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Private Affluence, Public Austerity: Economic Crisis and Democratic Malaise in Canada

Private Affluence, Public Austerity: Economic Crisis and Democratic Malaise in Canada

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Published by Fernwood Publishing
Analyzing political and economic developments in Canada in the era of neoliberal globalization, Private Affluence, Public Austerity concludes that, although the last three decades of neoliberal rule are characterized by recurrent crises, the system has proven to be resilient — even in the face of a severe recession. Canada’s “business as usual” approach to the recent financial crisis, an approach that fails to challenge the policies that are fundamental to the system and culpable for the crisis, is striking. Through policies aimed at the dismantling of the welfare state, privatization and the reduction of the state’s economic role — as well as an enthusiastic embrace of globalization and liberalized trade and investment regimes — the legacy of the Canadian political system is one of private affluence, public austerity and democratic decline. Private Affluence, Public Austerity offers an engaging and enlightening exploration of the theories of contemporary capitalism and reminds us that overcoming democratic malaise is a necessary first step on the path to change.

“The book is both timely and sorely needed. There is simply nothing like it. A brilliant and surprisingly clear analysis of the theory and practice of Canadian politics in the current conjuncture of capitalist development, the authors provide an exceptionally clear and most useful exposition of the forces at play, arising out of the propensity of capitalism towards crisis.”
— Henry Veltmeyer, International Development Studies, Saint Mary’s University
Analyzing political and economic developments in Canada in the era of neoliberal globalization, Private Affluence, Public Austerity concludes that, although the last three decades of neoliberal rule are characterized by recurrent crises, the system has proven to be resilient — even in the face of a severe recession. Canada’s “business as usual” approach to the recent financial crisis, an approach that fails to challenge the policies that are fundamental to the system and culpable for the crisis, is striking. Through policies aimed at the dismantling of the welfare state, privatization and the reduction of the state’s economic role — as well as an enthusiastic embrace of globalization and liberalized trade and investment regimes — the legacy of the Canadian political system is one of private affluence, public austerity and democratic decline. Private Affluence, Public Austerity offers an engaging and enlightening exploration of the theories of contemporary capitalism and reminds us that overcoming democratic malaise is a necessary first step on the path to change.

“The book is both timely and sorely needed. There is simply nothing like it. A brilliant and surprisingly clear analysis of the theory and practice of Canadian politics in the current conjuncture of capitalist development, the authors provide an exceptionally clear and most useful exposition of the forces at play, arising out of the propensity of capitalism towards crisis.”
— Henry Veltmeyer, International Development Studies, Saint Mary’s University

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Published by: Fernwood Publishing on Apr 28, 2011
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Chapter 1
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U
nlike previous nancial crises in the 1990s and early 2000s, the globaleconomic crisis that began in 2007 originated in the U.S., the heartlandof global capitalism and its ideological twin, neoliberalism. e nancial andbanking sectors were aected rst as a slumping housing market in late 2006led in 2007 to revelations of toxic nancial assets associated with subprimelending markets.
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Within another year many signicant investment banksin the U.S. had collapsed (for example, Bear Stearns in March and LehmanBrothers in September 2008), as had mortgage giants Fannie Mae and FreddieMac. All were bailed out by the federal government through massive debtpurchasing schemes. Reecting the ideological tenor of the times these wereoen labeled “pre-privatization” measures rather than the partial nationaliza-tions that they actually were. ese bailouts were signicant, and various U.S.government agencies have committed to or spent trillions of dollars in loans,asset purchases, guarantees, and direct spending on bailouts related to thecrisis (Goldman n.d.). Financial market woes also revealed serious accumula-tion problems within the so-called real economy, as stock markets began totumble: in November 2008 the S&P was down nearly 45 percent compared toits 2007 high (Altman 2009). e big three auto manufacturers also becameinsolvent, and again this sector was bailed out by the U.S. taxpayer, as $17.4billion in emergency loans were extended in 2009 ( 2008). Becauseof the highly integrated North American auto industry these bailouts wereultimately cost-shared between the U.S. and Canadian governments.What began as a U.S. banking and nancial market crisis quickly spreadaround the world, particularly to countries such as the U.K., which had highly internationalized nancial sectors, highly leveraged banks, and a high level oexposure to toxic assets associated with the U.S. subprime mortgage market.Bailouts and de facto nationalization of banks and nancial institutions werealso undertaken elsewhere around the world in order to combat the crisis.Similarly, the internationalization of nancial markets quickly exposed otherunderlying problems within the global economy generally, such as overheatedhousing markets, overproduction, and credit-reliant consumption. us aU.S. nancial crisis quickly turned into a global economic crisis.Global recession soon followed. Core neoliberal countries with interestrates at already historical lows — so low that monetary tools were essentially exhausted — began to engage in Keynesian-style stimulus spending in order
 
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to help ease economic woes and jump-start recovery. While the experimentin scal stimulus may have been eective in averting a deeper recession,and while many in the mainstream media suggested that this indicated asignicant policy shi was underway, upon closer examination we see thatstimulus was instead relatively shallow, selective, and temporary. Despite theclear need for government intervention in order to help cushion the blow of the nancial crisis and subsequent economic recession, there has been littleintrusion on neoliberal ideological dominance. is is made evident by thecontent of the stimulus packages, and in this chapter we briey examine thoseof the U.S., U.K., Germany, and Canada. Despite dierences in emphasis,including the proportion of stimulus provided through spending versus taxreduction measures, they are equally timid and do not indicate a break withneoliberal rule. e Canadian government in particular appears to have takena typical approach to crisis management — denial, minimalism, and policy harmonization with the U.S. In the face of a crisis of these dimensions, thedisinclination to re-examine fundamental policy choices that had been madeover previous decades is striking.
eoliberalFinancialCrisesandthenternationalFinancialrchitecture
e recent global nancial crisis is only the latest occurrence of instability and volatility in the neoliberal era. ere has been a series of spectacularand mostly unpredicted nancial crises in emerging markets; for example,Mexico in 1994–95, East Asia in 1997–98, Russia 1998, Turkey 2000, andArgentina 2001–03 (Kenen 2001). A key source of trouble intrinsic to theneoliberal global governance model has been the lack of clear leadershipwith respect to the regulation of global nancial ows. Instead, governanceof the international nancial architecture () consists of a web of public andprivate forums, institutions, and organizations which together play varied,overlapping, and/or discrete roles in the functioning of capital markets. isgroup includes international nancial institutions, such as the InternationalMonetary Fund (), World Bank, Bank for International Settlements (),and regional development banks; private regulatory and standard settingbodies, such as the International Accounting Standards Board and ratingagencies; international organizations, such as United Nations agencies; andmultilateral forums, such as the G-7; and the Organisation for EconomicCooperation and Development (); and a host of national regulationsthat are not always synchronized with one another.A recognition that recurring crises in international capital marketsmight become chronic began to emerge in the mid-1990s, yet suggestions forreform were largely monopolized by neoliberal technocratic interventions.Common to this line of reasoning was that enhanced standards, informa-

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