It all starts with boom-and-bust, something economists assure us is a natural feature of the capitalist paradigm. In the nineteenth century, all of this capital floating around was ploughed into industrial ventures in the expectation of its generating stuff (good) and more capital (also good), which could then be ploughed further into more ventures, etc. This snowballing of prosperity was occasionally punctuated by hideous crashes, such as the stock market crash of 1873, when invested capital failed to produce more stuff or more capital, either through failures in the level of demand or because the prospective stuff had been over-valued in the first place.
All well and good, except for all those people adversely affected by the busts, who also tended to be the same people who accrued the least advantage during the booms. This was all quite scary; and then two world wars came along, which were also very scary - so frightening in their death toll and genocide and nationalism that the obvious response was to entrench
...the inescapable responsibility of the state for the maintenance of minimum economic security for all citizens.
Shutt says some stuff here that suggests the reasoning behind this was that the disaster that was World War II was caused, in part, by the economic suffering of the common people in the fascist countries, who turned to nationalism/fascism because it promised to protect them from boom-and-bust. Keynes's The Economic Consequences of the Peace suggests differently, but I'm getting away from the point, which is that, for whatever reasons, insulating people against the crappy part of the capitalist cycle became a priority for Western governments.
So what did those governments do?
...in order to maintain full employment governments could and should 'adopt a compensatory fiscal policy to offset the irreducible fluctuations in the private sector of the market'...
...which they did...
...by using the tools of demand management (monetary as well as fiscal policy) to manipulate the level of economic activity so as to keep unemployment below the level at which the fiscal costs of the welfare and social-security budgets would become too burdensome.
...became significant promoters of investment, whether through state subsidies or incentives to private investment, or else through direct state equity participation in enterprise.
And this all trundled along quite nicely, because in the couple of decades post-war, Western economies enjoyed such a massive growth spurt that unemployment was almost non-existent and even many of the poorest in society experienced an unprecedented increase in their quality of life.
But then the 1970s happened. Growth slowed dramatically; saturation had occurred in many markets, especially that of consumer durables; the need for non-durables was fairly static; and essentially demand grew in line with population growth, governed by replacement rather than first-time purchases. Companies diversified; new markets were sought. Universal employment and social welfare turned out to be government policies that could only really be practical as long as the economy continued to grow at a quite high rate. When growth slowed, unemployment grew, as did the demands on the welfare state.
Government response was, inevitably, fiscal and monetary stimulus.
And therein lies the problem Shutt identifies: rather than adjusting to lower rates of growth, and attempting to define a new understanding of prosperity in the absence of tremendous growth, governments adopted policies that merely put off the day of reckoning whilst at the same time ensuring that when the reckoning did occur, it would be infinitely worse due to that delay.
There was now, on the one hand, an excess of labour: reduction in demand and production meant that not only could there now not be full employment, but the price of labour shrank as well.
More worryingly, however, there was now an excess of capital. Monetary stimulus had created a lot of money that had to be invested somewhere, and traditional avenues for investment were now not as profitable as they had once been; gone were the days of a 12-15% return. New markets were slow to open up; where, then, could all this money go?
The answer turned out to be riskier investments; the possibility of collapse was high, but if successful, the returns would also be correspondingly huge. Property, for example, futures, derivatves, junk bonds: this is where the money flowed, even as people understood, as time went on, that the assets backing them might be tremendously over-valued.
And this is where, the reader begins to feel, Shutt is getting pretty fucking angry. Because this whole process of crazy investment with the capital glut has been going on since the late 1970s. And every time the risks don't pay off, government response has been to 'mitigate' the problem with further stimulus—thereby worsening the capital glut, which was the original problem. And of course, in the process, creating a tremendous deficit burden.
Of course, stimulus has not been the only response, just the worst one. Governments have also tried to open up new avenues for investment: new geographical markets, privatisation of state services, corporate subsidies, etc. All of these good intentions have resulted in corresponding problems: exploitation in the third world, fraud, corruption, organised crime, corporatism.
