North Star at Left Forum: The Crisis of Capitalism, Five Years Later

by North Star at Left Forum on September 27, 2013

The Crisis of Capitalism: Five-Years Later

Discussion

Doug Henwood (editor of Left Business Observer, host of Behind the News, contributor at The Nation, and author of Wall Street: How It Works and for Whom)

If I were given to cheap paradox—which of course I’m not—I might say that five years after the financial crisis “everything has changed and nothing has changed.” But let me take an inventory of what I might mean by that, were I given to cheap paradox.

What has changed? … If we go back to the ’70s, it was a time of inflation, considerable working-class militancy, a lot of wildcat strikes—there’s a saying: “For the working class the ’60s happened in the ’70s.” The ’70s gets a bad rep for being a time of bad music, bad hair, and bad fashion, but there was actually considerable political ferment of a very interesting sort that’s been largely forgotten. The US had lost the Vietnam War. It looked like the US empire was weakening, on the ropes. And there was an OECD report on the inflation that came after the ’70s written by a Nixon economic adviser, PaulMcCracken, and he said, in there somewhere, that part of what he meant by “inflation” was that there were so many people in the streets, there was a sense of disorder, a loss of elite control. … The normal hierarchies of society were being overturned. Internationally you had third world commodity exporters demanding a new world economic order. OPEC, of course, causing a great deal of havoc with price increases. Then the financial markets were doing very badly: the bond market and stock market had some of their worst decades ever in the ’70s. And corporate profitability by most conventional measures was quite low. And this led to an effective, very coordinated crackdown by ruling elites. It took them some years, a better part of the ’70s, to get their act together, but they did. At the national level … at the governmental level, Jimmy Carter appointed Paul Volcker as chair of the Federal Reserve on the recommendation of, I believe, David Rockefeller. And then, a couple of years later, Ronald Reagan took office and proceeded to break the air traffic controllers’ union, a signal that it was open season on labor unions.

On Wall Street we saw the beginnings of the shareholders’ revolution. After many decades of passivity, shareholders began to assert their legal and financial rights as owners of corporations and not mere passive recipients of dividends. They led to massive waves of restructurings, takeovers, downsizings, speedups, outsourcings, and all the things that became very familiar in the economic landscape in the subsequent years. But all these things together—the deep recession that the Volcker interest rate shock caused, followed by the war on unions, public spending, social spending, the speedup at the corporate level coming from the Wall Street shareholder revolution—really transformed the nature of the economic reality in the country, and that changed working-class consciousness. As I like to point out, sometime in the late ’70s the song “Take This Job and Shove It” was a top number 1 hit. You couldn’t imagine anything like that even four, five years later. I think you could more likely imagine “Take This Job and Love It.”

Internationally there was an assertion of American imperial power and the spread of neoliberalism around the world, which was, in many senses, though not entirely, an American export. Henry Kissinger, not perhaps the most reliable narrator, said that “globalization” was just another name for “American power,” and while that is probably an exaggeration, there is a grain of truth to it.

So we saw this total turnaround between the ’70s and the ’80s in the nature of capitalist class power and American imperial power. But there is a contradiction, in the economic realm at least, in that this is an economic and political system that is dependent on high levels of mass consumption both for the maintenance of demand internally but also for political and cultural legitimation. If people have to put up with the instability and chaos of American economic life, at least if you can buy some snazzy gadgets with it, then the edge will be taken off.

But at the same time they were launching this attack on the living standards of the working class. So how do you reconcile the contradiction of an attack on wages, benefits, and general economic security and maintain levels of mass consumption at the same time? Well, of course, the answer, as we now know, is lots of borrowing. We saw lots of credit card borrowing, and then later, of course, magnificent levels of mortgage borrowing, and home equity withdrawal in the 2000s. So we had a remarkable 30-year rise in the levels of household indebtedness that kept the whole thing going, economically and politically. And it kept the whole thing more or less legitimate in the eyes of the broad public.

All that broke apart with the financial crisis. The mortgage bubble came crashing down, credit became very very difficult to get, and there was just no borrowing antidote to the decline of living standards that had been characteristic of the last 30 or so years. And we’ve seen some degree of economic recovery, but not very much. It’s been only a partial recovery of lost jobs. GDP growth has been extremely weak, weakest expansion in the US since modern statistics began. And a general feeling that for most people it’s like the recession never ended. This has become “the new normal.” In that sense, what has changed is the whole model under which the economic affairs of the United States have been managed for the last several decades. The whole neoliberal era looks to have broken apart.

But then what hasn’t changed? Well, the politics haven’t. There’s been very little recognition of and discussion of the fact that that model is broken, that there’s nothing to replace it; there’s certainly been hints of it here and there, but nothing that you can see in mainstream political discourse. And, in fact, one of the political winners has been the party of austerity over the last several years. And if I were more internationally minded, I could say something similar has happened in Europe, even though the Euro model has completely broken apart because of fundamental contradictions in the whole thing. It’s remarkable how little has changed in Europe except that the party of austerity has been very, very powerful.

You could say that, even in a non-revolutionary sense, this could be a moment for some kind of Green Keynesianism in the United States, that it could create lots and lots of jobs and maybe do something to save human life. But—and I’m sure people will denounce me as hopelessly reformist and weak for saying this—it does seem like a possibility. But aside from little shreds of it in the first Obama stimulus bill, that’s all gone now. People don’t even talk about that at all.

So what we saw was a big expenditure of public money to restore what was essentially the status quo antibustum. The political power of Wall Street remains very strong. The Dodd-Franklegislation, which was supposed to reform financial regulation, was weak enough to start with, but the regulations being written essentially to implement the legislation are being written by bank lobbyists who are making it weaker and weaker with each successive iteration.

Of course there was an exception to what looks like the victory of political orthodoxy, the point of view that Keynes derided in the ’30s as “the treasury view,” which seemed forever discredited—balanced budgets, austerity, tight money, and all that stuff. We certainly haven’t had tight money in the US, but we’ve had plenty of fiscal austerity. There was of course an exception to that: the Occupy movement. Which, I try not to speak of it in the past tense, but I guess one sort of has to do that, at least to some degree. It fizzled, or it was crushed, or some combination of the two. If I want to avoid getting lost in a swamp of pessimism, I think of FranPiven’s argument that social movements move in great waves that unfold over the course of decades, and that Occupy might have been just an early manifestation of a new political mobilization. She draws a parallel with the civil rights movement, which rose in the ’50s, was pronounced dead many times, and kept reviving itself into the 1960s. So you had 10 to 15 years of really vigorous movement that looked at times as though it had died. So maybe she’s right. I hope she’s right. She certainly knows a lot about social movements. But basically aside from that—which did have an effect on political discourse for a while, I have to say—all these concerns about inequality which I’ve been writing about for 25 years suddenly got to be front page news, even the cover of The New Yorker, a sign of some shift in cultural hegemony. But I guess that moment has receded now.

One of the reasons that there’s been so little political change, at least in the mainstream, aside from the austerity party, is that capital is doing very, very fine. Profitability is high. Corporations have enormously healthy balance sheets. They’re politically very, very strong. There’s been no particular challenge to their power. They basically have nothing to fear, no fear of expropriation from below, and certainly no foreign rivals like they once had in the Soviet Union. From capital’s point of view, everything is OK and nothing really needs to be done except more of the same.

So that’s where we are. We have this broken economic model. Total inability to talk about or even think about a successor to it, even still within the balance of capitalism. I’m not talking about revolutionary transformation here. So it’s perhaps a gloomy note to end on, and perhaps others will be more cheerful. But I guess I can only say that this is all the more reason we have to leave this conference inspired and go make the revolution.

Radhika Desai (professor in political studies at the University of Manitoba, author of several books, including the recent Geopolitical Economy: After US Hegemony, Globalization and Empire)

To start, I hope that I will end on a slightly more hopeful note than Doug has.

