Five years ago, in the immediate aftermath of the global financial crisis of autumn 2008, I spoke to Andrew Gamble, professor of politics at Cambridge, about a book he'd just published. "The Spectre at the Feast: Capitalist Crisis and the Politics of Recession" was an anatomy of crisis in which Gamble distinguished between genuine crises of capitalism, which are structural, and mere economic recessions, which are not. The present crisis, which began in 2008, is the third such structural crisis to have befallen the international market order, following those of the 1930s and the 1970s. Back in 2009, Gamble told me that a crisis of capitalism is a “prolonged period of political and ideological impasse.” Understanding the current impasse is the aim of Gamble's new book, "Crisis Without End? The Unravelling of Western Prosperity".
I spoke to Gamble again recently and began by asking him about a feature of this crisis that was absent from those of the 1930s and 1970s, namely deflation. Why, in his view, is deflation today a “symptom of disorder”, rather than inflation, as was the case in the 1970s?
AG: This is one of the things that has struck me very forcibly in the last two or three years. Deflation poses a quite different set of political challenges than inflation did. And we’re only just beginning to understand what deflation could mean for established political systems. There was the experience of Japan in the 1990s. People tended to bracket that off and say it was just something peculiar to Japan. But now I think we can see that there is a risk of what happened to Japan happening in other developed economies, particularly in Europe.
The problem is that we don’t know how to manage a political system in which we have deflation. Politicians did learn how to manage inflation—they lost control in the 1970s, but over time they learned how to live with it and actually turn it to their advantage, mild inflation at least. But to go back to deflation: that was much more common in the past in capitalist history, but we haven’t really had it since the early 1930s. So this is one of the potentially very deep problems we’re facing. Everyone agrees that low interest rates are not normal and have lots of distorting effects on the economy, but no one wants to risk taking away this support which has become so important.
Governments know enough to prevent the kind of outright deflation which took place in the past. But trying to ward off deflation then has all these other distributional consequences. Quantitative easing is a sign of that. It’s had huge distributional consequences in favour of people who own assets. Contrast that with the way living standards for the majority have been at best stationary and in some cases declining. I think the assumption is always that this sort of austerity comes to an end at some point and we go back to a normal economy in which living standards are rising and politicians can squabble over how to divide up the growth dividend. But the possibility that we might be locked into austerity not just for the short run but over the long run… the effect of that on politics is a very serious question.
JD: Presumably part of the problem is that the available palette of policy responses was designed for an era in which inflation was the primary problem to be dealt with? Politicians have turned the battle against inflation into a sort of fetish or totem.
Exactly. They’ve got a whole set of policies for dealing with inflation which, in a way, have been too successful. The example recently of the Japanese government desperately trying to increase the rate of inflation was a great commentary on our times. Back in the Seventies no government would have set that as a policy target! We’re looking for new policy instruments to deal with a set of circumstances which are new. We’re muddling through, which is what we did in the 1930s. There was this long period of muddling through—it wasn’t as if Keynesianism descended as this tablet from heaven which people could then follow. [In circumstances like this], you get policy experimentation, which I think will go on for quite a long time.
And muddling through is just what liberal democracies do isn't it?
That’s right. They put things off until the very last minute. Because they have the confidence that—and I’m thinking primarily of the United States here—when it comes to it they’ll find a way to get out of whatever difficulties they’re in. But there’s no incentive to confront problems earlier than they have to.
You point out in the book the extent to which members of the policy elite have come to acknowledge that “something fundamental” has happened to the world’s major economies. Do you think the remarkable response to Thomas Piketty’s book Capital in the Twenty-First Century is a symptom of that?
I think that’s right. Capitalis one of those books that has suddenly struck a nerve. It has captured a moment. There is a sense of foreboding, a sense that something has happened and we’re not quite sure what it is. Piketty’s book speaks to that deep sense of unease.
You’re arguing in this book that this is not just an economic crisis, it’s also a crisis of political management—or, indeed, a crisis of a managerial conception of politics in which power and responsibility is ceded by politicians to unelected experts, central banks and so on.