All of these 'solutions,' Shutt claims, are understood to be empirically imperfect; they are all predicated on the belief that, one day, growth will return to its post-war levels, sucking up excess capital and labour once again and freeing the government from the penalties of its Keynesian overspending. Except that this return to huge growth keeps not happening.
Shutt wrote The Trouble with Capitalism in 1998, perfectly predicting the bust that has been occurring in the past two years. You can see why he's irritable:
The resulting financial and economic collapse [of 2007-2008], which is by now perceived as the most serious crisis of global capitalism since the Great Depression of the 1930s (if not in its entire history), is clearly in line with the predictions made in the book. Yet, while to that extent it may appear to have been vindicated, its analysis of the causes of the crisis is still very far from being generally accepted. Indeed mainstream analysts have devised some bizarre explanations for the onset of the crisis, while steadfastly ignoring its long-term, fundamental causes.
If he's right, then his frustration is wholly justified, because governments' response to this bust has been to do exactly what he claims will exacerbate the problem further.
Such deliberate distortions of reality reflect a more general, and all too understandable, tendency on the part of the global establishment to try to ignore the longer-term factors behind the crisis. In particular they seek to divert attention from the chronic relative stagnation of the world economy since the 1970s, which has made it increasingly impossible to find sufficient outlets for reinvestment of inexorably accumulating corporate profits—not to mention the artificially stimulated flows of capital into pension funds and other savings vehicles—in productive assets, as opposed to unproductive and highly risky speculation. The central theme of the book...is how the would-be saviours of the capitalist profits system have since the 1970s resorted to ever more ingenious methods to overcome this inescapable tendency—the essence of the business cycle, familiar from the earlier history of capitalism since the nineteenth century.
His thesis - and this makes a lot of sense—is that the way to mitigate the more destructive parts of the cycle of profit-motivated capitalism is not to encourage further that profit motive by creating more capital and more risky ways of generating profit. And if it is true, as Shutt claims, that growth has forever stagnated, then it is true that we need to redefine some way of measuring value besides the accumulation of profit:
It is self-evident that free-market, profit-maximising capitalism is incompatible with a low-growth or no-growth economy, since to survive it requires the possibility of perpetual accumulation of profits and expansion of shareholders' funds. From this it must follow that the untrammelled pursuit of profit maximisation by corporations can no longer be accepted as their primary objective, at least as long as they enjoy the privilege of state protection or subsidy.
What, then, can we put in its place? This is where Shutt's work falls: 'How can we measure value apart from profit?' 'I dunno, let the people decide':
Any criteria used as alternatives to the supposedly impersonal one of profit maximisation would need to be derived from conscious political choices....it must be the presumption under a democracy that the purpose of any economic system is, broadly speaking, to provide the mass of people with what they want - or, ideally, what they would want if they had full knowledge of the choices open to them. Handing responsibility for deciding this to bureaucrats or politicians is never likely to provide durably satisfying results. Mechanisms will therefore need to be devised to enable the wishes of citizens to be reflected in the determination of priorities in resource allocation.
Some of what he suggests is stuff we need anyway: more frequent consultation of the electorate (including referenda), decentralisation, limits on political funding, greater transparency in government and greater scrutiny of public officials, a more critical media, and greater accountability. He also warns against protectionism and advocates a more globalist approach.
The rest? Redistribution of wealth and resources from rich to poor, equality of outcome, and the European Union.
Thus the book ends on a most unsatisfying note; quite apart from that fact that there are many who would assert that growth can recover and markets can expand, either through the advancement of technology or geographically if we stopped stifling growing economies with 'development aid' that props up their corrupt governments (to be fair, Shutt does address this as a problem), democratic redistribution of wealth and goods does not really seem like a very holistic replacement for the profit motive—ignoring, as it does, the question of incentives. At the moment, the desire for profit is what drives innovation, expansion, and pretty much every other economic action. Is he suggesting, as so many people do these days, that we should be satisfied with the wealth we have so far created, and merely shuffle it hither and thither until everybody has a decent share? Let us not forget that, even now, what most people do with their days is produce stuff; what is the point of producing stuff if not in the expectation of getting other, or better, stuff in return?