The scandal of the Western world’s foremost economists’ failing to foresee capitalism’s greatest crisis since the Great Depression—complete with the Queen of England practically committing lèse-majesté herself when she irritably asked the country’s most eminent economists why they hadn’t seen it coming—was certainly delicious for us socialists and Marxists. Our constant struggle against the idiocy produced by capitalism’s paid savants was briefly relieved because they ended up believing it themselves.

But such schadenfreude must be tempered. For we face an even greater scandal in our own midst. This crisis should have put socialists and Marxists of all sorts on the ideological offensive, explaining its origins and consequences and advancing the cause of a transition from such an unjust, unproductive, and crisis-prone system. But it hasn’t. And the chief reason why is that the very idea of capitalist crises and contradictions, so central in Marx’s understanding, are contested by most Marxist economists. And they are usually taken at their word by other Marxists. Most Marxist economists question the validity and relevance of Marx’s value theory, saying it suffers from an alleged “transformation problem.” For them, capitalism does not suffer from contradictions that regularly lead to crisis, certainly not “economic” ones. Many others question in particular whether capitalism suffers from a paucity of demand and whether profits tend to fall over time. A small band of those who retain notions of contradiction and crisis, meanwhile, insist that there is only one ‘“fundamental cause” of capitalist crises, the tendency of the rate of profit to fall, because the sphere of production is more fundamental than that of circulation. However, since they believe that Marx’s account of it suffered from an alleged transformation problem, they reject it and construct elaborate models of their own.

Underlying such Ricardian “Marxist economics” lies an unacknowledged acceptance of Say’s law and an assumption that capitalism is and can be a “purely economic” system leading, among other things, to a denial of crises and of the centrality of state action, including imperialism, to manage them. Rather than Marxism, they do economics. They call their economics Marxist, as though mere labels could defy the profoundly historical fact that neoclassical economics emerged after Marx and Engels’ intervention made political economy, whose pinnacle they represented, useless in legitimizing capitalism precisely to oppose and deny it root and branch. Such Marxist economics had already led to the failure of Marxists to explain the Great Depression—the most powerful account of it would emerge in the work of a bourgeois economist, John Maynard Keynes, who was critical of neoclassical economics, the very Trojan horse Marxist economists had wheeled into the Marxist citadel. Today “Marxist economics” is preventing Marxists from accounting for the greatest capitalist crisis since the Great Depression.

However, the resources with which we can build a more accurate and effective understanding of the present crisis do exist. They mobilize Marx’s insights not out of any reverence but because they remain the most powerful for understanding our situation today and also point beyond the crisis to the sort of demands we need to make at this critical conjuncture.

As some leading Marxists, such as Mandel or Sweezy, recognised, there are several types of contradictions and crises in capitalism and they exist in production as well as in circulation. I have argued elsewhere, moreover, that there are at least two other indispensable spheres of capitalist accumulation and reproduction—finance and the nation-state—in which crises could arise. In each of these four spheres, moreover, crises can take one of two forms—an intra-class, that is, intra–capitalist class, form arising from the mechanisms of competition; and an interclass form, pitting capitalists and workers against each other, arising from the mechanisms of class struggle. Since value cannot exist without money or capital without finance, credit is inevitably involved, it becomes a sphere in which crises can arise. Finally, the international competition of nationally organized blocs of capital—whether a small number competing for colonies as in the late 19th and early 20th centuries or for markets today—is also endemic to capitalism (this sort of competition used to be understood under the rubric of “uneven and combined development,” a tradition of thinking that figures rather prominently in my Geopolitical Economy). Whether any of these eight types of crisis is more fundamental than the others is not immediately clear. Certainly any of these can provide the opening, if one were needed, for a transition to socialism. After all, the Russian Revolution took place amid an intra-class geopolitical crisis, the First World War. One can also safely say that every major historical crisis is a complex amalgam of more than one of these and several different crisis mechanisms can be seen successively in the development of any given historical crisis.

Source: Radhika Desai, “Consumption Demand in Marx and in the Current Crisis,” Research in Political Economy 26 (2010): 101–41.

Source: Radhika Desai, “Consumption Demand in Marx and in the Current Crisis,” Research in Political Economy 26 (2010): 101–41.

With this established, let me lay out some points I consider fundamental to understanding the present crisis. They rely on the analysis in my recent Geopolitical Economy but also elaborate it further. The first point is that the present crisis is not global. Nor is it one in which the United States sneezes and the rest of the world catches pneumonia, as the widespread modern adage has it. It is a crisis of the advanced industrial world. Nor is it a single crisis. Rather, the bursting of the subprime bubble centered in the United States was the culmination of a series of attempts, all involving international financial flows in one or another form, to avoid the consequences of a crisis of longer standing. In that sense the present crisis represents the return of a much older one which was never resolved, only postponed. Moreover, the prolonged nature of the crisis in the US demonstrates that, there at least, further attempts at avoidance are not successful. Europe’s vulnerability to the US-centered crisis laid the foundation of a crisis of the euro in that continent. I consider that to be at least a relatively separate crisis. Japan, meanwhile, has been caught in its own low-growth trap of more recent origins (that is to say, it is more recent than the crisis that is returning from a longer historical point of view, but in another way it is of longer standing from the point of view of the post-2008 crisis in the Western countries in particular).

By contrast, a number of emerging economies, pre-eminently China, but also others, continue to enjoy robust growth. Thus, in addition to a long history, the crisis also has, therefore, a distinct geography: in effect, it has a geopolitical economy.

The present crisis is a profound one for Western capital and one most hopeful for working classes everywhere and for poorer countries. It is the crisis of the very strategies—neoliberalism, increasing inequality between classes and nations, financialization, privatization, and the like—through which metropolitan capitalist classes have imposed heavy costs on these constituencies since the 1980s. Needless to say, the hopeful potential that this crisis represents has to be realized by political action at both national and international levels. Today such activity is marginally more evident at the international level in the activities of the BRICS countries and other emerging economies, for instance, but on both fronts they need to be much stronger if the full historical potential of the present crisis is to be realized.

We can begin to understand the geopolitical economy of the crisis with the help of RobertBrenner’s account of the “economics of global turbulence.” It tells us that the present crisis is rooted in the contradictory geopolitical economy of the Long Boom, which led to the Long Downturn. But Brenner’s account must be placed within a fuller geopolitical economy.

As I show in my recent book, from the early 20th century the United States sought to dominate the world economy in explicit emulation of Britain’s 19th-century dominance.  However, with little scope for formal colonization, it settled for replacing sterling with the dollar as the world’s money and London with New York as its financial center. There was only one problem with this: this alteration was not mere scaling down of the British achievement but an effort to emulate it without its essential basis. Formal colonies had been central to sterling and London’s domination and, bereft of any colonies, US attempts to realize this ambition would fail even as they subjected the world to economic, financial, and military instability.

US attempts to pursue this ambition colored, and in important respects constrained, postwar US policy. Precisely when the sharpening of the dialectic of uneven and combined development (the struggle of dominant states to preserve their dominance and contender states to challenge it) meant that other countries, preeminently the recovering economies whose growth constituted the chief growth story of the post–WW II period but also the developing ones, were employing all the developmental state’s arts of combined development. . The United States, despite its commitment to maintaining the relative size of its own economy, operated with one hand tied behind its back. It forsook all means of fostering growth but macroeconomic management and an industrial policy disguised as defense policy. All because it needed to appear to be running an open economy. The US working classes have arguably paid the greatest price for this.

The recovery of Western Europe and Japan through powerful models of combined development created the overcapacity and overproduction at given levels of demand (a critical proviso, as we shall see) that, according to Brenner, formed the foundation of the Long Downturn. And the Long Downturn persisted because corporations and governments refused to permit, what Brenner calls, the “slaughter of capital values” on a scale that would renew robust capitalist accumulation and growth.