Yes. We’ve become so used to technocratic economic management. For a lot of the time democratic electorates were quite willing for responsibility to be ceded to technocratic elites. But that sense that so many voters have that there’s nothing to choose between the mainstream parties any longer—which has always been there in the background but in the last years or so has become particularly strong in western states—is reinforced when it seems that the only solutions are technocratic ones which all point in the same direction. That is breeding a big problem about democratic consent and it’s leading to some political manifestations, like the surge in populism, which to a technocratic, cosmopolitan elite look highly irrational and atavistic. But actually a lot of it is the product of bewilderment at the sort of world we seem to be entering, one in which no one is really in control. People have lost a lot of confidence in the ability of technocrats to guide us and to solve problems.
From that technocratic point of view, the crash of 2008 could only have its roots in lax regulation—and if it was a regulatory failure, it could, as such, be fixed. But for you it goes much deeper than that.
There are a number of other big changes going on. The book is optimistic in the sense that there obviously is scope to rebuild not just western prosperity but global prosperity. There is another era of prosperity within our grasp. But there are very serious political obstacles to getting there. And we need a degree of political cooperation and changes to the structures governing the world economy which look, at this point in time, very hard to achieve. Yet were able to achieve them, then the prospects would actually be quite bright. So it’s not that we can’t have another era of prosperity, but we can’t have another era of prosperity on the same terms on which we had the last one. We’ve got to have some profound political changes, but to get those changes requires leadership and concessions on the part of those countries who are the dominant powers in the international economy. And that may be very difficult to get, for all the reasons we’re familiar with. There’s a low politics story to be told here about just how difficult it is to get people to agree and shift their positions in ways that are going to benefit everybody—the familiar collective action problems. Everything we know about the prosperity of previous eras indicates that where international frameworks can be agreed, benefits flow most surely to all parts of the international economy. So the prize is a huge one. But in the meantime, we have this series of deadlocks.
You argue that the current crisis can usefully be understood in terms of the sharpening of certain perennial structural dilemmas that face politicians in all developed liberal political economies. You identify three conundrums: the “governance conundrum”, the “growth conundrum” and the “fiscal conundrum”. Could you say something about these?
The governance conundrum is the problem of international cooperation—it’s what the world needs, but the difficulty is that the international state system we have is asymmetrical, for all sorts of historical reasons. Trying to create an international market order which is inclusive and in which the rules that govern the way it works are agreed by as many countries as possible is the key to promoting prosperity. The problem is that, historically, where that has happened it’s been because there has been one dominant power—in the recent period it’s been the United States. The conundrum now is that the United States is still the dominant power, but it no longer has the kind of dominance that it had in the 1950s and 1960s, or even in the 1980s and 1990s. I think something irreversible has happened with the rising powers and we’re seeing a fundamental shift in power. This means that if we’re going to see an inclusive international market order, then the governance conundrum is the following: how to create the institutions which will allow that to take place. Although the United States is proposing some limited changes—such as voting rights on the IMF—those are currently being blocked by the US Congress. So making progress and reforming international institutions, changing the way the international economy is governed, can get held up by the pursuit of national interest. We’re probably never going to see in the world again one country being the dominant leading power. But that means that we’ve got to devise some sort of collective leadership and that’s going to be very difficult. The G20, immediately after the crash, was a positive step towards that—by no means sufficient, but it was a step in the right direction.
Was that an opportunity lost or spurned?
Yes, the momentum has gone. If anything, the American are shifting back to thinking about the G7—dumping Russia because of Ukraine and concentrating on America’s closest allies. But that’s not going to work in the long run. At some point, the attempt to forge new, inclusive forms of global governance is going to come back. As for the growth conundrum, I’m very struck by the economic historians, people like Robert Gordon, who are saying that we seem to have hit a plateau. And this has been picked up in the reformulation of the “secular stagnation” thesis. This is very controversial: others are saying this is all wrong and that new technologies are delivering huge increases in productivity—that we’re just in a transition phase. A lot of these questions are open questions. But Gordon’s argument needs to be taken very seriously, because the implications are huge—it suggests that the digital revolution is not delivering the kind of productivity changes that previous major technologies did. Again, the implications of that for funding the kind of lifestyles and the kind of public sectors we’ve had in the past are enormous. And behind that is the threat which climate change poses to the kind of growth models we’ve had in the past. So one question is: can we find a new growth model that will deliver the kind of prosperity we’ve had in the past. And the next question is: even if we can, aren’t we going to have to redesign the whole way we structure industrial societies because of the amount of resources we’re going to have to divert in order to deal with climate change?
