Financialization and its Discontents

May 04, 2021

By Francis Lee for the Saker Blog

THE NONAGE

The term financialization is generally used as a reference to that part of the economy indicated by the acronym FIRE (Finance, Insurance and Real Estate) and its growing importance in the economy in both qualitative and quantitative terms. Financialization has been a developmental process whereby financial markets, financial institutions, and financial elites have gained greater influence over economic policy and economic outcomes. Financialization transforms the functioning of economic systems at both the macro and micro levels. Its principal impact has been to elevate the significance of the financial sector relative to the real value producing sector of the economy; that is to say to transfer income from the value-producing sector to the extractive sector and thereby increase income inequality and wage stagnation.

EXPANSION AND GROWTH

Since 1970 this part of the economy has grown from a significant part of the US economy as well as of those overseas. This means that a significant magnitude of market transactions are associated with finance. In terms of corporate profits finance is said to account for approximately 40% of US GDP. This is a significant but disputed figure and, moreover, it does not include those overseas earnings of companies whose profits are repatriated to their countries of origin. Thus, the increasing presence and role of finance in overall economic activity and the increase of profits channelled to the financial sector represent the salient indicators as to what has been termed financialization. However, the level and importance of finance in the US economy is held in some quarters to have been actually deleterious to growth. A 2012 International Monetary Fund study concluded that the U.S. financial sector has grown so large that it is slowing economic growth. New York University economist Thomas Philippon supported those findings, estimating that the U.S. spends $300 billion too much on financial services per year, and that the sector needs to shrink by 20%. Harvard University and University of Chicago economists agreed, calculating in 2014 that workers in research and development add $5 to the GDP for each dollar they earn, but finance industry workers cause the GDP to shrink by $0.60 for every dollar they are paid. A study by the Bank for International Settlements reached similar conclusions, saying the finance industry impedes economic growth and research and development-based industries.

Wall Street – Belly of the Beast

So this 40% figure increasingly looks like an estimate and does not necessarily represent value or productivity since financialisaton is essentially an extractive process which basically moves wealth from one group to another. For example from everyday wage earners and productive enterprises to the banking, insurance, real estate, and other extractive retail and loan industries. In a study in 2016 two finance academics one at the University of Massachusetts, Professor Gerald Epstein one of the best-known authorities on financialization, together with Juan Montecino of Colombia University published a joint document.(1) It was a type of financial curse for the United States, and it sought to use established methods which attempted to measure the overall damage created by a bloated financial sector in the US. It was argued by these eminent scholars that financialization would put the economy at risk of debt deflation and prolonged recession. Crunching the figures the conclusion that they arrived at was ‘that the US financial system will impose an excess cost of between $12.9 trillion and $22.7 trillion on the US economy between 1990 and 2023, thereby ‘making finance in its current form a net drag on the American economy.’

This calculation of the putative benefits of the financial sector to the US economy, minus the costs imposed by this same sector, was equivalent to a net loss of $105,000-$184,000 for the average American family: without this loss, the typical US household would have doubled its wealth at retirement. The US economy would have been stronger today if the US government had simply paid its highest paying financiers their full salaries, then sent them off to live in luxurious gated communities to play golf all day. (2)

Regardless, financialization operates through three different conduits: changes in the structure and operation of financial markets, changes in the behaviour of nonfinancial corporations, and changes in economic policy. Countering financialisaton would call for a multifaceted agenda that; restores policy control over financial markets; challenges the neoliberal economic policy paradigm encouraged by financialization; makes corporations responsive to interests of stakeholders other than just financial markets, and; reforms the political process so as to diminish the influence of corporations and wealthy elites. As policy options go, this seems eminently sensible. But when have sensible ideas ever been given house room by the financial powers-that-be (PTB). Unfortunately, therefore, we seem stuck with this enemy within.

THE DESTRUCTION OF VALUE.