In rejecting the option of a “slaughter of capital values,” Western capitalist classes were perhaps only acknowledging geopolitical economic realities: the one power to do it would face relative diminution in relation to the others, something which only the Thatcher government imposed on its economy and that, significantly, in the face of strenuous protests of industrial capitalists, as well as domestic unrest (Thatcher would have actually lost the 1983 election if it hadn’t been for the Falklands War).

However, the capitalist classes and governments that would not permit the slaughter of capital values on the necessary scale also rejected the only other viable options for more stable economic growth. One was using the state to attempt to resolve the crisis by increasing demand. This they rejected because it would have strengthened working classes domestically and poor countries internationally. Another viable option was to increase productivity through increased investment in new techniques. This too was rejected, or at least was not possible, whether for fear that the capitalists’ prerogative would be questioned as a result—in a situation when state intervention was already very dominant in an economy—or because the few efforts that were made in this direction were not sufficiently promising. That this may well have been so is certainly suggested by RobertGordon’s recent work on the historical exhaustion of prospects for productivity increases.

Western capitalist classes instead used the state to impose greater discipline on working classes and used the state, and through it the environment, as a source for risk-free profits for themselves—through oligopoly contracts, privatizations, and the infamous public-private partnerships. This approach was most advanced in the UK and the US, the two countries where past imperial dominance and current attempts to emulate the same constrained economic policies. A certain amount of capital, particularly from these economies, did flow to lower-wage countries. However, the importance of these flows is highly exaggerated by those who are too Eurocentric to acknowledge that most industrialization in the developing world is autonomous, that is to say, it does not take place through the agency of Western multinationals.

During the Long Downturn, the state-led development and industrialization of many developing countries, constituting fresh phases of combined development, exacerbated the problem of overcapacity and overproduction. The Long Downturn did not constitute a period of uninterrupted and relentless decline. However, the phases of growth that did take place in it were part of what Brenner called a “hydraulic mechanism” in which exchange rate movements—usually politically managed—opened markets for one or another of the three major centres of capitalist accumulation. Certainly they found it impossible to grow in unison and did so at one another’s expense instead.

This crisis, therefore, now more than four decades in the unfolding, combined many crisis mechanisms.

To say that the Long Downturn was the result of overcapacity and overproduction in relation to a given level of demand is to say that it combined both paucity of demand and declining profits as factors. On the one hand, the recovery of Western Europe and Japan, and the later entry of new industrializing countries and now the BRICS, created too much capacity in relation to demand. On the other, within these demand constraints, new investment could not increase productivity enough to lower costs and expand accumulation on new lines.

Slowing accumulation led to an expansion of finance everywhere as profits were “invested” (and I put this in heavy quotation marks because, of course, while we use the same terms, financial “investment,” they’re two completely different thing with completely different social and economic consequences) in finance rather than production. But the contribution of the closing of the gold window was even greater for the expansion of the financial sector. Between them they set the stage for a series of US- and dollar-centered financializations (I use this term in the plural because we tend to use the term “financialization” as though it represents some kind of even increase in financial activity, but in fact there are a number of discrete episodes of financialization, and different countries participated in these events at very different levels) in which on the one hand finance no longer functioned to expand production but to prey upon it and on the other, increasingly flowed across borders in a succession of different and distinct patterns. Each constituted a distinct financialization and each created, however briefly, that succession of beds of liquidity on which the dollar’s world role now came to rest. They would culminate in the stock market and housing bubble of recent decades. It is noteworthy that the last bubble burst because the rise of the emerging economies put pressure on the dollar, forcing the Federal Reserve to increase short-term interest rates, in about 2004, and, a couple of years later, also led to a secular rise in long-term rates.

Finally, geopolitically, the postwar era of decolonization had had to replace colonial markets for expanded domestic ones based on expanded working-class consumption, much as John Hobson anticipated in his study, Imperialism, as early as 1901, though the US market, which was left relatively open in attempts at imperial mimesis, also played a role. Now competition for these limited markets sharpened as, after the 1970s, the world pushed expanding working class and developing country consumption off its agenda for the next several decades. Only the requirements of continued growth in the BRICS after the 2008 crisis has brought it back on the agenda (that is expanding consumption of the working classes in the West and poorer countries more generally). This is possibly the single most important reason for the hopeful potential of the present crisis.

Leo Panitch (distinguished research professor at York University, and Canada Research Chair in Comparative Political Economy, author of several books, including the recent The Making of Global Capitalism, coauthored with Sam Gindin)

We’re living through the fourth great crisis in capitalism’s history. The first in the late 19th century, which lasted a very long time, off and on from 1873 to the mid-1890s. The Great Depression, of course. The 1970s. And now we’re in the current crisis, which began in 2007, and the end of which is by no means clearly visible.

The first great crisis of capitalism—and one has to distinguish between recessions and downturns and crises that last a long time, that are difficult to be contained, that do not give rise to the quick kind of capitalist restructuring that cleanses the weaker elements and strengthens the stronger ones in the chaotic world of capitalist competition. So, the first great crisis, as we know very well, gave rise to tremendous interimperial rivalry among states that, for the most part, had just become capitalist. States that had just fostered capitalism for the most part through the latter half of the 19th century: Germany, Japan, even France (even if Britain was a fully capitalist society by the early 19th century, and gone through the Industrial Revolution). These were states that had fostered capitalism within them partly to compete with Britain militarily, but also they had ruling classes that were still heavily invested in a notion of state expansion through territorial conquest rather than capital accumulation, and that were indeed often warrior classes in some respect inside the state. These interimperial rivalries were therefore not simply capitalist rivalries, they were a mixture of old empires and new capitalist empires that led to WorldWar I.

With the Depression, and the outcome of it in World War II, it looked to a great many people that while the great Marxist theorists of imperialism at the beginning of the 20th century might have been too quick with Lenin to speak of “the final stage of capitalism,” we could expect that with WW II a return, people thought inevitably, to the conditions of depression after the war economy was removed. That isn’t what happened, in good part because what Marxists and Hobson expected at the beginning of the 20th century—which was that there was no room for the deepening of accumulation inside the advanced capitalist countries—proved to be wrong. That while, of course, capital will spill over wherever it can go and reconstruct social relations wherever it does so, the notion that capitalism could not survive unless accumulation took place, not just the ripoff of resources, but accumulation took place in the parts of the world that had not yet become capitalist at the beginning of the 20th century proved to be incorrect.

This, you can get this out of the theory of Fordism, you can get it out of a Marxist analysis of what happened, and it had partly to do with the victory of trade unions, social democratic and communist parties, and social movements—you could have a deepening of capital accumulation in the advanced capitalist world. And, of course, for the most part, it was not by virtue of the spread of capitalism and the ripoff of resources and the realization of profits in the Global South that you got the tremendous boom after WW II, it was by virtue of the deepening of capitalism in those (advanced industrial) countries. Now, that went along with—and in this sense Kautsky turned out to be more right than Lenin—a condominium of ruling classes whereby the American empire became the representative of the American state, became the representative and guarantor of property around the world. And European and Japanese ruling classes looked to the American state to refound capitalist economies in the face of, even in Japan, a very strong communist movement. And, in any case, they were equally frightened of militant trade unions and even labor-type social democracy as came to a majority government in Britain in 1945. So they looked to the American state to facilitate their reconstruction as capitalist states, and that’s very largely what happened.

There was an enormous period of accumulation, so much so that when most Marxists measure the tendency of the rate of profit to fall (TRPF) now, they usually begin in 1963, ’64, ’65, as if that were the beginning of capitalism. But that postwar period entered into crisis. In my view it wasn’t a crisis of, in any sense, TRPF because of a particular relationship between the organic and variable capital. I think it was a product of class struggle from below having effects on the capitalist system under conditions of full employment, whether in terms of direct wage pressure on profits, whether in terms of workers resisting productivity increase and technological change, whether in terms of social movements pushing up the social wage and causing the fiscal crisis of the state (as Jim O’Connor predicted it better than anybody and saw it better than anybody at the beginning of the 1970s).