And where does the “fiscal conundrum” fit into this picture?
The fiscal conundrum is about the domestic politics of states. The impact of this period of austerity and the aftershocks of the financial crash, the problem of creating consent for cuts in public spending and in some cases increases in taxation, varies from country to country. But all of them have this fiscal conundrum: the famous paradox of voters wanting to pay for Swedish-quality public services with American levels of taxation. The challenge of managing that problem confronts all politicians in the developed economies. In the wake of the financial crash, the fiscal conundrum is about the affordability of the welfare state. The fiscal conundrum is where the raw politics of the crisis gets fought out, with politicians having to proceed in the uneasy knowledge that they can’t rely on an early return to sustained growth.
You observe in the book that the crises of the 1930s and the 1970s were long, drawn-out affairs. How far are we into the current crisis?
Not very far. Such estimates are always very rough, but I think there are probably going to be another ten years of experimentation and muddling through, of coping with austerity, perhaps even further shocks. I don’t think we’ll get onto firmer ground much before another decade has passed. Looking at the deadlocks we have and the obstacles to sustained recovery, it seems to me that the downsides are quite a bit stronger than the upsides. The recoveries that we’ve had,in the UK and the US for example, don’t look very securely based. The numbers we’re getting, so long after the initial shock of the crash, are very disappointing. It’s surprising how sluggish the western economies are. And now the crisis is being transferred to the rising powers, who are much less resilient than they were in 2008. There are these swirling uncertainties around, [the worry] that there could be another big shock, or more than one, ahead of us in the next few years. We are as likely to have setbacks as we are to see advances. So things are likely to be very stop-start over the next few years. And I can’t see anything which is going to change that.
Andrew Gamble's "Crisis Without End: The Unravelling of Western Prosperity" is published by Palgrave Macmillan (£14.99)
I spoke to Gamble again recently and began by asking him about a feature of this crisis that was absent from those of the 1930s and 1970s, namely deflation. Why, in his view, is deflation today a “symptom of disorder”, rather than inflation, as was the case in the 1970s?
AG: This is one of the things that has struck me very forcibly in the last two or three years. Deflation poses a quite different set of political challenges than inflation did. And we’re only just beginning to understand what deflation could mean for established political systems. There was the experience of Japan in the 1990s. People tended to bracket that off and say it was just something peculiar to Japan. But now I think we can see that there is a risk of what happened to Japan happening in other developed economies, particularly in Europe.
The problem is that we don’t know how to manage a political system in which we have deflation. Politicians did learn how to manage inflation—they lost control in the 1970s, but over time they learned how to live with it and actually turn it to their advantage, mild inflation at least. But to go back to deflation: that was much more common in the past in capitalist history, but we haven’t really had it since the early 1930s. So this is one of the potentially very deep problems we’re facing. Everyone agrees that low interest rates are not normal and have lots of distorting effects on the economy, but no one wants to risk taking away this support which has become so important.
Governments know enough to prevent the kind of outright deflation which took place in the past. But trying to ward off deflation then has all these other distributional consequences. Quantitative easing is a sign of that. It’s had huge distributional consequences in favour of people who own assets. Contrast that with the way living standards for the majority have been at best stationary and in some cases declining. I think the assumption is always that this sort of austerity comes to an end at some point and we go back to a normal economy in which living standards are rising and politicians can squabble over how to divide up the growth dividend. But the possibility that we might be locked into austerity not just for the short run but over the long run… the effect of that on politics is a very serious question.
