Citizen Action Monitor

The end of capitalism: Part 3

US and China tinker with capitalism but there’s no fix. Welcome to the brave new world of “fictitious capital” where anything goes.

No 1703 Posted by fw, June 15, 2016

David Harvey

David Harvey

“Three years after the near collapse of global financial markets, America is still struggling with unemployment, debt, and foreclosure, European governments are teetering on the brink of bankruptcy—and the world’s billionaires are getting richer faster than ever before. The current situation is not sustainable. But what changes need to be made to overcome this mounting crisis of our world economic system? How radical an adaptation will be required? David Harvey, the brilliant theorist and scathing critic of postmodern society, looks at what the future holds for global capitalism.”

In Part 1, professor David Harvey, in his talk at the Penn Humanities Forum, reflected on why it is so hard to imagine an alternative to the kind of capitalism we have now. When faced with a crisis, capitalists never solve their debt problems, they simply move them around until an impasse is reached. The final solution is to privatize the debt on the backs of the people.

In Part 2, among other things, professor Harvey traced the origins of capitalism to the historical relationship between state debt and military funding and recounted how the 1987 stock market crash resulted in Washington’s humiliating loss of political power, forcing it into global collective decision making, which may be why members of the G7-G8-G20 all seem to be following the same playbook.

In Part 3, Harvey offers a cursory analysis of China’s Keynesian policy and the US’s control of money supply and concludes that neither are working. He sees no major capitalist-based alternative on the horizon. In the US, bond markets are, in effect, dominating political power. In Europe, there has been a dismantling of Greek democracy. The good professor muses that there is an alternative to capitalism that hasn’t been tried – zero economic growth. But there are no takers. With the plutocrats in control, it looks like we are well into the brave new world of “fictitious capital”, where anything goes.

David W. Harvey is the Distinguished Professor of anthropology and geography at the Graduate Center of the City University of New York (CUNY). He received his PhD in geography from the University of Cambridge. In 2007, Harvey was listed as the 18th most-cited author of books in the humanities and social sciences.

The full 85-minute video of Dr. Harvey’s talk is embedded below. My transcript of this segment begins at the 37;22-minute mark and ends at 53:45. The transcript includes subheadings and text highlighting. Before watching the video, you may find it helpful to skim the transcript subheadings to get a summary overview of the key ideas discussed by Dr. Harvey in this segment. To watch the video on the You Tube website, click on the following linked title.

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David Harvey: The End of Capitalism? by David Harvey, Lecture delivered at Penn Humanities Forum, November 30, 2011,  posted on You Tube by Noam Chomsky Videos, November 8, 2013

TRANSCRIPT

Start – 37:22

The class assault on the vulnerable is still going on in the US and Europe – “suckering the rich and screwing the poor”

So this is a political choice. And it is a political choice in Britain. And it is a political choice throughout much of Europe. That what you’re doing is – everybody is pointing out, you know — what you’re doing is actually suckering the rich and screwing the poor. But that’s been going on for some time. Actually that’s what the IMF did to Mexico in 1982. That’s what a structural adjustment program* is classically like. [*Structural adjustment programs consist of loans provided by the International Monetary Fund (IMF) and the World Bank (WB) to countries that experienced economic crises. They are supposed to allow the economies of the developing countries to become more market oriented. This then forces them to concentrate more on trade and production so it can boost their economy. These programs generally implement “free market” programs and policy, including internal changes (notably privatization and deregulation) as well as external ones, especially the reduction of trade barriers. Countries that fail to enact these programmes may be subject to severe fiscal discipline. Critics argue that the financial threats to poor countries amount to blackmail, and that poor nations have no choice but to comply.]

The powers that be are busy pushing privatization and deregulation on the US

I’m very proud of the fact that a book that I published in 2003 looked at the aggregate data of the United States and said, look, in any other case, the United States was right for structural adjustment. The trouble is, of course, the United States is the IMF and so it’s not going to structurally adjust itself. But now, in effect, we are being structurally adjusted. And actually the powers that be are busy pushing that structural adjustment on us.