This ongoing transformative process – akin to an economic late-stage carcinoma – represents a regressive structural change in the nature of the late capitalist economy. This is to say the relationship between the value-creating manufacturing sector and the extractive sector, (FIRE) Finance, Insurance and Real Estate. In the earlier phase of capitalism, the financial sector was much smaller and served to grease the wheels of industry by providing investment capital and credit obtained from depositors. That symbiotic relationship has now ended, and finance has increasingly taken on a life form of its own relegating manufacturing industry to the second tier. Financialization is a pattern of accumulation that relies increasingly on profit making through financial channels even for firms which are not financial. As a case in question: General Motors in the US, for example, had a trading and finance sector which was to grow larger than the original auto-vehicle operation itself. And it was precisely this branch of the company which went bust during the 2008 crash, which gave rise to a bail-out from the Federal Government of $50 billion dollars. What’s good for GM is good for America, yes? Unfortunately, the same Federal Government was unable to stump up petty-cash of $13 billion for the home base of GM – Detroit – which also became bankrupt. This I think speaks volumes regarding the US government’s priorities. Interestingly Detroit was largely a population of Afro-American people.

The ongoing rise of financialization has been attributed to the decline in the rate of profit of manufacturing industry over the period of the post-war boom, the Trente Glorieuses 1950-1970, as the French called it. (3) The reasons for this long-term decline are another article, but the decline was palpable, nonetheless. Suffice it to say that the fall in the level of profitability occasioned a basic reconfiguration, both political and economic, in the nature of the global political economy. During this period of economic and political turbulence firms had to look for other ways of making profits other than through boom-style brick- and -mortar investment.

Fattening up the bottom line through reductions in corporation tax, tax avoidance scams such as transfer pricing, company share buy-backs, some very dubious mergers and acquisitions, the creation of ‘flexible’ labour markets, all generally involved finance and banking services which expanded their services to meet this increased demand; a demand that this sector created in the first place.

The financial leech on the productive economy may be best understood by a reference to biology.

There is a particular type of parasite which preys on humans – dracunculus – which can reach a metre in length. Care must be taken extracting these creatures since when one simply pulls off the protruding head of the worm, the worm will break and leak high levels of foreign antigen which can lead to anaphylactic shock and fast death of the host. Professor Michael Hudson compares this sort of biological parasitism with the financial parasitism, which is now sucking dry the world economy, the host. He writes:

‘’Furthermore, the rise of the Finance, Insurance and Real Estate sector – banks, credit agencies, investment companies, brokers and dealers of commodities and securities, security and commodity exchanges, insurance agents, buyers, sellers, lessors, lessees and so forth – has now reached such a level that it has become larger, more ubiquitous, and profitable than productive industry. Prior to the ascent of financialised capital and the deregulation and privatisation mania, the role of finance was usually restricted to greasing the wheels of the productive (value-creating) economy. Commercial banks took the publics’ deposits and funnelled it as credit into manufacturing and commercial enterprises. In this regulated environment commercial banks and other financial institutions were legally circumscribed in the level of credit they could extend.’’ (4)

FINANCE GOES GLOBAL

The seemingly unstoppable financial Runaway Train rolled on with the ‘Big Bang’ – that is to say the deregulation of finance carried out initially by the Thatcher government in the UK in 1986. The phenomenon was to spread around the world now that finance was off the leash. Instead of producing real value as embodied in goods and services, the selling of ownership titles – fictitious capital, which effectively represents accumulated claims, legal titles, to future production and more specifically claims to the income generated by that production – were simply paper claims to wealth rather than wealth itself. Banks for example were loath to lend to start-up manufacturing companies but fell over themselves to lend mortgage loans to anyone who had a pulse. This was to become the chosen field of investment. It was the essence of extractive capitalism. (5)