JD: Presumably part of the problem is that the available palette of policy responses was designed for an era in which inflation was the primary problem to be dealt with? Politicians have turned the battle against inflation into a sort of fetish or totem.
Exactly. They’ve got a whole set of policies for dealing with inflation which, in a way, have been too successful. The example recently of the Japanese government desperately trying to increase the rate of inflation was a great commentary on our times. Back in the Seventies no government would have set that as a policy target! We’re looking for new policy instruments to deal with a set of circumstances which are new. We’re muddling through, which is what we did in the 1930s. There was this long period of muddling through—it wasn’t as if Keynesianism descended as this tablet from heaven which people could then follow. [In circumstances like this], you get policy experimentation, which I think will go on for quite a long time.
And muddling through is just what liberal democracies do isn't it?
That’s right. They put things off until the very last minute. Because they have the confidence that—and I’m thinking primarily of the United States here—when it comes to it they’ll find a way to get out of whatever difficulties they’re in. But there’s no incentive to confront problems earlier than they have to.
You point out in the book the extent to which members of the policy elite have come to acknowledge that “something fundamental” has happened to the world’s major economies. Do you think the remarkable response to Thomas Piketty’s book Capital in the Twenty-First Century is a symptom of that?
I think that’s right. Capitalis one of those books that has suddenly struck a nerve. It has captured a moment. There is a sense of foreboding, a sense that something has happened and we’re not quite sure what it is. Piketty’s book speaks to that deep sense of unease.
You’re arguing in this book that this is not just an economic crisis, it’s also a crisis of political management—or, indeed, a crisis of a managerial conception of politics in which power and responsibility is ceded by politicians to unelected experts, central banks and so on.
Yes. We’ve become so used to technocratic economic management. For a lot of the time democratic electorates were quite willing for responsibility to be ceded to technocratic elites. But that sense that so many voters have that there’s nothing to choose between the mainstream parties any longer—which has always been there in the background but in the last years or so has become particularly strong in western states—is reinforced when it seems that the only solutions are technocratic ones which all point in the same direction. That is breeding a big problem about democratic consent and it’s leading to some political manifestations, like the surge in populism, which to a technocratic, cosmopolitan elite look highly irrational and atavistic. But actually a lot of it is the product of bewilderment at the sort of world we seem to be entering, one in which no one is really in control. People have lost a lot of confidence in the ability of technocrats to guide us and to solve problems.
From that technocratic point of view, the crash of 2008 could only have its roots in lax regulation—and if it was a regulatory failure, it could, as such, be fixed. But for you it goes much deeper than that.
There are a number of other big changes going on. The book is optimistic in the sense that there obviously is scope to rebuild not just western prosperity but global prosperity. There is another era of prosperity within our grasp. But there are very serious political obstacles to getting there. And we need a degree of political cooperation and changes to the structures governing the world economy which look, at this point in time, very hard to achieve. Yet were able to achieve them, then the prospects would actually be quite bright. So it’s not that we can’t have another era of prosperity, but we can’t have another era of prosperity on the same terms on which we had the last one. We’ve got to have some profound political changes, but to get those changes requires leadership and concessions on the part of those countries who are the dominant powers in the international economy. And that may be very difficult to get, for all the reasons we’re familiar with. There’s a low politics story to be told here about just how difficult it is to get people to agree and shift their positions in ways that are going to benefit everybody—the familiar collective action problems. Everything we know about the prosperity of previous eras indicates that where international frameworks can be agreed, benefits flow most surely to all parts of the international economy. So the prize is a huge one. But in the meantime, we have this series of deadlocks.
You argue that the current crisis can usefully be understood in terms of the sharpening of certain perennial structural dilemmas that face politicians in all developed liberal political economies. You identify three conundrums: the “governance conundrum”, the “growth conundrum” and the “fiscal conundrum”. Could you say something about these?