What was interesting about the crisis of the ’70s is that it did not lead to interimperial rivalry. What was expected was that a crisis always did, and it didn’t. Mandel was wrong. He looked at Europe, he looked at the combining of Europe, the creation of the common market, and expected that what we were seeing with the competition coming from Europe and Japan and the crisis of the ’70s was therefore a return to interstate conflict among the advanced capitalist countries. On the contrary, what happened during the course of the ’70s—it didn’t, of course there was a lot of elbowing for space, there was some tension—was a common working out of policies that did involve, of course, jettisoning aspects of the welfare state, introducing financial discipline, above all removing what had always been seen by the postwar makers of global capitalism as temporary expedients—they lasted much longer than they hoped they would—removal of capital controls, etc. And those deregulations, the jettisoning of the welfare state and the New Deal state was just not just a matter of people with Hayekian ideas suddenly coming to the fore and getting a hearing, it was precisely because those welfare measures, the New Deal regulations, had run into contradictions in the face of an incredibly dynamic and expanding capitalism by the 1960s and 1970s.

The baby had outgrown the incubator of the New Deal reforms, and they couldn’t regulate. They were trying to maintain an interest-rate ceiling on what banks could offer you in order to put your money in the bank, but the fact that the banks could go to the European dollar market and bring that money back to the US made it impossible for the Federal Reserve to manage the money supply. The regulations, in other words, were not able to cope with the baby that outgrew the incubator. It was under those conditions that Hayekian ideas started to be heard. Although the people who introduced the deregulation understood much better than Hayek ever understood that, insofar as you open up markets to competition you need more regulation by the state, you need the ability for capitalists to adjudicate contract disputes among them, you need all kinds of forms of guarantees that property will be defended all around the world, therefore you need free trade agreements, bilateral investment treaties, etc. As Polanyi pointed out of the 19th century, you never have expanding markets without expanding states, without expanding legal systems, without expanding regulatory agencies. And that’s what we got: a much larger role for the Federal Reserve than it had ever played, a much larger role for the Treasury than it had ever played, in the era of the dynamic neoliberal period in the last quarter of the 20th century.

Unlike Brenner, and unlike Radhika, Sam and I are of the view that there was a massive restructuring of capital in fact, an enormous exit after 1983. You got a restructuring of American capital, with some segments of it, of course, being hollowed out, but other segments of it going through a kind of dynamism that perhaps had never been seen in any earlier period of capitalism. So, I was on a panel with Josh Freeman yesterday morning. He has a fantastic chapter in his book on American empire, which is about American empire at home, on what happened to the meat industry, on what happened to the slaughterhouses; yes, of course, the old slaughterhouses were wiped out, but there was a transformation of the meat industry in this country. Now based on [inaudible] and ununionized labor, but with the type of productivity and technology increases that are phenomenal, and that have led one foreign capital after another, that used to lead in the meat sector, Brazil, Argentina, etc., to be investing in the American meatpacking industry and buying it up. So it was a very dynamic time. That’s an example of a very old industry. I’m leaving aside here biotechnology, the communications revolutions that’s transformed our own lives, etc., etc.

It was combined with financialization, and a lot of that financialization was, of course, enormously speculative. But that financialization was productive to that restructuring. It helped provide the discipline for that restructuring. The discipline that turned General Electric from what it was previously engaged in to what it’s now engaged in. And if you didn’t subject yourself to that discipline, you found yourself, as a Board of Directors, bought out by some financial hedge fund, who then imposed discipline on the structure of the industry.

It was a dynamic period of capitalism we lived through, and finance was functional to it in another way. It was, of course, a period of increasingly integrated global production. American MNCs (multinational corporations) sell three quarters of what they produce abroad, not in the United States. Apart from the fact that the United States exported more than any other G7 country from 1981, their exports increased more than any other G7 country since 1981, of course, imports increased all the more which is why you have a balance of payments issue. Finance was functional to that integrated production, the kind of thing that leads a Chinese capitalist to be a source of what we buy at Walmart, what workers buy at Walmart, more cheaply than what they were able to buy on Main Street, which allows them to reproduce themselves as workers at a lower wage than they used to get before. And that integrated production required financialization.

The largest derivative markets are in foreign exchange markets, it’s over 50% of it. That Japanese exporter cannot sign that contract with Walmart in, say, April unless he’s able to buy a derivative product that guarantees that when he delivers that product next October he’s doing it at an exchange rate that still allows him to make a profit. This is nothing new; American and Canadian farmers learned this with futures markets in the 1880s. Now, most of this is speculative, of course, but it is also necessary to this chaotic but integrated global capitalist production.

This was a recovery of a dynamic capitalism that was, however, very prone to crisis. Very prone to crisis because finance, which is now so central to this integrated global production, is highly volatile. There were 72 financial crises in the 1970s, most of them in the low- and middle-income countries as they were brought into globalization. And it wasn’t mainly the IMF and its discipline that drove them in, it was their ruling classes which understood that ISI (import-substitution industrialization) wasn’t working and which wanted to accumulate not only within their own territories, but didn’t have the political balance of forces inside their own countries to often see that through. The IMF was very helpful to help them see the reforms through that they wanted in order to open themselves up to global accumulation.

A highly volatile system, and the American treasury understood it very well. The most important report they produced during the ’90s was one that said: we cannot any longer be in the business of failure containment, because if we’re in the business of failure containment vis-à-vis the financial system, we’re undermining the production of the type of instruments that are important to integrated global production; all we can do now is be engaged in failure containment. And there was a series of financial crises, the Mexican peso crisis, the Asian crisis, which were hair-raising for them, they didn’t sleep nights, but they managed to contain them so that they didn’t turn into what we’ve just been living through. It’s not surprising that the one that they couldn’t manage was one that was home-grown, although I think that Radhika is absolutely right to say it was home-grown only insofar as capital kept flowing into the United States. Including the Chinese reinvesting their surplus from their exports into the United States, because, after all, New York has the deepest financial markets, and the treasury bill is the safest place to put your money, and if there is going to be a run on your currency, you’d better have a lot of very safe assets to prevent that run.

What’s happened in this latest crisis? I’ll just end with this. We do not see interstate conflict again. As in the 1970s we see instead the desperate attempt on the part of ruling classes and their states around the world to manage this crisis together. There are tensions and elbowing. The Brazilians complain that the enormous quantitative easing has an effect on the Brazilian real, and it does. One of its ironic effects is that capital comes pouring back into Brazil as capitalists look for higher rates of return. But the remarkable thing is that the Chinese, when the American Congress tries to put a ceiling on the treasury’s ability to borrow, the Chinese come out and say this is highly irresponsible since the Americans are responsible for managing the world economy, and the dollar is the central currency. All of the bullshit that we heard immediately after 2007 about how there will no longer be a dollar-based economy—the American dollar has never been more central to the global economy than it is now, and it’s for one reason, and that is if you’re a capitalist and you’re looking for a secure state that guarantees property around the world, it’s the American state you look to, not the Indian state (although, heaven knows, the Indian state is scrambling to be as integrated into global capitalism as it possibly can, and its capitalists are actually investing more in African agriculture at the moment than they are in Indian agriculture).

There’s class conflict inside all these countries, and if we’re Marxists what we want to be looking for, what we want to be hopeful about, is not the tensions that may arise between this or that third world developing capitalist state, but rather what we want to be looking for is what leadership will we find from class struggles inside the South that will take us beyond the way in which class struggles in the North got integrated through the course of the 20th century. Will the strike waves in China end up in a struggle for “I want more commodities of a private kind” or will they be about trying to find a way to the production of collective services through democratic economic planning? That’s what we want to be asking, not whether we’re about to see a conflict between ruling classes in the South and ruling classes in the North, which I don’t think is going to happen.