Unfortunately, as a result of financial deregulation the situation actually got worse. The Bank of England had, in its infinite wisdom, decided to host but not regulate a new market for homeless dollars in London. Yet this new business was not regulated or taxed by the United States either, so who was regulating or taxing it? The answer was nobody. Amid high anxiety about the loss of empire the City of London establishment had quietly turned Britain into an offshore tax and financial haven. Currency and financial traders immediately took note. The Americans gave this business an appropriate name. Eurodollar markets or Euromarkets. (6)

Thenceforth a Eurodollar, a dollar which was simply a dollar which had escaped Bretton Woods controls and was being traded in these new libertarian markets which were mostly located in Europe. Eurodollars were a new form of stateless monies and, as a London banker put it ‘completely isolated from the monetary mass of the rest of the UK .’… So Eurodollars were in one sense dollars like any other, but in another sense, they were different because they had escaped into a market outside of US government control, where they could behave freely.

According to A Bank of England memo in those early days this move explained the Euromarkets attractions: to wit, freedom from local supervisory controls such as Banking regulations to stop excessive risk taking – with OTO – ‘other peoples’ money’. Freedom from macroeconomic controls such as foreign exchange restrictions; low or zero taxes for the customers and players; secrecy and very liberal company legislation.

And where did this leave national governments? Well, the Euromarkets provided anonymity to tax avoiders, scammers and criminals of every stripe which included flight capital, terrorist and illicit drug cartels so they were the natural bases and hideaways for both elements of both the haute bourgeois and the criminal cartels. An illustration of the amount of monies secreted away in these tax havens can be gleaned from the figures: The Shadow Banking Sector of the Cayman Islands, stood at assets worth $5.8 trillion – equivalent of 170,000 percent of Cayman’s GDP and over twice the size of the UK’s GDP. Worth adding that the Cayman Islands in the Caribbean is only one tax-avoidance venue in Britain’s hidden empire.

The Cayman Islands.

Other dubious income stream recipients include, Anguilla, Bermuda, British Virgin Islands, Gibraltar, Montserrat, and the Turks and Caicos Islands. Nearer to home in the English Channel, there lie the tax havens of Jersey, Guernsey and the Isle of Man in the Irish Sea. These are now known as Crown Dependencies who did not cut all their ties after the Empire expired. (7)

But although in this respect the UK, that is to say the City of London and Canary Wharf, could arguably be regarded as being market leaders, it is only one of many well-heeled investor outposts in an archipelago of a global no-tax, no-questions asked, venues including Delaware – does Delaware ring any bells? It should. This is a multinational operation organized by multinational institutions, offering its services to an opulent global multinational clientele.

CLASS, POWER AND POLITICS

Reading the material for this article I became increasingly reminded as to the manner of which the present political/ideological developments and present conjuncture came into being along with its past manifestations. Back in the 18/19^th centuries there was a battle royal taking place between the old aristocratic landed classes and the newly emerging bourgeoisie based in the manufacturing towns of both Europe and the United States (8). The United Kingdom was very much at the centre of this political confrontation and the challenge to the established order of the King and the divine right to rule which had already been shaken by the English Civil War 1642-49 and had visibly weakened – particularly when Charles 1 had his head chopped off in 1649; this was followed by the French Revolution when Louis XVI also lost his head in January 1793. After which the French seemed to have developed a penchant for revolutions! (See 1848 and 1871.) But the new order was beginning to make its presence felt. Thus the 18^th and 19^th centuries were in essence class struggles which carried on into the 20^th century with the rise of socialism and nationalism.

But the interesting aspect has been the late 20^th century counter-revolutionary movement predicated on the development of a new bourgeois class which has effectively established itself inside the financial sector of the economy and has effectively become a new ruling class ably assisted by a vast political bureaucracy, the entertainment industry, Big Tech/Pharma and the media which now plays the role of an organized religious pillar of support to the existing order. History seems to be repeating itself, but not in quite the same fashion. So as Marx once said: “Hegel remarks somewhere that all great, world-historical facts and personages occur, as it were, twice. He has forgotten to add: the first time as tragedy, the second as farce.” (The Eighteenth Brumaire of Louis Bonaparte).

