CJP: What began as a financial crisis in 2007 has become one of the biggest unemployment crises in the advanced capitalist world. Could this perhaps mean that the crisis of 2007-08 was not actually caused by finance itself but had its underlying causes in the real economy?
JBF: No one doubts that it was the bursting of the financial bubble that brought on the economic crisis. So in this sense the proximate cause of the crisis was a financial one. But the deeper answers are to be found in the so-called “real economy” or the realm of production. A severe economic crisis such as the Great Financial Crisis is invariably the product of structural factors that have built up over many years and always has roots in production. The real economic growth rates of the mature, monopolistic capitalist economies of the Triad — the United States/Canada, Europe, and Japan — began slowing down in the 1970s and have slowed down basically decade by decade ever since. The main countervailing factor to this slowdown of the economy was financialization, which can be defined as consisting of: (1) the growth in the size of finance (the credit-debt structure) relative to production; (2) an increased share of financial profits in overall corporate profits; and (3) the rise of financial returns as an increasingly dominant element even in the operations of non-financial firms as well.
This financialization process began in the late 1960s and grew massively by the 1980s. In the face of market saturation and declining investment opportunities corporations and individual investors were faced with problems of surplus absorption. Their response was to pour more and more of the economic surplus at their disposal into the financial sector in search of speculative opportunities associated with asset appreciation. Financial institutions accommodated this massive inflow of capital by inventing more and more exotic financial instruments. The whole financialization process lifted the economy in relation to what it would have been otherwise, putting a floor under economic growth.
But given that the financialization process was itself a response to an increasingly stagnant economy, which it could not cure, what emerged from this process were ever bigger and more frequent financial bubbles on top of a weakening economic base. This led to one credit crunch after another, each one bigger than the last, with the Federal Reserve and the other central banks stepping in again and again as lenders of last resort in a desperate effort to keep the whole house of cards from collapsing. A complete financial collapse was each time warded off, setting the stage for bigger problems in the future. Meanwhile financialization was globalized as all countries were compelled to adopt the same financial architecture. Eventually, a situation was bound to arise in which the scale effects of a bursting financial bubble would overwhelm the capacity of the central banks to prevent serious damage to the economy. This happened with the Great Financial Crisis in 2007-08. However, a full financial meltdown was avoided through the “too big to fail” process of bailing out the big financial institutions — with the costs passed on to the public.
Most discussions of all of the Great Financial Crisis, even on the left, have tended to focus on the superficial aspects and symptoms, ignoring the long-term contradictions both within production and finance. In contrast, I am proud to say that Monthly Review, based initially on the work of Harry Magdoff and Paul Sweezy, has closely followed the development of these contradictions in articles written over a period of four decades or more.
The principal problem of the capitalist economy right now of course is not so much financial crisis as stagnation. Even liberal economists like Paul Krugman are now talking about “permanent stagnation.” The present period is characterized by extremely slow economic growth in the mature economies — a phenomenon that surfaced following the Great Financial Crisis. The system is caught in what we have referred to in Monthly Review as a “stagnation-financialization trap.” Without further financial-led booms there is nothing at present to get the system moving off dead center, so to speak. But the financialization process is itself stymied at present due a lack of bank lending, unable to provide sufficient stimulus to ignite the economy.
Capital is thus concerned above all with getting the financialization process going again. The overriding task is to ensure the stability and growth of financial assets, which constitute both the wealth of the capitalist class and today its principal means of further wealth generation. That means in practical terms enforcing conditions of neoliberal austerity aimed at diverting public and private economic flows increasingly into the financial sector. The capitalist state is being transformed so that its lender-of-last-resort function is becoming its primary role, with all other political ends subordinated to this. Under these circumstances the old Keynesian strategies of deficit spending and employment promotion have to be sacrificed on the altar of the financial power elite. Eventually, this may succeed in generating another finance-led boom and bubble. But the eventual consequences of this distorted, speculative process of wealth generation, if it is allowed to resume fully, are likely to be even more severe in the future.