Responses

Radhika Desai: On the point of high levels of mass consumption through borrowing, actually I’ve been asking several people this question. I don’t have the capacity to answer it myself, but I do want to put it out there. It’s a very interesting question. Exactly how much of the increased borrowing in the last decade actually went to the working classes? And how much actually simply went to people who were already quite rich? People assumed that wages were being replaced by credit—I assumed this at one point as well—but I think this is a very interesting empirical question I just have to throw out there.

I think this is a very interesting point, and I agree with the point: especially in the United States, and possibly in most Western countries, the crisis seems to have not dislodged the ruling classes, by which I mean not just the capitalist classes, but in particular the financial capitalist classes (although it’s an open question as to whether the distinction can any longer be made). It’s definitely the case that they are in power, but the real question is: even if they get every last thing they want, will it work? What they want is so contradictory; yesterday they were too big to fail, today there are already too big to bail out.

As I said, this is not a single crisis and the same things are not happening everywhere, so it’s very important to see things in aggregate and how they fit together in a very complex system. So the US financial classes have been handsomely bailed out. Not just by the piddly little TARP—which was what? $700 billion—but actually through quantitative easing through which the Fed has taken all their toxic assets and put them on their own balance sheets, and continues to give them more capital. The point is that they have gotten everything they wanted, but they still can’t get their way. They cannot re-create the sort of financialization on which their prosperous days before 2007–8 relied. So I don’t think one can assume that their political power is forever.

While the party of austerity is winning, again there’s another problem with that: that is, the very austerity which the bondholders are imposing on various governments is going to ensure that they cannot be paid back. So this is a very interesting contradiction; again, we need to talk more about that.

All these things to me are an indication that capital is not doing fine. I think the idea that they are doing fine is profoundly problematic, and I think that it weakens any potential movement that may emerge.

Very quickly, on the other points that were raised by Leo. I didn’t quite understand, when you talked about interimperialist rivalry, whether it was a rivalry between states that were mixed feudalist/capitalist states, or you were merely indicating that at that time there were in existence pre-capitalist empires.

Hobson clearly saw the possibility of deepening accumulation, and I mention this, and quote him to this effect in my book.

“Kautsky was right, Lenin was wrong.” Actually, Kautsky and Lenin were looking at the same things, and Lenin, in fact, at one point insisted—for very profoundly political reasons and as indeed a political leader should—that monopoly capitalism leads inevitably to war, etc., etc., but another point he came to agree with Kautsky, again I talk about this in my book.

“The crisis of the 1970s did not lead to imperialist rivalry.” Well, there weren’t any colonies to be had. Already states were sufficiently powerful, at least to defend themselves. If you look at the record of US imperialism: it did not exactly win in Korea, it lost in Vietnam, it has lost in Afghanistan and Iraq. Sure, it walked over Granada, wonderful, powerful US imperialism.

The differences between core capitalist powers in the 1970s, Mandel was not alone in seeing the possibility of a major fracturing of the various capitalist powers into relatively separate realms. I think this era will need to be revisited. Nor do I think since that time there has been a succoring of those fractures, I think the fractures continue to remain, continue to remain to this day. That’s what makes this crisis not a single crisis. Even though the Atlantic axis represents the greatest integration, this integration is considerably less than we imagine.

Very, very important points. If this vast increase in finance is so functional to production, and, as Leo would have it, to global production, what explains the great bubbles that have laid the US economy prostrate at this time? These were enormous bubbles that had nothing to do with production at all.

And finally, to talk about the strength of the US dollar and the Chinese keeping their reserves, etc. There are some very interesting statistics, that, again, I cite in my book and can supply the papers if necessary. When you talk about the strength of the US dollar and refer to the Chinese buying bonds and treasuries and so on, you forget that the Chinese hold only 7% of the total amount of US treasuries. That’s not inconsiderable, I’m not saying that’s inconsiderable for one country to hold that much, but it is only 7%. If you look at the actual capital flows in the 2000s, under the housing bubble in particular, what you find is that (first of all you have to look at gross flows, that is to say not just the net flows, since the net flows seem to point to China) the part of the world that was most invested in the US housing bubble was Europe, and the hit that Europe took after the bubble burst in 2008 formed the foundation of the euro crisis that followed. The Chinese did not suffer as much, the Indians did not suffer as much, etc.

One final point, not only do I not think that the Indian rupee is anywhere close to being a world currency, nor do I think it should be. More to the point—and this is a very key point—the very idea that the history of world capitalism can be conceived of as a succession of hegemonies was born in order to legitimize US actions as benign, not even at the time (according to this theory) the US was allegedly hegemonic, but after that period had already ended. This so-called [inaudible] writes this book in 1973, the world-systems folks pick it up and run with it and give it all the great weight of their erudition only in the 1970s. What kind of theory is that? It is entirely manufactured for the purposes of US power. In reality, as I argue in my book, UK dominance was inevitable, and it was also unrepeatable. So the US’s attempt to make the US dollar the world’s money was bound to fail. Any national money trying to serve as world money comes up against a series of problems, which can only be resolved at great cost both to the domestic and the rest of the world’s economies. Keynes knew this, and this is very interesting, and I’ve just been writing a paper about how Keynes came to arrive at this idea of [inaudible] and the international [inaudible] union and super-sovereign currency that would be the currency of no country. Why did he even think about it? Because, remember, he began thinking about these issues, in 1913 was his first major publication, which is basically a sort of paean, a sort of great praise, of the operation of the gold standard. How did he get from there to wanting to write gold completely out of the world system, and not allowing any country’s currency (least of all the sterling, not the dollar, etc.) to be the world’s money? This was the force of circumstances, those circumstances have only grown more insistent in our time. This, a single country’s currency serving as the world currency, cannot happen. People assume that the Chinese want to internationalize the renminbi; there is actually a struggle taking place within China as to whether or not to internationalize the renminbi, one side definitely does not think so. I do hope for the welfare of the world and the Chinese people that the side that wants to internationalize the renminbi don’t win.

Doug Henwood: First of all, just a minor point, the Federal Reserve has actually sold many, perhaps most, of the toxic assets acquired during the crisis at a profit. They perform the role of what Wall Street calls “a strong buyer” or “the smart money.” In the midst of the panic they bought undervalued assets and have sold them, in the recovery, very successfully. And the cost of to the treasury of the TARP now has become minimal because they’ve managed to recover most of those assets as well; there’s a little bit of AIG money perhaps still left now, but they’ve actually more or less made money with the bailout.

Capitalist power is perhaps not forever, maybe only a diamond is forever, but they’re doing well now. To say that the capitalist class is not profiting right now, to say that they’re not rolling in money and enjoying a great deal of political power just strikes me as … I feel like I’ve walked through a looking glass when I hear that. They are dominating discourse and policy, and there’s no credible threat to that power that I can see on the landscape right now. I don’t know, anything could change, but right now they really look like they’re riding high.

To hear the American empire described as something less than successful also just feels like the other side of the looking glass. It is remarkably powerful, successful, transformative enterprise for decades and decades. It may be fraying around the edges now, but it still has a lot of power left to it.

The Chinese share of treasury bond buying, the stock of Chinese holdings of Treasury money may be only 7%, I can’t remember the exact number myself right now. But there are very many crucial years in which they bought a very large share of the new issues. So they had a very large share of the flows even if they didn’t acquire a very large amount of the stock. The Chinese, and other foreign central banks, the holdings of reserves that other foreign central banks had invested in the Treasury market had been enormous, enormous, in the trillions, and “trillions” is large even with respect to the US economy.