Key Historical Figures:

ADAM SMITH 1723-1790

Adam Smith was born in the Scottish town of Kirkcaldy 1723 son of a customs officer. Attended the university of Glasgow where he studied moral philosophy (1759) and was to publish The Theory of Moral Sentiments. And in 1776 The Wealth of Nations.

1. This was the age of Industrial capitalism.
2. He was a friend of the great conservative Scottish philosopher David Hume.
3. In 1776 his magnum opus ‘’An Inquiry into the Nature and Causes of The Wealth of Nations. A work which became the foundation for the new ‘science’ of Political Economy.
4. Smith saw the economy as being subject to a set of invariant scientific laws. Economic processes were driven above all by ‘’the natural effort that every man is continually making to better his own condition … within the complex and changing web of economic phenomena we will find one constantly acting force; the uniform, constant and uninterrupted effort of every man to better his condition, the principle from which public and national as well as private opulence is originally derived.’’
5. This is human nature, according to Smith. Moreover, this invariable human nature manifests itself most forcefully under social conditions, namely those of the bourgeois order of private property and unrestricted competition.
6. So far as economic contacts are concerned everyone enters intercourse with others only insofar as this is dictated by his own personal interests and promises some form of gain. The form of this intercourse is exchange conducted in markets.
7. Famous quote: ‘’It is not from the benevolence of the brewer, the butcher or the baker that we expect our dinner but from their regard to their own interests.’’
8. Smith deduces the basic socio-economic institutions that characterise a commodity-capitalist economy from the nature of man; what he takes as human nature, however, is the determinate nature of man under the influence of the commodity-capitalist economy.
9. A philosophy of rational and radical individualism.
10. Society and the individual will prosper with freedom of individual economic initiative and the elimination of state interference. ‘’Thus, every man as long as he does not violate the laws of justice, is left perfectly free to pursue his own interests in his own way, and to bring both his industry and his capital into competition with those of any other man, or order of men. The sovereign is completely discharged from a duty performed ….
11. Smith was the founder of the doctrine of economic liberalism – maximum freedom for the individual and freedom from coercive state interference.
12. Smith therefore considered the economic phenomena of bourgeois society to be ‘natural’ in the sense that they had been arranged in the best possible fashion and required no conscious intervention by any agencies of state or of society.
13. Smith was vehemently opposed to the creation of monopoly, which he viewed as simply criminal organizations.

David Ricardo (1772-1823)

Born in London, England, Ricardo was the third to be born to a Sephardic Jewish family of Portuguese origin who had recently relocated from the Dutch Republic. His father, Abraham Ricardo, was a successful stockbroker. Ricardo junior began working with his father at the age of 14. At age 21, Ricardo eloped with a Quaker woman, Priscilla Anne Wilkinson, and, against his father’s wishes, converted to the Unitarian faith. This religious difference – Judaism and Christianity – resulted in estrangement from his family, and he was led to adopt a position of independence. His father disowned him, and his mother apparently never spoke to him again.

Ricardo was part of the radical intelligentsia who believed that history was cyclical rather than linear. His was a high-Tory view rather than the Whiggish notion that history was advancing in the direction of progress and reason. This is clearly reflected in Ricardo’s views (see below) as well as others such as Thomas Malthus. What Ricardo foresaw was rather different than the Whiggish view of progress. This latter view postulated a world in which everyone moved together up the escalator of progress. Unlike Smith, however, Ricardo saw that the escalator worked with different effects on different classes. Some rose triumphantly to the top, whilst others, who managed to move up a few rungs of the ladder could be kicked down to the bottom; whilst those who got the full benefit of the ride – the landed aristocracy – did nothing at all to earn their reward – i.e., the power of the soil and the rent on land.

To Adam Smith society was one great family; to Ricardo it was an internally divided camp. ‘’The interest of the landlord is also opposed to the interest of every other class in society – namely, capitalists and workers. Ricardo’s animus toward to the land-owning classes was in part based upon this theory of economic rent as outlined in his definitive work, The Principles of Political Economy and Taxation first published in 1817.

