conservative (e.g. classic interventionism, Tobin Tax, a new Bretton Woods, reactivation of the IWF),
b) innovative forms (combinations of state and non-state action, ‘soft’ political approaches that are linked to concepts of good governance, BASEL II etc.),
c) authoritarian forms that have previously developed corresponding potentials in social and domestic policy.

The shared premises can be characterised as follows:
*Safeguarding the continuation of the redistribution course on a global level
Promoting the accumulation regime by cutting out ‘excesses’
*Securing the continued existence of the financial markets and their major actors
Concessions to the masses in the interest of safeguarding political stability; masking the true identity of the crisis as a crisis of lifestyles.

In the midst of this situation, a not insignificant group fundamentally rejects state intervention beyond the given framework.

One central question will be to what extent capitalism will be able to maintain its democratic capacity in this situation. The way in which this crisis management has been approached (the conditions of the package approved by the German Federal Government, the composition of the deciding and deliberating bodies) provides no guarantees. To all appearances, the elites are not even striving for an option like the Concerted Action project of the mid-1960s. Today the goal appears to be a new type of state intervention, with a new meaning and a new direction.

All of these approaches ultimately mean the creation of new conditions for a new crisis – they do not tackle the genuine causes of the crisis.
It may be that the concept of a Green capitalism, supported by authority, will emerge as a compromise option.

Options of left-wing strategies

The legitimacy of the current crisis management is drawn (if incrementally) from the thesis that the crisis did not arise from the normal movements of capitalist society, but rather from the misconduct of individual actors. Thus, rather than intervention in relevant decision-making processes, the regulation of behaviour stands at the centre of attention.
Nevertheless, in view of the existing power relations this regulation of behaviour is an essential step. Without legal restrictions, no changes can be implemented. Demands for stimulus packages are doubtless among the demands that can open windows for more advanced approaches and alliances.
On this basis, the following approaches may be employed. A discussion of continued crisis-inducing or crisis-intensifying factors (these being, however, possibly susceptible to influence by concrete political actions) takes the stage, alongside offers for concrete political action. Democratisation and internationalism/solidarity must become clearly visible as equal pivots of these demands.
A first level could encompass the following demands, which are primarily aimed at state and supranational measures designed to bring about new regulations:
Strengthening of domestic demand, including through redistribution to the benefit of the masses and the strengthening of regional economic cycles
Intensification and de-privatisation of banking and financial supervision
An end to the independence of a European Central Bank fixated on inflation management
Supervision and restriction of derivative businesses (whereby it is important to consider that an instrument expressing a stable interest cannot be suppressed over the long term – either it will continually reappear under a new name or else in its actual form in open confrontation with the law)
Development of new models of company financing and a redefinition of the role of public banks
Community finance reforms that will remove the pressure of ‘budget financing at all costs’ from local municipalities
Ending tax havens and off-shore dealing
Introducing stock market turnover taxes and capital flow supervision as well as stable currency corridors, culminating in the establishment of an ‘International Clearing Union’, Europe-wide or global stimulus or investment packages or a new UN-based Bretton Woods, an agreement safeguarding capital and technology transfers, an adjustment of trade balances, sustainable development, and minimum social, ecological and political standards.
On a second, more fundamental level it would include these demands:
Disclosing privatisation as a crisis-inducing factor and linking de-privatisation demands with concepts relating to the democratic control of public enterprises/services as well as the democratic and participatory transformation of these enterprises – and up to the EU level
Presenting budget consolidation as the opposite of sustainable financial policy and a redefinition of left-wing budget policy on all levels in the sense of a drastic transparency and democratisation offensive on all levels – participatory budgeting and budget analysis on all levels.
Expanding stimulus packages towards an active state investment and structural policy with a concern for employment policy and an orientation on a genuine structural socio-ecological reorganisation
Further development of factory and company codetermination towards genuine economic democracy as a path towards influencing central company decisions
Regionalisation of economic cycles
Democratisation of social security systems (e.g. by revitalising and reorienting/strengthening self-administration) and expansion of their financial basis and scope through citizen insurance.
Perhaps these demands can be summarised as follows: Overcoming the crisis means developing the public sphere beyond (though upon the foundation of) the state. A permanent solution requires the development of a socially and ecologically regulated mixed economy with powerful public and social sectors, the creation of economic, social and cultural conditions for an ecologically sustainable lifestyle and the primacy of participatory democracy.