The governance conundrum is the problem of international cooperation—it’s what the world needs, but the difficulty is that the international state system we have is asymmetrical, for all sorts of historical reasons. Trying to create an international market order which is inclusive and in which the rules that govern the way it works are agreed by as many countries as possible is the key to promoting prosperity. The problem is that, historically, where that has happened it’s been because there has been one dominant power—in the recent period it’s been the United States. The conundrum now is that the United States is still the dominant power, but it no longer has the kind of dominance that it had in the 1950s and 1960s, or even in the 1980s and 1990s. I think something irreversible has happened with the rising powers and we’re seeing a fundamental shift in power. This means that if we’re going to see an inclusive international market order, then the governance conundrum is the following: how to create the institutions which will allow that to take place. Although the United States is proposing some limited changes—such as voting rights on the IMF—those are currently being blocked by the US Congress. So making progress and reforming international institutions, changing the way the international economy is governed, can get held up by the pursuit of national interest. We’re probably never going to see in the world again one country being the dominant leading power. But that means that we’ve got to devise some sort of collective leadership and that’s going to be very difficult. The G20, immediately after the crash, was a positive step towards that—by no means sufficient, but it was a step in the right direction.
Was that an opportunity lost or spurned?
Yes, the momentum has gone. If anything, the American are shifting back to thinking about the G7—dumping Russia because of Ukraine and concentrating on America’s closest allies. But that’s not going to work in the long run. At some point, the attempt to forge new, inclusive forms of global governance is going to come back. As for the growth conundrum, I’m very struck by the economic historians, people like Robert Gordon, who are saying that we seem to have hit a plateau. And this has been picked up in the reformulation of the “secular stagnation” thesis. This is very controversial: others are saying this is all wrong and that new technologies are delivering huge increases in productivity—that we’re just in a transition phase. A lot of these questions are open questions. But Gordon’s argument needs to be taken very seriously, because the implications are huge—it suggests that the digital revolution is not delivering the kind of productivity changes that previous major technologies did. Again, the implications of that for funding the kind of lifestyles and the kind of public sectors we’ve had in the past are enormous. And behind that is the threat which climate change poses to the kind of growth models we’ve had in the past. So one question is: can we find a new growth model that will deliver the kind of prosperity we’ve had in the past. And the next question is: even if we can, aren’t we going to have to redesign the whole way we structure industrial societies because of the amount of resources we’re going to have to divert in order to deal with climate change?
And where does the “fiscal conundrum” fit into this picture?
The fiscal conundrum is about the domestic politics of states. The impact of this period of austerity and the aftershocks of the financial crash, the problem of creating consent for cuts in public spending and in some cases increases in taxation, varies from country to country. But all of them have this fiscal conundrum: the famous paradox of voters wanting to pay for Swedish-quality public services with American levels of taxation. The challenge of managing that problem confronts all politicians in the developed economies. In the wake of the financial crash, the fiscal conundrum is about the affordability of the welfare state. The fiscal conundrum is where the raw politics of the crisis gets fought out, with politicians having to proceed in the uneasy knowledge that they can’t rely on an early return to sustained growth.
You observe in the book that the crises of the 1930s and the 1970s were long, drawn-out affairs. How far are we into the current crisis?
Not very far. Such estimates are always very rough, but I think there are probably going to be another ten years of experimentation and muddling through, of coping with austerity, perhaps even further shocks. I don’t think we’ll get onto firmer ground much before another decade has passed. Looking at the deadlocks we have and the obstacles to sustained recovery, it seems to me that the downsides are quite a bit stronger than the upsides. The recoveries that we’ve had,in the UK and the US for example, don’t look very securely based. The numbers we’re getting, so long after the initial shock of the crash, are very disappointing. It’s surprising how sluggish the western economies are. And now the crisis is being transferred to the rising powers, who are much less resilient than they were in 2008. There are these swirling uncertainties around, [the worry] that there could be another big shock, or more than one, ahead of us in the next few years. We are as likely to have setbacks as we are to see advances. So things are likely to be very stop-start over the next few years. And I can’t see anything which is going to change that.
Andrew Gamble's "Crisis Without End: The Unravelling of Western Prosperity" is published by Palgrave Macmillan (£14.99)