Do you comprehend the financialization of the economy as a deliberate or even inadvertent outcome sought by policymakers or purely as part of the dynamic, ongoing process of capital accumulation?
JBF: There has been an enormous amount of discussion, among liberals and on the left, of how the state and policymakers promoted financialization — as if the state role in all of this was primary. A good example of this is Capitalizing on the Crisis by Greta Krippner, who approaches financialization mainly as a policy regime. This fits well with the popular and Keynesian view that the problem was financial deregulation and the solution lies in financial regulation. There is no doubt of course that governments of the Triad were heavily involved in promoting financial deregulation and took every possible advantage of the political and economic opportunities brought into being by financialization.
But to trace the problem to the state is to put the cart before the horse. As Sweezy argued in the late 1990s, the crucial problem of economic analysis today is to understand the “financialization of the capital accumulation process.” Confronted by bubble after bubble arising from stagnation-financialization relation, the state has had no choice, at each stage in the process, but to turn to financial deregulation in order to prevent the bubble from bursting — giving the financial regime more room in which to operate by removing obstacles to its expansion. No one after all — not a central bank manager, not a Treasury Secretary, and certainly not a head of state — wants a bubble to burst on his/her watch. Financial deregulation, in order to avoid a bursting bubble and to give more fuel to the financialization process, was particularly evident in the Clinton administration, where Alan Greenspan, Larry Summers, and Timothy Geithner worked in close concordance. But the idea that this whole process was in any way controlled by the state either on the upturn or the downturn is an illusion. This is a basically uncontrollable process, with the real problems lying in the irrational development of the capitalist economy.
Hyman Minsky contributed perhaps more than any other economist in the postwar era to our understanding of financial crises, but also proposed some rather sound and realistic policies for dealing with the scourge of unemployment and poverty. Where do your differences lie with Minsky, and why shouldn’t radicals embrace his policy proposals which will help to alleviate the misery and suffering of millions of unemployed and poor people?
JBF: Minsky was certainly a great post-Keynesian figure and his reputation has deservedly grown since the latest crisis. His whole work was devoted to theorizing financial crises. The foundation of his analysis was an alternative interpretation of Keynes (in his 1975 book John Maynard Keynes)that attempted to convert Keynes’s main insights into a theory of short-term financial crises. In the process, Minsky explicitly downplayed the fact that Keynes’s analysis in this area was tied to his concerns over long-term stagnation or the declining marginal efficiency of capital. Minsky showed that capitalism had a fatal “flaw” that caused it to generate Ponzi-style periods of financial instability, moving from a financially stable position to a financially unstable one as a result of its own inherent logic. Nevertheless, the principal weakness of Minsky’s analysis was that it relied on a pure theory of the financial cycle, cut off from an understanding of tendencies within production. As a result there is no real theory of financialization, understood as a trend rather than cyclical phenomenon, to be found in his work. His abstract model of financial crisis was therefore removed from many of the historical issues of real accumulation that were the focus of Marx, Keynes, and Kalecki. Although admiring much of Minsky’s model, Magdoff and Sweezy nonetheless criticized him in the 1970s for failing to look at the dynamic relation between production and finance. Of course this failure of Minsky to trace financial crisis to root causes in production and to deal with the long-term development of capitalism made him more acceptable to the establishment (despite his left background and assumptions) when an explanation of the 2007-08 financial crash was being sought. What caught on was the notion that this was all a “Minsky moment,” suggesting its cyclical and temporary character. Moreover, Minsky — rather naively considering his analysis — had suggested that better state-directed financial management could overcome these problems.
It was only late in his life after the 1987 Stock Market Crash that Minsky started to think critically about financialization itself, that is the long-term issue. This was in a 1989 book on Capitalist Development and Crisis Theory edited by Mark Gottdiener and Nicos Kominos (a book in which I also contributed a chapter). Minsky’s piece was called “Financial Crises and the Evolution of Capitalism” and he raised the issue of “money-market capitalism.” Robert McChesney and I devoted part of Chapter 2 of our book The Endless Crisis to a consideration of Minsky’s theory in relation to the larger questions raised by Marx, Keynes, Kalecki, and Sweezy.
