Bonfire of Illusions: The Twin Crises of the Liberal World [Paperback]

After the end of the Cold War, Alex Callinicos suggests, there was a short period where it appeared that we had reached 'The End of History' in the sense that:

'liberal capitalism was the only rationally acceptable socio-economic framework for a modern society and that a widening circle of liberal democracies could offer the world benign global governance.' (P2)

The general assumption is that the belief that 'history had ended' was shattered with the attacks of 9/11. Callinicos questions this assumption, pointing out that:

'[o]n the contrary, in its response to the attacks, the administration of George W Bush sought strenuously to reaffirm and reinforce US hegemony'. (P2)

Instead, Callinicos situates the break in 2008. The financial crash and its continuing aftermath clearly shows the falsity of a 'benign capitalism', and the war between Russia and Georgia, Callinicos suggests, also demonstrates the end of a 'widening circle of liberal democracies'.

The book is basically divided into two sections, with a conclusion at the end. The first, and longest, is titled 'Finance Humbled', the second 'Empire Confined'.

In 'Finance Humbled', Callinicos takes a long view of the current crisis, comparing it with the Great Depression, but also offering a fairly in-depth analysis in Marxist terms. There are some very interesting discussions on 'financialisation', emphasising how increasingly the financial institutions have become divorced from lending money to businesses and productive activities in favour of simply making money out of money - mortgages, fees, 'predatory lending', the 'shadow banking system' including hedge funds and the now notorious credit default swaps, collateralised debt obligations and so on. Manufacturing companies wishing to raise capital no longer approach banks but instead issue their own corporate bonds. This predatory capitalism thrives, as David Harvey would say, on 'accumulation by dispossession'.

Callinicos offers 'three perspectives on financial crises' - Keynsian, classical-liberal and Marxist (P35). These three approaches are expanded with reference to Hyman Minsky, Hayek and David Harvey respectively. He goes on to point out that the current crisis is clearly more than simply a problem with sub-prime mortgages and the credit crunch but has:

'morphed into something that extends well beyond the financial markets, as it has generated a world economic slump.' (P50)

This is, he suggests (along with David Harvey) 'a long term crisis of overaccumulation and profitability.' (P50) It is not simply a question of a simple cycle of boom and bust, but a growing crisis in capitalism itself.

However, in chapter two, he suggests that the role of the state has been greatly underestimated. Not only are most states heavily involved to a greater or lesser extent in the economy, but also they still have power to influence and control the 'globalised' financial system:

'But as the banking system crumbled and the world slipped into recession, it was the state that came to the rescue with nationalisations, bailouts and fiscal stimulus.' (P96)

Starting from this position, Callinicos goes on to provide a really interesting and thought-provoking analysis of geopolitics in the light of the current financial crises. To take just two points - Europe's (and in particular Germany's) reliance on supplies of energy from a resurgent Russia and the interdependence of the US and China - suggests that, although the US is likely to maintain its overall hegemonic position for decades to come, we have moved into a far more 'multipolar' and dangerous world:

'The trouble is that [the] world economy is organised within the framework of a constitutively unstable capitalist economic system AND a political system of sovereign states. Despite the real forms of transnational cooperation that exist, anarchy continues to reign, both economically and politically.' (P105)

In conclusion, Callinicos considers whether we are seeing the end of neoliberalism, a return of 'state capitalism' (which never went away in countries like China and South Korea), and whether there are any realistic alternatives to capitalism generally. He considers, for example, a return to some form of state planning. One key aim, he suggests, is to drastically weaken 'the power of the capitalist labour market, which today rules our lives.' (P141)

For me, the most interesting section of the book was the discussion of the financial crisis from a geopolitical perspective. This added a dimension that I hadn't really come across in this form elsewhere and provided some really interesting insights and much food for thought. Finally, he ends on an upbeat note but whether this is justifiable or not, you'll have to judge for yourself.

Perhaps like other readers, the dramatic failings of the established free market system in recent years has led me to make an excursion into this area of radical left wing or Marxist type writing, where previously I have not ventured. In reading this book I was glad that I did venture, although I am afraid I am far from totally converted. In summary I would conclude that in my opinion the critique of recent economic events put forward in this book is very good, (hence the four stars) but for me the extra linkages which attempt to tie these economic events together with the obscure Georgian conflict and the long term capitalist crises of profitability and accumulation of capital predicted by Marx don't quite hold together.

As mentioned above, one of the strongest Marxist punches the author attempts to land on the analysis of the lead up to the crisis, was that the reason why banks and the financial system in general piled into creating and profiting from the property bubble can be explained by a crisis in accumulation and profitability inevitable in capitalism. This maybe where my limited understanding of Marxist theory lets me down, but I cannot see exactly how these concepts directly contributed to the situation. Yes there was too much cheap money sloshing around chasing too few high interest opportunities (a lot of the cheap money originating from nominally Communist China), and yes at that time speculating in a property bubble was more profitable than doing proper bank stuff like lending to productive enterprises. But I don't see a crisis in profitability of the non property sector now or at that time, just that being involved with a bubble was MORE profitable and the actors involved were greedy reckless and stupid, while governments and regulators were naive, deluded ... and also stupid.

If there was a problem of over accumulation, was it the Chinese who over accumulated US dollars? If over accumulation and declining profitability are traits of capitalism in its final stages, how does this square with the source of this cheap money being a developing country like China? The international dimension to recent and current financial imbalances are explained well by the author, but it seems to me that the international origin of the problems are in conflict with the national analysis of over accumulation and crisis in profitability, which seems to be intended to apply to wealthy developed nations in isolation.

The fact that many nation states have had to underwrite and bailout the private mistakes of the finance sector is obviously a fundamental point to the left and embarrassment to the right when the final scores are taken. Also the author makes many sound and interesting points about the future of international relations based on the changing economic fortunes and linkages of the future. But I do not feel that the flexing of Russian military muscle in tiny Georgia to be as game changing as he proposes. For me the massive economic growth and semi colonial activities of China seem much more paradigm changing than a regional squabble in an ethnically mixed slither of an unfamiliar part of the world.

The thinkers of the left can smell blood at present, as rarely in history have established right wing capitalist theories appeared so tarnished and vulnerable. For me this book did illuminate a new more cutting attack on the well worn issues surrounding the recent crisis, but it did not really set anything on fire for me.

This book is one among the few (together with those uf Harvey,Turner Harman,M.E.G. Smith. Kleeman, and Dumenil) which allow the reader to understand the underlying reasons of the present crisis. Although not completely agreeing with the author on certain geopolytical aspects I deem it extremely important. Do not miss it.
J. Perez Oya (Economist having worked long years in the U.N- Economis Commission for Europe)