Meanwhile, in China the central government is trying a Keynesian infrastructural stimulus development program

Now that’s one part of the world. The other part of the world is doing exactly the opposite. It’s not going into – it hasn’t got the monetarist theory and it hasn’t got all the kind of that, you know, Milton Friedman stuff. The other part of the world, based in China, is doing exactly the opposite. They’re in effect doing a Keynesian program. Now China, for whatever reasons, didn’t sort of decide it was a good idea. But again political forces were very, very significant. In China, they are deadly scared of major unrest on the part of a population which has a long history of being pretty restive at various times. And in 2009 and at the beginning of — just around the beginning of 2009, just after Lehman Brothers are gone under — the Chinese, in about three months lost 30 million jobs because the export industries crashed. Nine months later, the IMF did a study which showed that the net job loss in China was 3 million: i.e., the Chinese had managed to recuperate 27 million jobs in about 6 months. How the hell did they do that? Well one of the things they did was to launch an enormous physical infrastructural development program. It was equivalent to what the United States did with the interstate highway systems in the 1950s and 1960s. They built whole new cities. They build high-speed train networks. Their stimulus package, just simply by the central government, was about the equivalent to that which the United States had set up. But it also turned to the banks and said to the banks lend.

In the US, the government bailed out the banks with taxpayer money – and the banks kept it for themselves

Now there’s a wonderful moment, if you’ve seen the movie [2011] Too Big To Fail and, or read the [2009] book by [Andrew Ross] Sorkin about too big to fail. Right at the end, after they struck this deal and made the banks accept all this money and [Ben] Bernanke says, “Well I hope that they’ll lend it out.” And [Henry] Paulson says, “Of course they’ll lend it out. Well, of course, they might lend it out.” And, of course, they didn’t.

China’s on a stimulus development plan; the US and Europe are playing post-2008 austerity politics

But if you’re a Chinese banker and you don’t do what the central government tells you to do, oh, boy you’re in trouble. So the banks lent out furiously to all these development projects. The result was there’s been a boom in property prices in China — property development in China which matches the boom has been – that went on in 1990s into 2000 in this country. It’s a huge, huge boom. And as a result of that, the Chinese is, of course, have actually launched demand into the rest to the world economy at a huge rate. The Chinese have consumed half of the world’s steel output in the last five years; half for the world’s cement supply. Now where does steel come from? Well, where does the iron ore come from? Where does the copper come from? It comes from places like Chile, Australia. You go to Chile and Australia, and people say to you, “What crisis?” Argentina, Brazil — doing fine: expanding by 5 to 7 percent because China’s expanding at 10 percent. India’s catching up with China now. And so half of the world is on this expansionary game, and the other half is on this austerity game.

Of note — the only successful economies in the last two decades are centrally directed ones

And, of course, it’s very, very interesting to see, you know, how, in the United States people say government can’t actually do anything to expand the economy. You say, “What the hell are they doing in China,” you know. Oh, and by the way, look at — take a look at Singapore and a few other places as well, you know, the government’s heavily, heavily involved. And, in fact, the only successful economies over the last 10 to 20 years have been those which have been centrally directed.

But even the Chinese economy has recently been hit with high inflation, as have economies of Argentina and Brazil

And yet we’ve got this mantra, you know, which is, I don’t know, living on some other planet. So, you have these two — but the Chinese model is not stable either for exactly the same reasons that the Keynesian thing ran out. But China’s gone through the Keynesian thing of the 1950s and 1960s in this country, almost compressed in about three years. And one of the things they started to get nervous about was the great bugaboo of the Keynesian thing, which is strong inflation. Inflation in China has been edging upwards and actually zooming upwards. And of course inflation in many of the other countries around it, in Argentina, Brazil, and so on, has become a real problem.

Bottom line — neither China’s Keynesian policy nor the US’s control of money supply are working

So here you have deflation and there you have inflation. One half of the world is being monetarist and the other half is being Keynesian. Well, we’ve tried both of those solutions, sequentially in time and they didn’t work. Now we’re trying them geographically, half and half of the world doing this and the other half doing that: neither of which is going to work.