The monopoly capital school seems to be at odds with those radical analyses claiming that the transnationalization of capital has resulted in the formation of a global elite which currently shapes policymaking virtually throughout the world. In this context, how do you respond to the implicit, if not explicit, charge that monopoly capital focuses on microeconomic changes in the structure of advanced capitalism but draws macroeconomic conclusions about stagnation?
JBF: It is true that for us the thesis — popular on the left today — that there is the rise of a transnational capitalist class appears too simple, failing to grasp the full contradictions. There is a tendency to displace the problem of class and to downplay interimperialist rivalry. The best criticism of such views that I am aware of was provided by Samir Amin in 2011 in his “Transnational Capitalism or Collective Imperialism?” Amin speaks, particularly, in his important 2010 work, The Law of Worldwide Value, of “the later capitalism of the generalized, financialized, and globalized oligopolies” and sees this phase as governed by the Triad with the United States in a hegemonic position. This seems to me to be a more adequate view of our complex historical reality than the reliance on the notion of a transnational capitalist class as a kind of deus ex machina. Analysts within the transnationalist-capitalist-class model look at the growing linkages between corporations based in the various core states. But, in fact, such intercorporate linkages are not all that impressive across the Triad as a whole. U.S. capital, for example, still operates with considerable independence, as does the U.S. state. Japanese capital is quite distinct.
It is interesting to note that the related concept of transnational corporation was promoted by the establishment managerial theorist Peter Drucker, who argued that such firms — no longer based in a particular nation state but operating transnationally — had displaced the multinational corporation, which had been defined from the first as a corporation operating in many countries but based in one. Within Monthly Review we still think that it is multinational corporations rather than transnational corporations, in Drucker’s sense, that remain dominant.
The transnationalization thesis has been most popular in Europe as a result of the evolution of the European Community. But the present crisis has opened up the contradictions within Europe itself. In the present crisis one could argue that the imperial relation evident between, say, Germany and Greece has undermined all simplistic assumptions about the transnational integration of the capitalist classes, corporations, and states.
The second part of your question seems to me quite distant from the first. The distinction between microeconomics and macroeconomics was introduced during the crisis of marginalist economics associated with the Keynesian revolution. Keynes introduced what we call the macroeconomic perspective but failed to address the conflict between this and neoclassical microeconomics. In other words, he failed to expand his “general theory of employment” into a general theory of the economy as a whole. He left the foundations of the neoclassical perspective at the microeconomic level largely unaddressed. This then set the stage for the conservative revival in the form of today’s New Classical and New Keynesian doctrines.
Kalecki, coming out of the Marxian tradition (where he was influenced by Rosa Luxemburg’s work in particular), and yet anticipating all of the core elements of Keynes’s general theory of employment, developed his analysis on a more adequate basis in which there was no division between microeconomics and macroeconomics. This took the form of his theory of monopoly capital, building on the earlier Marxian tradition in this respect. Our approach in Monthly Review is a Marxian (or Marxian-Kaleckian) one, focusing on accumulation, and seeing the economy as an organic whole. Although one can for convenience refer to macroeconomic, as opposed to microeconomic, analysis, in the Marxian view there is no real separation.
We seem to be witnessing a historical shift of capitalism’s growth sectors from the advanced capitalist countries to the less developed part of the world. What is causing this shift and what are the implications of this development for the old contradictions between North and South?