Bubbles have a lot to do with productive activity. They generally arise late in a boom, but they’re often based on something really fundamental. The bubble in the 1920s was based on a total revolution in production, the development of consumer credit, the invention of radio, the invention of the automobile, the first stages of suburbanization. It certainly ended in a bubble that left us with a crash and a long depression, but that was really about something. Even the dot-com bubble was about something. The housing bubble wasn’t about much of anything, but to say that bubbles have nothing to do with productive enterprise I think is wrong.

And finally, the issue of the BRICS—Brazil, Russia, India, China, and South Africa—this is a term that was invented by a Goldman Sachs guy, Jim McNeil, as a marketing device, a way to sell securities, to sell concepts. There’s just no way that is a coherent entity in any meaningful sense. Brazil and China feud constantly over industrial rivalries. Brazil’s boom has been very heavily a commodity-driven export boom. Russia is little more than an oil exporter, with perhaps dwindling oil. India is important, but it’s certainly not China. And South Africa is just sort of tacked on as an afterthought; next to the other countries it is pretty small, pretty insignificant to the global economy. So I don’t see that they are in any sense a meaningful alternative to the US economy. And China and the United States are kind of very mutually dependent on each other, they have a good thing going, and I think both sides have a stake in keeping that good thing. They’re not in any meaningful sense rivals, maybe 10, 20, 30 years from now, yes, but not in the present.

Leo Panitch: I don’t think there’s any disagreement among any of us that I’ve just heard that this isn’t a very severe crisis, and that they can’t find an easy way out of it. And that has much to do with whatever restrictions on credit are imposed either by the banks themselves or via austerity policies of governments. And austerity policies of governments, of course, have to do with fears of bond markets, and what bond markets will do to them if they don’t do this. And the bond markets reflect the reinforced power of financial capital. But let’s remember that it’s Caterpillar and the German industrial exporters who are the largest opponents, the most vocal opponents, of the regulation of derivatives and the introduction of a Tobin tax, because it’s costly to them given their dependence on these things.

But we have to be more self-reflective, and I think what’s happening here is very rich and important. There’s a been a strong, rich tradition in Marxist theory, quite rightly, against neoclassical economics, and indeed against classical economics. Marxists understand that this is a contradiction within the system of capitalism and that it’s crisis prone. And a great many Marxists, whether they’ve been academic economists or they’ve been party leaders, have run that side of Marxism; they’re trying to show, and they’re usually right, that this is a crisis-prone system. The question is whether one understands the spread and deepening of capitalism over the last century and a half and more in terms of the final crisis only having been postponed. Maybe it was only postponed, but if in the process of being postponed it changes all social relations into capitalist social relations, if in the process of being postponed it takes us through the second, third, and fourth industrial revolution, if in the process of being postponed most working people are now integrated into capitalist finance in a way that Marx could have never understood in terms of their dependence on it, then we need to stop for a minute and say: after all, capitalists don’t think in terms of what’s it going to look like three centuries from now, they think if I can make my billion in the next five-years let the rest of the world go to hell, that’s how the system operates. 

Doug Henwood: Five-years is long term.

Leo Panitch: Five-years is long term. So we have to think more dialectically. Of course, it’s a crisis-prone system, one doesn’t have to have a falling rate of profit theory to see that. It’s crisis prone in virtue of the chaos of the market and there being no hidden hand, of course. But we have to understand dialectically that it’s also, as its crisis prone also incredibly dynamic. In fact, it’s so crisis prone because it’s so fucking dynamic.

Doug Henwood: And many capitalists would agree with that.

Leo Panitch: And, of course, of course, its our job to be able to say “There are going to be crises here.” Those assholes who extrapolate trends need to be laughed at and exposed, obviously. But we also need to understand that the struggle to succeed capitalism isn’t answered by your ability to predict crises. I want to find the Marxist economist who’s good at predicting crises who also can tell us how to get to socialism.

Q&A

Q (1): I just want to address Ms. Desai. I don’t know if I misunderstood you. You have questioned the amount of debt of what might be called the 99%. I want to point out that there have been 4 million foreclosures … the subprime market. People’s inability to make their mortgage payments came about because the rate of productivity did not match what wage laborers were bringing home, and they eventually were not able to make their mortgage payments. So the debt is about over a trillion for student debt in order to pay for education. In order just to make ends meet these workers need to borrow.

A (Desai): It’s a nonissue, I completely agree with what you’re saying. My point was really that: yes, this is very important, 4 million foreclosures is an enormous amount of human suffering, completely agree with that. But what I’m saying is, in the larger scheme of things, I want to know what proportion this was, actual debt contracted by working people, in comparison to middle-class people and others. Because I suspect that, although people basically say “Oh, you didn’t earn enough, you took debt,” actually in defense of the working class, and saying that actually the banks, although they claimed to give credit to the working class they did not give most of the credit to the working class at all. The credit balloon may well have been caused by excess consumption by the already well-to-do. That’s what I’m trying to say.

Q (1): The working class did get a tremendous amount.

A (Desai): A tremendous amount, I agree. My question really was very specific: how much? What was the proportion? That was my question.

Q (2): I’m wondering how you fit the environmental crisis into these questions. It seems maybe the crisis that’s bigger.

Q (3): I have a little bit of trouble reconciling Doug’s statement that there is really no problem with the current situation with Leo’s statement that there is no disagreement among the presenters.

A (Henwood): I didn’t say that.

A (Panitch): I didn’t think Doug said that there was no trouble, he said the crisis continues, he said that capital’s in power.

Q (3): I’m having trouble understanding: are we in a mess or are we not? The problem is not the capitalists, it’s their system. You can be wealthy, happy, you can be like the court of Louis XVI living it up, just before the revolution, living it up just before the crash. The worst we can do when we get into prediction is not to see the problems that they (the capitalists) are in. Therefore, I think Leo’s way of placing it allows us better to understand it’s crisis prone, and the crisis is due to the internal contradictions among the capitalists, not because they don’t have a challenger. A thing can fall down, a thing can get into a mess, even though it has no challenger. The first thing I want to say is that: let’s not judge the problems that capitalists are in by asking how happy or wealthy they are, or whether they have challengers, but how capable they are of governing and running the world.

One second point. I think the method we have to use to judge this is data. I’m sorry to say, I never thought I’d hear myself justifying anything my profession does, but one of the things my fellow economists have told me: the plural of anecdote is not data. From Leo, I’ve heard many examples, but when you look at the macroeconomic data, every single indication tells us that the US economy is in trouble: export balance, GDP, rate of profit, overcapacity in production (which has declined systemically since 1960), long-term unemployment. There is not a single indicator apart from the profits—not the profit rate, but the profits—that shows them doing well. But actually that isn’t a refuge, because if they’re sitting on the profits instead of investing them, that is itself what the crisis consists of. The fall of investment, which is the last indicator, is the biggest single cause in the decline of GDP. Capitalism isn’t investing. If capitalism is not investing it is ceasing to be capitalism. And that’s what we have to understand.

A (Panitch): I’ll just say quickly, it’s one thing to say that of the current crisis, and I agree. And in that sense I think we all agree that this is a long rate crisis of capitalism. It’s another thing to say that productivity has been declining since 1950, that there hasn’t been investment since 1950, etc., etc. And I think this is simply otherworldly. One can go through the tea leaves of statistics to prove a particular Marxist thesis and keep readjusting them, to come up with a set of years and a set of data that justify the old theory. I agree, we are not in a type of crisis that both relates to limited investment and underconsumption, and they can’t easily find a way to get out of that. If you want to say at the same time that capitalism hasn’t been dynamic over the last 50 years, if you want to say, with the Monthly Review comrades of mine, that it was right in 1950 that the only thing that was keeping American capitalism going was the war economy, or indeed waste production, and ignore what has happened in the last 55 years, then I don’t think you’re living in the world I’m living in.