Is there a third alternative, apart from tinkering with capitalism?

So where’s the third solution? And in the China case they started to cut back. And it’s very interesting. Just today I read they started to cut back just a few weeks ago, and suddenly property prices started to crash in China. They went down about 20 percent in about three months in some of the key cities in China. And everybody started to panic. And now what has the government done – it’s actually gone back and said okay banks lend, lend, lend. Get back into the game. So there’s a frantic attempt in China to sort of stabilize things by, you know, by playing these games in the same way what we’re seeing in this country, in this part of the world, and in Europe in particular, we’re seeing this incredible game being played of, you know, trying to deal with the debt, the sovereign debt problem in very peculiar kinds of ways.

David Harvey doesn’t see any major capitalist-based alternative on the horizon

The point of this is to say that actually I don’t see, at this particular point, any major alternative in the horizon in terms of what capital can do. On the basis of what has been going on the last 30 years, I can make some rough predictions as to where things might go. And this is a bit like weather forecasting — where I was assured by one of my colleagues who’s an expert at this — that actually if you say the weather tomorrow is to be roughly the same as it is today, you will be right 60 percent of the time. And there’s as an immense amount of effort put in to try to get the predictability up to 80 percent of the time, you know, but 60 percent of the time, ah, it’ll be the same as tomorrow. And a bit on that basis — what can we really expect?

In the US, bond markets are, in effect, dominating political power. In Europe, we have seen the dismantling of Greek democracy

Now I’ve already mentioned this, what seems to be this key switch in the state-finance nexus where, put crudely, bond markets dominate sovereign political power. And they’re dominating as we see in Europe very, very strongly. We’re not seeing it here in the United States, but, in effect, that is what’s happening here in the United States as well. So, if that’s the case, then the big question is what’s happening in those markets. And how can we understand what they’re doing, and in what direction they are moving? What we’re seeing of course is, it’s not only are you actually dominating political power in the way that Bill Clinton recorded it, but what we now see in Europe is effectively the overthrow of democratically elected governments, and the appointment of technicians who are doing the will of the bond markets. Two governments now.

Bond markets literally rule in the US and Greece. What does this mean for democracy?

Pretty soon, if you don’t willingly actually do what the bond markets want, you’ll be in that lot too. So what does this mean for democracy?

Here’s an alternative to capitalism that hasn’t been tried – zero economic growth

Now there’s a very interesting problem that lies behind us, which is really what I want to really emphasize. Capitalism has always been about expansion for reasons I’ve already mentioned. It’s always been about growth. Have you ever heard anybody’s who’s pro capitalist say their anti-growth? In effect, a crisis is defined as zero growth. Right? I mean since when is zero growth a crisis? Actually, it turns out zero growth is one the best things that can happen to the environment, but leave that aside. Historically the volume of goods and services has grown probably around the rate of 2 to 5 percent per year. But it’s a compound rate of growth. Marx has a wonderful kind of little argument where he says well actually this guy in 1780 calculated if he had invested a sovereign on the date of the birth of Jesus Christ, it would now be enough sovereigns to actually fill up half of the universe – no, solar system. Sorry. That’s what compound growth does. Three percent compound growth is considered a reasonable kind of way for capitalism to work. Four or five percent is really good. Ten percent people start – if it’s 10 percent an aggregate of people start to worry about it’s overheating and all that kind of stuff. Less than three percent things are sluggish. Zero, you’re in a crisis. I mean that’s the general story you’ll get from the financial press. You’ll find everybody saying we got to get back to three percent growth. Oh my God next year’s forecast in the United States is going to be 1.2 percent. What are we going to do, you know? This kind of stuff.

But capitalism is about growth – compound growth, and the bigger the better. Could capitalism be the problem?