JBF: There is a lot of hyperbole in this area. The share of the Global South’s industrial employment rose from 51 percent in 1980 to 73 percent in 2008 at the time of the Great Financial Crisis. But much of this production is the outsourcing of multinational corporations based in the center. Economic growth rates in a handful of emerging economies have been much higher than those of the mature economies of the Triad. Yet to speak of a rise of the global South as a whole is a serious error. As Fred Magdoff and I explained in 2011 in What Every Environmentalist Needs to Know About Capitalism, from 1970 to 1989 the annual per capita GDP of the developing countries (excluding China) averaged a mere 6.1 percent of that of the G7 countries (the United States, Japan, Germany, France, the United Kingdom, Italy, and Canada). From 1990 to 2006 (just before the Great Financial Crisis) this dropped to 5.6 percent. Meanwhile, the average annual per capita GDP of the 48 Least Developed Countries (a UN designation) dropped from 1.4 percent of that of the G7 countries in 1970-1989 to only .96 percent in 1990-2006. Inequality is increasing rapidly in nations throughout the global periphery as well as in the center of the system. All sorts of economic transfers and controls are helping to perpetuate the imperial power at the center of the system. Moreover, under today’s global monopoly-finance capital such factors as resources, technology, information, and military power are monopolized and controlled to a considerable extent in the center of the system. Economic policy (witness the spread of neoliberal austerity) is also dictated from the center. Both the United States and “global NATO” are increasingly carrying out military interventions in the periphery. Imperialism is a growing reality, even if it is manifesting itself in new forms.
The fact that mass dissent has been growing in China, and has literally exploded in Brazil and Turkey in recent weeks, suggests that the contradictions of the system are heightening in the emerging economies in ways not all captured by the simplistic notion of a historic shift in favor of he global South. It is true that this is presenting new challenges to power in the center; witness Latin America’s revolt against neoliberalism, and the struggles for a socialism of the 21st century in countries such as Venezuela and Bolivia. Moreover, the geopolitical power of the United States is eroding. But what we are witnessing is not some unilinear movement so much as an intensifying struggle over the future of imperialism and the self-determination of nations.
In The Endless Crisis McChesney and I explored the process of the “global labor arbitrage,” whereby capital is shifted to industrialized countries to take advantage of low wages, or more precisely low unit labor costs. The whole global system is thus geared more and more to what in Marxist theory is called unequal exchange. Behind the economic growth in the poorer and emerging economies therefore is an intensification of capitalist relations and extreme forms of superexploitation. In our book we also looked at the global reserve army, based on IMF data. We found that what might be called the “maximum size of the global reserve army” in 2011 was some 2.4 billion people, compared to 1.4 billion in the active labor army. In other words, the contradictions emerging within the system are immense and the global South is confronted with growing social, economic, and ecological fault lines — cutting across the system as a whole.
Is neoliberalism on the retreat or does its hegemony remain intact?
JBF: In The Endless Crisis McChesney and I argue that the neoliberal regime is “the political-policy counterpart of monopoly-finance capital” — the current phase of capitalism. “Far from being a restoration of traditional economic liberalism,” we wrote, “neoliberalism is . . . a product of big capital, big government, and big finance on an increasingly global scale.” It reflects the dominance of the financial power elite and of financialization as the main means of countering economic stagnation. It is a more voracious form of capitalism geared to heightened inequality and austerity. This involves an attempt to use the state to divert more and more of the economic flows of the society, including state revenues, into the coffers of capital, and into the financial sector specifically. Capital accumulation in the traditional form of investment in new capital formation within production, while still crucial, is increasingly secondary. Corporate boardrooms have lost power relative to financial markets, while the state is becoming more plutocratic in form, serving financial capital and capital as a whole.
Neoliberalism can also be seen as the ultimate failure of liberal democracy. Classical liberalism, or “possessive individualism,” as C.B. Macpherson called it, was fiercely anti-democratic (as can be seen in the writings of figures such as Hobbes and Locke). Liberal democracy was introduced later (inspired by such figures as J.S. Mill) as a hybrid system in which the possessive individualism of classical liberalism was qualified, to allow some democratic initiatives, particularly in the electoral realm. Today the dominant tendency is the construction of a neoliberal, plutocratic state, geared more systematically than ever before to the needs of capital, i.e., the reversion to classical liberalism and to possessive individualism, decrying “too much democracy.” This fit well with the Hayekian notion of the self-regulating market as the basis of society and even the state. Democracy, even in the limited form in which it existed, is seen as more and more expendable. What is disappearing is any relative autonomy of the state with respect to capital; sovereignty is no longer that of the people but of capital. The state is being restructured as not so much the executive committee of the capitalist class, but as its financial-estate manager.