A (Henwood): Capitalism is a crisis-prone system, there’s no question about that. But I think a lot of capitalists would say, So what? It’s part of its dynamism, it’s a way to make money. Old things die and new things are born. And you have crises that take years to work themselves out, but they have every other time worked themselves out, and maybe this time it won’t. I think Marx said permanent crises do not exist, and I think that’s worth keeping in mind. Jim O’Connor once told me that he thinks capitalism has been in crisis since the 13th century. That seems like a rather extreme view. I think it’s a system that thrives on crises. The political power of the capitalist class is right now unchallenged. The political, ideological, and financial power of the capitalist class right now, despite all the troubles they’re in and their system is in, is really quite remarkably solid.

A (Desai): I just have two things to say. Doug’s in America, America is not the world. Secondly, the idea that somehow the volatility and crisis-prone nature of capitalism is part of its dynamism is not—unlike what many people have tried to tell us, they try to smuggle this in—a Marxian concept. It’s a Schumpeterian concept. And it’s very, very important to remember the difference.

Q (4): If the new way of making profit is to manufacture debt, is that people will constantly be paying you without you having to sell them more, and therefore you find it expedient to create and reproduce debt in whatever classes—certainly perhaps also the working classes because they will be more indebted quicker—and if this new style of financialization has indeed lowered the incentive to invest in productive and industrial enterprise, and if that’s contributing to the crisis what we do we say about the dynamism of the system and its ability to withstand the crisis as it relates to Europe, not to say anywhere else? Won’t that bounce back on us sort of like a tsunami?

Q (5): Question to Leo, and Doug can comment on. Starting from the frame that I think capitalists are doing very well now, profit rate, politically challenged internally, in the US, in the framework of a crisis that is going on and will continue. When you look at the snapshot right now it seems to be that you spend a lot of time arguing against people who want to say that the dollar is about to be dethroned, because all the evidence is that it is not being dethroned. One thing you don’t mention, and partly your comments address this before saying “that’s out there a little bit,” but it seems to me that the shift to the third world of production, and the shift to a growing share by the third world of value added in the total world production, it seems to me has to, down the road, really threaten the American dollar. Sort of, in a vague sense, the [inaudible] idea: that if production eventually goes somewhere finance is going to follow, finance doesn’t actually lead production, finance—as we know it’s doing a lot to mess it up—in the final analysis has to go to where the production is. So don’t you see that there is a brewing problem for the dollar from this shift of value added to the third world?

A (Panitch): Perhaps, but we live in a highly integrated capitalist economy. The role of the city of London remains absolutely central to that world economy, despite the long decline of European industry, and of British industry even before. Now this partly has to do with precisely the uneven and combined development of capitalism. The fact that financial markets, for various reasons that go back to pre-capitalist merchant exchange, got rooted in certain types of institutions, certain types of expertise, and certain types of states with the capacity to facilitate and protect that, and then certain types of industrialists who develop relationships with those types of finance. So the depth of London and New York as financial markets is very important to the integrated production that takes place in the third world. I would say what is certainly the case is that the development of capitalism in the third world, in certain states of the third world, heaven knows the combined and uneven development even inside these third world developing capitalist states is enormous, but the rapid proletarianization of so much of the third world is bound in the long term to reduce the gap between the advanced capitalist working classes and their standard of living and the proletariats of the third world. That is inevitable, and the ugly ways in which that will occur we cannot possibly predict. Could it be 50 years from now that the dollar will be displaced? Who the hell knows? All I know right that right now is that Keynes was wrong about the [inaudible], you could have a continuing and expanding capitalism with the American dollar at its center. We saw it, it’s happened. And insofar as this crisis regenerates the central role of the dollar, and the central role of the American state in managing, in superintending that central role, for the time being that’s where things are at. It means that the Federal Reserve looks progressive, because it’s taking responsibility for keeping some loose money in the system when there’s such fiscal austerity, and the German state looks irresponsible because it doesn’t take responsibility for global capitalism in that way, an old story that’s always frustrated the Americans.

I do think this takes us to the other questions raised, especially the ecological crisis. It is a chaotic system, it is an irrational system, and we see that more than ever in the context of the ecological crisis. The scramble to become capitalist in parts of the world that have been so systematically underdeveloped, and trying to develop through capitalism, with all of the inequalities that will produce, to get them to capitalism of the type we know, can only exacerbate that climate crisis. And why should we complain they did it, after all, look at what we’ve done to the world, or what our capitalist system has done to the world. The chaos is even worse insofar as the only solution the Left can come up with—the Left can come up with—to deal with the climate crisis, the carbon crisis, is using derivative markets deeply rooted in London and New York in order to try to dissuade capital from polluting the climate even further. That is the chaos that the system is in, and that reflects the weakness of the Left. We complain when Canada or the United States don’t sign on to carbon trading, understandably they don’t treat it as a serious problem. But what is that solution? We need a system of collective and democratic economic planning, which will finally address these kinds of questions.

The final thing about finance and credit, my friend and comrade Sam Gindin keeps on quoting Doug around the world, Doug once said that some Marxists think that if you drop something on your foot and it doesn’t hurt, it doesn’t count. A commodity is not only a machine tool. A commodity is not only a refrigerator. A commodity is a colonoscopy. A commodity is the way in which our very DNA is being turned into profitable goods by the biotechnology industry. A commodity is the way in which HMOs are not simply insurance companies but are investors in colostomies, and managers of hospitals, which, of course are, in this country, arenas of accumulation. And due to the eighteen American health corporations that are the leading health producers in the world, they are rapidly trying to turn the rest of the world, including Canadian hospitals, into profit-making accumulators as well.

Q (4): Or taking over from governments and militaries, I can see that. I am a little worried about the reliance on debt.

A (Panitch): I am too. You’re right to be worried.

A (Desai): And you’re right to be worried. And not all the debt that’s being generated is functional to any kind of production, in fact most of it isn’t.

A (Panitch): I even agree with that.

A (Desai): Good.

A (Henwood): I get uncomfortable when people talk about production disappearing because there’s plenty of production going on. We wouldn’t have an ecological crisis if there weren’t a lot of production going on. Something that I recently learned, something like 45% of the value of this thing (a smartphone), even though it’s assembled in China, something like 45% of the value actually comes from Japanese components. So the first world is not dead yet.

On the climate crisis, I think that’s the most profound and terrifying thing I can think of right now. I’d much rather study charts of the rising CO2 concentration and ocean temperatures, I think that’s much more fruitful intellectually than studying the falling rate of profit, which is not a very illuminating graph in my view. It’s frightening, and the inability of our political system and economic system to comprehend it, much less to cope with it is a sign of total rot.

Q (6): Question primarily for Professor Desai, the Bretton-Woods dollar, since you brought up the closing of the gold window, was that a false promise that propped up the US post-war? Has it not been replaced by the control of the shipping lanes, that oil must be purchased in dollars, or else you suffer the fate of Gaddafi, for example? Also generally, the debt deflation theory of Irving Fisher as a source of financial instability that is not rooted in production? If the renminbi is not an international currency wherewith does China purchase oil, what would you have China purchase oil from the Middle East with? Finally, just the meaning of “TRPF”?

A (Desai): Tendency of the rate of profit to fall.

Q (7): My question to the panelists is around the political alternative to change the current conditions of the dominance of capital, which all panelists seem to agree on. In the Occupy movement there was a group called the Demands Working Group, and they agreed on a broad demand of a mass public works program, open for all immigrants or formerly incarcerated, make the rich pay and the empire. And it did gain quite a bit of support, but because of the crazy rules, the way that Occupy operated, the way the anarchists went ballistic over raising demands on the state, it really didn’t come to a full debate. But it has been taken up by a group in Newark, New Jersey, the state that Doug hails from. They had a yearlong picket, a number of community and labor groups endorsed it, and now they’re taking it a step forward, they’re going to have a conference in Rutgers University. It won’t be just like the Left Forum, it won’t be just a talk conference, but it will be about debating some broad demands, that the movement can kind of agree on, and voting on it, and pubic works will be one of the major demands. As well as discussing how we can work around, what kind of actions we can take to actually win that. So the question is: what do you think about that type of demand and movement of kind of changing the dynamics, the political dynamics? And also what do you see as some of the obstacles? Like in the Occupy movement the left-wing of neoliberalism, the anarchists were vehemently against putting demands on the state, and then we have this whole layer of NGOs who are all into these little narrow struggles and are not amenable to these broad struggles.

