Book Review: The FIRE Economy (Jane Kelsey)

Kelsey underlines the continuity between Labour and National governments over the last 30 years

By Ian Anderson, Fightback (Aotearoa / New Zealand).

Professor Jane Kelsey has made headlines in recent months combating the Trans Pacific Partnership Agreement (TPPA), a secretive trade agreement that seeks to constitutionally embed neoliberalism. Her latest book, The FIRE Economy: New Zealand’s Reckoning, is a welcome explanation of the political-economic history that has led us to this point.

Before proceeding, it may be necessary to define some key terms. Neoliberalism refers to a certain organisation of capitalism, a certain way of responding to capitalist crisis, a certain configuration of the capitalist state, that has predominated for the last 30 years. Marxist geographer David Harvey has defined neoliberalism as a form of “accumulation by dispossession,” particularly privatisation of public assets. Kelsey draws on Marxist sociologist John Bellamy Foster’s characterisation of financialisation as the “shift in the centre of gravity in the capitalist economy” from industrial production to finance: FIRE refers to Finance, Insurance and Real Estate, the industries that have risen to prominence in this financialised regime. Kelsey notes that neoliberalism and financialisation are “analytically distinct but organically inseparable” – we might also say that financialisation is a key plank of neoliberalism. Neoliberalism is a reconfiguration of the relationship between labour, capital and the state: while Kelsey does not focus on this aspect, neoliberal attacks used state machinery to gut the power of organised labour.

Kelsey rigorously documents the institutional embedding of neoliberalism in Aotearoa / New Zealand. Neoliberal theorists knew that their project was potentially unpopular, voicing concerns about the “commitment problem,” “political slippage” and “despotic democracy” – the horrifying thought that elections, or popular pressure, might lead to future governments abandoning neoliberalism. The Reserve Bank, and other regulatory mechanisms, are an undemocratic form of “economic constitutionalism,” seeking to constrain the economic capacities of future governments – limiting monetary policy to setting interest rates, and subordinating fiscal policy to monetary policy. Alternative economic goals, such as full employment or raising incomes, are subordinated to price stability. While many critics of the TPPA present it as a departure from free trade, Kelsey clarifies that it’s the same “economic constitutionalism” on an international scale – binding future governments to the current course, giving multinational corporations the ability to sue for any reforms that impact their investments. Against those who contend the neoliberal era has come to an end, Kelsey underlines how structural reforms are institutionally embedded. Kelsey is clear about the continuity between Labour and National governments since 1984:

“While the decade of Labour-led government in New Zealand from 1999 softened the raw edges of Rogernomics, the government’s modernisation actually served to embed neoliberalism more deeply.”

Kelsey does suggest that the international neoliberal consensus has begun to fracture in the wake of the global financial crisis (GFC), although Aotearoa / New Zealand remains largely “cocooned” from these debates. State interventions in favour of the finance sector have been described as ‘Keynesian,’ or even ‘socialism for the rich.’ David Harvey observed even before the GFC that while neoliberal theory should warn ‘Lender, beware’, the practice is closer to ‘Borrower, beware.’ However, neoliberalism is a class project more than a theoretical project. Kelsey underlines how partial departures from orthodoxy only go far enough to protect the orthodoxy – usually injecting capital, then getting back to business-as-usual. Kelsey offers an unusually level-headed account of Iceland’s response to the crisis, which has been alternately ignored or overhyped. Iceland’s IMF-supported response to the GFC, particularly their use of capital controls, was the least orthodox:

“[The IMF rescue package] had three pillars: first, stabilising the currency using interest rates and capital controls to prevent capital from fleeing: second, restructuring the banking system; and third, making gradual cuts to public spending.”

This temporary departure from orthodoxy was not wholesale, and the Right has regained power in the ensuing period. Kelsey argues that instead of a piecemeal approach, those opposing neoliberalism must take a systemic approach – although she is officially agnostic about whether to overthrow capitalism or just the neoliberal regime.

Kelsey’s analysis does have some weaknesses, particularly concerning the nation-state and the ‘productive economy.’ Early in the book, Kelsey briefly references “people with real jobs making real products,” a somewhat idealised notion of capitalist industry. The book focuses explicitly on finance capital, largely leaving these “real” industries out of the equation. Kelsey acknowledges this limitation in her conclusion:

“Although realignments in the material economy are not the focus of this book, it is essential to recognise that they are what will drive any transformation.”

This gesture towards materialism elides a key point: ‘real jobs,’ the labour central to maintaining any social system, are exploitative under capitalism. Kelsey focuses on the ‘superstructure,’ the political-ideological structure which stabilises capitalism, and rightly emphasises the importance of developing a new hegemony (referencing Antonio Gramsci). However, this ideological project cannot let productive capital off the hook with a distinction between a “real” and a “fake” economy. New Zealand-owned companies Talley’s and Fonterra, which produce “real” products, are just as craven as any finance company.

Although often portrayed as purely parasitic, banking and finance are also necessary to capitalism. Lenders advance the initial capital needed for production (and consumption, particularly in a low-wage economy). Further, the incentives to gouge interest and to ‘gamble’ are structural, as banks and investors must make a profit. States can employ stabilising measures, but these are only stop-gaps allowed when affordable: as Kelsey herself acknowledges, we cannot simply turn the clock back to the post-WWII boom. The tendency towards crisis is systemic. In other words, the volatility Kelsey describes is not only unacceptable, it’s also necessary to capitalism. No national regulatory regime can defeat this beast – only a movement that recognises the class struggle is international on both sides, and that democracy rests with organised communities, not the state.

Despite these caveats, The FIRE Economy is an important book for anyone figuring out how we got into this mess. With a housing crisis looming on the horizon, understanding how we got here will be necessary to finding a way out.