Looked at in this way, what we should be speaking of is not so much the hegemony of neoliberalism as the hegemony of monopoly-finance capital with its neoliberal strategic orientation. In Greece unemployment is something like 27 percent. And in this context the screws of austerity are continually tightened. Why? The answer is that Greece is being put through a kind of neoliberal shock therapy in order to promote the specific interests of monopoly-finance capital, i.e., of a financialized, monopolistic, imperialistic capitalist order, in which, within the Eurozone, there is a line between the imperial center and the (inner) periphery.
There is no viable policy alternative to neoliberalism in today’s capitalism, precisely because neoliberalism is a reflection of the inner necessity of the monopoly-finance capital itself. Neoliberal austerity is thus a product of the contradictions of the whole current phase of capitalism. The only answer for forces of opposition is to push beyond the logic of the system in order to create a new “social metabolic system,” one, as István Mészáros calls it, of “substantive equality,” i.e., socialism.
Even though Marxism remains in many essential respects the most powerful tool for understanding and analyzing capitalist socioeconomic developments, on the political front things have been going downhill at least since the 1970s: labor in the advanced capitalist nations is disorganized, radical socialist or communist parties are small and marginalized, and, more importantly, the working class has for the most part turned its back on the tradition of revolutionary politics. Do you see Marxism reemerging as a potent political force in the near future?
JBF: The entire system of global monopoly-finance capital is caught in a deep structural crisis, which is generating new historical processes and forms of struggle. In this context, socialism inevitably reemerges as the only conceivable alternative to capitalism’s destructive order. It is no surprise therefore that we are seeing a new age of revolt, in Latin America, the Middle East, northern Africa, southern Europe, parts of South Asia — even in some respects in China (the biggest wild card of all). In Latin America the leading countries in this new revolutionary era have raised the banner of a “socialism for the 21st century.” And there is a clear historical logic to this. There is absolutely no possibility that the widespread popular revolts that we are seeing today can be successful in the face of the current structural crisis of capital without going in a decidedly socialist direction. Even in the United States the Occupy movement raised the question of the 1%, taking an explicit radical stance targeting the capitalist class. In the context of the present structural crisis there is strong evidence of an emerging revival of Marxist analysis.
I have two caveats here. First, if Marxism is to constitute a vital revolutionary perspective today, what we will see will be renewed and more dynamic forms of historical materialism, reflecting the revolutionary movements emerging primarily in the South — but increasingly in this structural crisis in the North as well. Marxism will thus take many forms necessarily merging with the revolutionary vernaculars and historic conditions of the societies in which the class/social struggle is most intense. It was nothing short of genius that led Chávez to link Marxian theory to the Bolivarian revolutionary movement with its own distinctive vernacular, giving new life to both. While in Bolivia we are seeing a synthesis of socialist and indigenous views.
Second, socialism and Marxism today will necessarily be transformed by the planetary ecological emergency — the greatest challenge that civilization has ever faced. As I argued in my 2000 book Marx’s Ecology, Marx’s classical socialist critique provides the most unified dialectic of social-ecological change and struggle. This is built into the very foundations of his critique of capitalism. We need to draw on that. Moreover, today we are faced not so much with Luxemburg’s “socialism or barbarism” as the even more serious choice of “socialism or exterminism” — to adapt a term employed by E.P. Thompson. We are currently on the road under business as usual toward the extinction of most species on the planet, including quite possibly our own. We need to take a hard left turn. Socialism is, I believe, humanity’s sole salvation, since it is only in a world of substantive equality and ecological sustainability that there is any genuine hope for the future.
John Bellamy Foster is editor of Monthly Review and professor of sociology at the University of Oregon. His latest book, written with Robert W. McChesney, is The Endless Crisis: How Monopoly-Finance Capital Creates Stagnation and Upheaval from the USA to China (New York: Monthly Review Press, 2012). C. J. Polychroniou is a Research Associate and Policy Fellow at the Levy Economics Institute of Bard College and an interviewer and columnist for the nationally distributed Greek newspaper the Sunday Eleftherotypia. This is the full version of an interview portions of which are to be published in the Greek paper.