The question remains as to how such demands can be combined into a comprehensible package.

Demands on left-wing theory and political education

The central demand arises out of the problem that regulation alone will not help and that the stated need for democratisation (second complex, see point 6) cannot be implemented in the short term. The focus must be placed on the recognition that even a global crisis can and must be reflected by local action.
If we take the demands discussed under point 6 as a starting point, the following tasks emerge for theoretical development and political education:

Is the unsimultaneity of economic, social and ecological crisis processes claimed here a new type of process – whether interlinked or merely coincidentally occurring at the same time? What are the economic and social links between the processes?
What (international/solidarity-based) organisational forms can be used to counter the new global finance oligarchy? What potentials can the social forum process offer? What changes are being demanded by the trade unions, left-wing parties, social movements and NGOs? What tasks are emerging for the left-wing intelligentsia?
An analysis of crisis-promoting and crisis-intensifying processes and related interests; a search for opportunities to create new historic blocks that middle and lower social groups can join with on a foundation of sustainable solidarity-based projects aimed at sustainable, productive renewal, together with new political alliances.
Reformulation of a theory concerning the interaction of the economy, the state and civil society as the foundation for a comprehensive democratisation strategy and a debate over civic notions of regulation – leading to the development of new forms of participation

What significance do monetary decisions have in the development of the crisis? What does it mean to break or restrict the dominance of the dollar? What monetary interests will the states of the Third World, above all the rising, capitalist-oriented economies, develop? Under what conditions is a new Bretton Woods possible (from a monetary standpoint)?

What paths towards stabilisation should be supported – how will it be possible to synchronise economic-political intervention? How will it be possible to achieve a balance between maintaining the advantages of the international distribution of labour, employment-political intervention, protection from destabilising competition and the demands of a global socio-ecological transformation? (Redefining the concept of moderate protectionism)

Sensitising local politicians to issues regarding the implementation of transparency and democracy in budgetary policy

How should we assess the role of the arms industry, arms cooperation and arms exports in the current cyclical crisis? What consequences can we deduce from the interdependence of crisis processes in this regard? To what extent does the arms industry’s economic potential influence approaches to resolving the crisis?
Exposure of the link between lifestyles and crisis processes; it must become clear that the current crisis is due to an entire package of causes and that this very package may contain opportunities for the realisation of alternative approaches
Developing the concept of ‘public enterprises of the future’
What do ‘the end of Fordism’ and ‘new accumulation regime’ mean when they are genuinely understood as a qualitative leap?
The following challenges can be formulated in the field of political education:
Many people regard the situation in terms of a loss of orientation and trust. Links between the various processes and the development of the crisis are not always visible. The classic intermediary institutions (e.g. trade unions) no longer function as they once did. How can political education help restore people’s orientation?
How can the diverse recommendations from the Left be condensed into concepts that provide people with genuine options, i.e. ones not restricting themselves to mere calls for new regulation?

The ‘way into the crisis’ is inseparable from a certain conception of humankind (homo oeconomicus – but now an enlightened, informed homo oeconomicus), which is linked to a presumptuous cultural self-definition of the elites and their corresponding cultural claim to power. All three aspects are interlinked and also act autonomously. Alongside the extensive anti-crisis interventions that we are currently witnessing, this represents a considerable aspect of the power relations upon which this social stability is founded. How can this constellation be broken up?
Alongside many new aspects, the crisis also includes ‘old’ features. It represents a standard element of capitalist society. What can it mean to connect to this continuity and the ‘old’ associations with which this continuity is linked?