The End of the “Golden Age” of Capitalism and the Rise of Neoliberalism by Tomasz Konicz

A Short History of the Worldwide Economic Crisis, Part I
By Tomasz Konicz [This article published in the German-English cyber journal Telepolis, 11/24/2008 is translated from the German on the Internet,]

“The central point is that the financial sphere has the potential of developing into an autonomous subsystem of the whole economy with an enormous capacity of self-expansion.. Like cancer, it has no internal control mechanism. It can only be brought under control through external interventions.. In Pinochet’s Chile, deregulation, privatization, tax cuts, monetarism and social dismantling were tested in detail by the Chicago boys before this policy mix was applied in the first industrial countries under US president Reagan and the British “iron lady” Margaret Thatcher”

The global financial branch staggering over a year [1] at the abyss [2] has taken a step forward and is now in free fall. Lehman Brothers, AIG and Northern Rock – who can list all the once powerful financial corporations, insurers or mortgage banks – that fell victim at ever shorter intervals to the financial crisis? Regarding the implosion of the international financial system established in the last three decades and advancing at a breathtaking speed, it seems important to trace the genesis and development of this global architecture of the world financial markets collapsing like a house of cards.

Alongside a considerable gain in historical knowledge, the causes of the current world financial crisis will be illumined here. Is only naked, uncontrolled “greed” of some speculators responsible for the present economic dislocations? Is the expansion of financial markets going along with neoliberal deregulation and liberalization culpable in the misery? Or do the causes of this late-capitalist malaise lie deeply hidden in the innermost structure of the capitalist production method?

The rise of the neoliberal world economic system marked by the dominance of financial markets – whose financial superstructure collapses over us – resulted from the radical economic crises of the early 1970s that seized nearly all western industrial countries. This crisis ended a period of economic prosperity in Western Europe and the US that continued since the early 1950s for which the historian Eric Hobsbawm coined the term “Golden Age of capitalism” (Hobsbawm, Age of the Extreme, p.285ff).

The leading Western economic nations posted an average economic growth of four percent between 1950 and 1970, which contributed substantially to full employment and shortage of workers in several industrial nations. A brief glance at this “Golden Age” is rewarding since this stands in public discussion as a model of an alternative capitalist development in the face of the brewing worldwide economic crisis.


More than rebuilding Western Europe and Japan devastated by the World War contributed to this unique economy. In this period, an “inner expansion” occurred within advanced free enterprise societies where more areas of society and life were opened up. The scientific-technical progress tightly interlocked with the economy contributed to the formation of new markets. Thanks to these developments, house work was revolutionized between 1950 and 1970 by the household appliance industry. The food sector, home entertainment products, civilian aircraft construction, retail trade businesses and mass tourism experienced their economic breakthrough. New materials like synthetic or man-made fibers and plastics led to another revolution of established industrial branches.

Mass motorization stood at the center of this long stormy growth based on opening new markets within industrialized countries (inner expansion). The greatest impulse for mass employment up to the 1970s started from this industrial branch, the auto sector. Fordism was the main production principle for car manufacturers and many other branches of industry. By means of assembly-line production and massive use of workers and machines, mass-produced goods were manufactured which found their consumers in their producers – thanks to relatively high wages. This production principle is named after the US industrialist Henry Ford, the first to use the assembly line in car manufacturing. Between 1950 and 1970, rationalization and technical innovation did not stop at the factory gates.

The demand for workers in other newly arising economic branches far exceeded the cancelled jobs. Alongside the millions of workers who assemble cars on a mass scale on assembly lines in Russelsheim and Detroit, the employment-effect of the state-financed development of the whole transportation structure must be considered (streets, bridges, tunnels, filling stations and refineries). The mass “Fordist” manufacture of cars can be described as the key industry of this “Golden Age of capitalism.” Despite the rapidly increasing automation and rationalization, car manufacturing was the “backbone” of industry – particularly in Germany and Japan – up to today.

An economic policy described as Keynesianism following its creator the economist John
Maynard Keynes corresponded to Fordism in production. This economic course is regarded as the economic answer to the devastations of the 1929 worldwide economic crisis…

Classical liberal economic policy failed in mastering this crisis. A demand-oriented political initiative was necessary to ensure a mass purchasing power demand can meet the mass-produced goods. On one side, the state invested to a large extent in the transportation infrastructure for example, stimulating the economy by means of state demand. In the scope of a counter-cyclical policy in times of a threatening recession, the state should generate credit-financed demand with massive economic programs and reduce the arising debts during an economic upswing thanks to higher tax revenues. On the other side, the activities of unions and developing corporatist structures in the factories were promoted politically.

Employee representatives and entrepreneurs saw themselves as a team “all in the same boat” together responsible for the well-being of the enterprise and no longer as “class enemies” as in past centuries. This so-called corporatism (called “social partnership” in Germany) had a material foundation since unions up to the 1970s gained respectable wage increases and reduced working hours for employees. Thus a considerable part of the increased profits through the enormous productivity gains went to the workers in the form of higher wages stimulating private demand.

Thus scientific-technical progress led first to an expansion of mass demand and not to mass layoffs on account of rationalization measures and automation. At that time the “strictly regulated” financial sector acted as a source of credits that flow in industrial production and social infrastructure.

The political scientist Georg Fulberth summarized Keynesian monetary- and fiscal policy as follows: “Businesses and the state take credits, invest them and thus engender demand covering their supply. Full employment and high profits should then suffice for the interest, compound interest and even expansion of state spending.” Fulberth: “Kleine Geschichte des Kapitalismus” (Short History of Capitalism) The state-forced development of education, the health sector and also the formation of the social system in most industrial countries occurred in this period. Employment was generated here.

With rising wages, a comprehensive social system, full employment and terrific economic growth, the social-democratic critics of neoliberalism saw a model for the future and stubbornly urged economic programs in this declining Keynesian “Golden Age.”


What led to the crisis of this seemingly perfect free enterprise economic wonderland erupting at the beginning of the 1970s? The term stagflation – a rampant inflation joined with a stagnating or declining economy – was coined for the economic dislocations.

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