So capitalism is about growth. And it’s about compound growth. Three percent compound growth back in 1780 — no problem. Three percent compound growth right now — real problem. Real problem. Because when you think of the global capitalist economy and where it is, the frontier has closed. And the Soviet Union collapsed. That’s now opened up. China has entered the system. There’s no geographical frontier – I mean, okay, parts of Africa haven’t yet been fully absorbed. And there are parts of Central Asia. But relatively — but basically speaking in the same way there was a big impact when the frontier closed in this country back in the sort of 1890s or whenever. So the frontier, the geographical frontier is closed. There’s no way in which you can expand the system. Now, that doesn’t mean there’s no geographical outlets because you can go, as was mentioned earlier, do some creative destruction. You can de-industrialized all of the United States, which has happened. You can de-industrialized much of Britain. And then you can, you know, turn them all into sort of condominiums and shopping malls and all kinds things like that. So, yeah you can readjust the whole geography internally by intensification and transformation.

From the 1970s on, with increasingly deregulated financial systems came increasing financial volatility

But one of the things you will notice – and this comes back also to this notion of weather forecasting, about tomorrow is going to look like today. One of the things you will notice, since the 1970s onwards, is that as finance has become more liberated, and can go and do its thing, it has become more volatile.

Liberated market structures have driven the concentration of more wealth in the hands of fewer people

It started actually to develop completely new market structures. Many of them are actually rather old, but were very minor, but became major very quickly, like hedge funds and the like. And what that suggests is that actually the credit system is, in itself, generating new market possibilities. New possibilities for the accumulation of wealth. And that is precisely what we’ve been seeing of, course, in what’s happened in financial markets since the 1990s in particular. And as credit markets become capable of generating more and more wealth, almost internally, people can suck more and more wealth out of it. Much of the concentration of wealth that’s occurred in the world, has occurred through, of course, sucking wealth out of financial markets. I mean, the hedge funds, as I mentioned, $3 billion each. I mean I thought it was pretty outrageous in 2003 when the leading hedge fund people got $250 million each — but now they get $3 billion. One of them got $3 billion two years ago, is having a hard time this year, poor fellow.

Welcome to the brave new world of “fictitious capital” where anything goes

So I think that what we have here is a category that I really like in Marx; it’s call “fictitious capital”. But actually fictitious capital has always played a very important role in the dynamics of the accumulation for the reasons that I’ve mentioned about, you know, getting from yesterday’s, you know, supply to today’s demand kind of thing. But fictitious capital has become much more significant in the system. And as fictitious capital has become much more significant, so what we’ve seen is almost a closure are of how that fictitious capital works. Now. when you use the word “fictitious capital” people can say well it’s a very abstract concept. Give me an idea of what you mean. What I mean is this. A very interesting positionality of financial institutions. Who lands the money to the developers who build tract housing around San Diego? The financial institutions do, okay. So the tract housing is built. The laborers get paid, you know. Everything goes on and then at the end of the day the houses are there. Who do they sell them to? Well, they sell them to some people who need a mortgage to buy them. Who provides the mortgage? Well, actually, the same financial institution that actually funded the developers also provides mortgage. And, in fact, they have package deals. When the developers started to develop, you could go to the financial institution who would offer you a deal, you know, where you can get in on it even before it’s built.

Now you see what’s happening here is that actually the financial institution regulates the supply and the demand. And, of course, because its regulating the supply and demand it is also in a position to manipulate prices. And as it manipulates prices, so pretty soon, you know, you get the asset bubble in the housing market going on and on and on. And if, at the end of the day, you know, the financial institution can’t find anybody to buy it because they [buyers] haven’t got a good enough credit rating, you say, well, instead of 20 percent down, why don’t we say 10 percent down. And then after a bit, well, instead of 10 percent down, why not 5 percent down. After a bit, you know, just — we get our money out of fees anyway, we don’t care about the mortgage, we just package it off and sell it to some unsuspecting municipality in Norway saying it’s as safe as houses. And the fact that later on they [buyers] won’t be able to pay their police services, too bad. So this is the way fictitious capital works.

End — 53:45

END OF PART 3

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