Q (8): I’m bothered by these kind of dichotomies between the ecological crisis and the economic/social crisis. Here all we hear about is the falling rate of profit, and over there about rising CO2 levels. I think the tendency toward stagnation is directly connected with the inability of the ruling class to do something about the world crisis. To say that they’re doing fine when at the moment the entire globe is going to be affected, transformed by global warming is they’re not doing fine. It isn’t a separate system, it’s one system, it’s directly connected. Same when you’re talking about the post–WWI I boom, part of that was paid for by the vast use of petroleum at a cheap cost not counting the future costs of when it will be more expensive as it is today. [inaudible] These things are all interconnected, it’s one vast crisis, it’s not OK in one area but it’s about to crash in another area. And I think that ought to be talked about.

A (Desai): First of all, on the ecological crisis, I think that in many ways, although we are often being told that in the ’50s and ’60s in particular that the ecological crisis, or ecological aspects of capitalism, were a lot worse. I would say that they were a lot worse, in fact, under neoliberalism. Otherwise I agree with you that we are in the midst of a serious ecological crisis.

I think that the wherewithal to address it is already in place in many ways, in the sense that we already live in a highly regulated form of capitalism. And I think that in order to address it, what we have to do is to basically require the state to require capitalists to run production—or whoever else is running it because I don’t want to assume only capitalists are running production—in a different. So I think the ecological crisis can be managed, and I think it can also be managed by increasing common amenities. There are a whole range of things that we can do about it, and we can start now. It’s not that we’re going to wait for some revolution that’s going to come with one loud thunderclap. It can be done now.

Leo said that the dollar has never been stronger. Even those, I’m thinking of people like Barry Eichengreen, who have studied this in great detail, when they are argue that the dollar is not going anywhere fast, perhaps not for the next fifty years, even they don’t say that. They show statistics that demonstrate that its role in international transactions is decreasing, that its share of world reserves is decreasing, all of these things are facts. On top of that what they don’t say is that increasingly the dollar, which has continuously declined in value since 1973, as well as since 2008 (barring ups here and there), basically it has been declining in value, people and countries have been trying to find their way from the dollar, through bilateral agreements between two countries to trade in each other’s currencies, multilateral agreements to pool their reserves, the BRICS are coming up with a development bank, the contingency reserve agreement, all of these sorts of things. And very interestingly as well, gold has been going up in price, although it has recently declined it still remains very high. At the moment, again, there are all these jitters about where the dollar is going to go given that the stock market bubble, which is entirely a creation of QE, is being endangered. So let’s not assume that the dollar is doing fine, because these things can happen overnight; it may look to you as though nothing is going to happen in 50 years, but already its scope is shrinking, you can have a big dollar crisis pretty soon.

Keynes was not wrong. If we want to show that Keynes was wrong about the dollar crisis, you have to show how the drifting dilemma did not apply, because it continued to apply to the dollar, and continues to apply to this day. You have to show exactly what is the way in which liquidity can be provided in a stable fashion to the rest of the world without capital exports (how can a country like the US do it, Britain could only do it because of its control of a whole range of colonies).

In the 1970s, and since then in fact, the rise in the price of oil has sort of put a floor under the dollar, “sort of” because it has not been prevented from continuing to decline. It has not prevented the United States from being extremely concerned about any suggestion that major oil exporters might start denominating their oil in some other currency. China is increasingly coming to agreements with oil-exporting countries to buy their oil in some other currency. As are other countries, it’s not just China. What would China pay the rest of the world with? I think that the Chinese, the government of the People’s Bank of China went on record within months of the 2008 financial crisis to point out that the world needed a super-sovereign currency. A super-sovereign currency would be a currency of no country in the world. There could be common rules about its management, and common rules about its value and how it would be determined. There are a variety of ways of doing this, some people continue to explore this. Of course, as people point out, in order to arrive at that we would need a lot of political agreement that it’s not going to happen, this is true. The United States has, in fact, scuttled attempts to do this for a very long time. But I think we have now come to a point in history where, if the United States is not willing to play ball, if it’s going to basically say, “If I cannot be number one, I’m not playing,” fine, other countries are going to start games of their own. As their economic weight rises in the world, they will stop using the dollar. And you know what will happen then? All these fantastic and beautiful depravities and whatever shit is going to affect only the Americans. And when that happens the Americans will say “All right, we want a public utility banking system,” and more power to them.

A (Henwood): I mentioned green Keynesianism in my opening remarks. I know that’s tedious and moderate of me, but I think it is an aspect of reviving Keynes’s rather enigmatic and suggestive remark about the somewhat comprehensive socialization of investment. So it’s not the end of capitalism, but it does involve stepping on capitalist toes and setting investment priorities, and the state is going to have to do that, there is absolutely no substitute for that. Like I said, I think that the climate crisis is absolutely the most profound thing facing humanity, and it’s going to take an active state to turn that around, and it’s going to take an active state really bending what capitalists do and doing things on its own. And I think that’s an extremely important demand to make. It could create jobs and all those things, as well as perhaps extending the lifespan of humans on earth.

A (Panitch): I certainly think that we should be centering our demands around direct massive public employment. And insofar as that would be building infrastructure all the more so. The question is: what are the consequences of doing that? What are the contradictions that that would lead to? We should be aware of that. Most of that public employment will be undertaken by and involve funding private construction companies.

Q (7): No, no, no, no. The demand was for direct government employment.

A (Panitch): That would be good. That should be made clear. That’s very important. However, if states had any capacity to build the something like the TVA (Tennessee Valley Authority) without employing private contractors, which they didn’t even then, they would have to develop the capacity to do so. In other words, the direct public employment in the building of infrastructure in such a deeply implanted capitalist system, you have to understand the implications that has in terms of involving capitalists in that process. Not only in production but also in the finance of it. One of the reasons they’re reluctant to do it, of course, does have to do with what bond markets get worried about, is not whether there are deficits, but whether the money you set aside is primarily there to pay interest to bondholders or whether it’s there to provide direct employment, salaries to workers, welfare recipients, etc. All I’m trying to get at is that this is a class struggle, and therefore we need to think about what are the conditions for seeing this through. I was actually hoping that after Obama’s reelection, he would put heavy pressure on Wall Street to get the fucking Republicans off his back, in order to do exactly the kind of Rooseveltian public spending that would get this economy going. And, heaven knows, 75% of mainstream economists are calling for this kind of thing. That he hasn’t done so, that he hasn’t even tried to get Wall Street to get the Republicans off his back—it’s not as though this didn’t happen in the past, in order to get Bretton Woods through the treasury had to put enormous pressure on Wall Street to get the Republican congressmen off their backs in 1944 to let Bretton Woods be passed, and they did, and they put very heavy pressure on them, and they gave them concessions too. The political conditions don’t appear to be here for this.

In terms of building a Left, I think you have to make that demand. You want to make it as strongly as possible, but you want to link it to what Doug and Radhika were both talking about, you want to link it to its likelihood of only being achieved insofar as the financial system in this country is turned into a public utility. Which isn’t only a “technical thing,” it’s about taking power away from a crucial element of the capitalist class. That’s how you build consciousness, that’s how you build a movement. When you actually get into the state and try to introduce those policies, then you see how far you get, which is what we were talking about with SYRIZA. But in order to build consciousness you want to link it, I think, to finance and its power and its centrality to American capitalism. 

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