THE THEORY OF RENT

Suppose, says Ricardo, there are two neighbouring land-lords. On one landlord’s fields the soil is fertile, and with the labour of a hundred men and a given amount of equipment he can raise 15 hundred bushels of wheat. On the second landlord’s field the soil is less fecund; the same men and their equipment can only raise one thousand bushels. This is merely a fact of nature, but it has an economic consequence; the grain will be cheaper per bushel on the fortunate landlord’s estate. Obviously since both landlords must pay the same wages and capital expenses, there will be an advantage in cost to the man who secures 500 more bushels than his competitor.

It is this difference in costs that rent springs. For if the demand is high enough to warrant tilling the soil on the less productive farm it will certainly be a very profitable operation to raise grain on the more productive farm. Indeed, the greater difference between the two farms, the greater will be the differential rent. If for example it is just barely profitable to raise grain at a cost of £2 a bushel on very infertile land, then certainly a fortunate landowner whose rich soil produces grain at only 50 pence a bushel will gain a large rent indeed. For both farms will sell their grain on the market at the same price say £2.10 – the owner of the better ground will therefore be able to pocket the difference of £1.50 in their respective costs of production.

No-rent on Marginal Land:

In the diagram below the most productive land (A) has the highest yield 35 quintiles. The marginal land (D) which just covers its expenses and no more. This land is called ‘no-rent land’. All rents are measured from it upwards.

‘D’ quality and land which produces 20 quintals per plot is the marginal land. Here the return and cost are equal. It is just worthwhile cultivating this land since it just covers expenses of cultivation and yields no surplus to the cultivator. Thus, the concept of economic rent, more broadly applied, means a rent (surplus) income over and above the normal/average income which normally accrues to factors of production. This particularly applies to monopolistic and oligopolistic market conditions. Present day monopolists/oligopolists pay a premium for their costs of output over and above average profit – this premium is ‘economic rent’.

DIMINISHING RETURNS

However, Ricardo was astute enough to point out the capitalism was (still is) a dynamic system, constantly mutating and expanding. This had the effect of an increasing demand for factor inputs, including labour. This led to rising wages; but only temporarily, since this increased income produced more children, future labourers, who would flood the market with still more labourers. And this is where Ricardo parted company with the sunny, prosperous world predicted by Smith. Ricardo postulated that as population expanded it would become necessary to push the margin of cultivation out further. More mouths would demand more grain and more grain would need more fields. Naturally, the newly cultivated fields would not be so productive as those already in use, for it would be a foolish farmer who had not already used the best soil available to him.

Therefore, as the growing population caused more and more land to be put into use, the cost of producing grain would rise. Thus, the selling price would also rise and so would the incomes of the well-situated landlords. Moreover, wages would need to rise pari passu also, since as grain became more expensive the labourer would have to be paid more, simply to enable him to buy his sustenance to stay alive.

This is the ‘law’ of diminishing returns. And it benefits nobody except the landlords. The capitalist-the man responsible for the progress of society in the first place-has been caught in two jaws of a vice. 1. He must pay higher wages which increase costs, since bread is become more expensive. 2. The landlords are much better off, since the rents they have been rising on good land, as worse and worse land has been planted. And as the landlord’s share in society’s bounty increases, there is only one class that gets elbowed aside to make room for him – the capitalist. What a different conclusion from Adam Smith’s great pageant of progress. Suffice it to say Ricardo was the voice of the rising industrial bourgeois class against what both he and they considered a parasitic, rentier landowning gentry. It was in this spirit that he campaigned against the high tariff on imported corn.

FREE TRADE & COMPARTIVE ADVANTAGE: The condition in which the free flow of goods, services and finance in international exchange is neither restricted nor encouraged by government intervention. This line of reasoning was originally given a theoretical elaboration by David Ricardo (1772-1823) and his theory of comparative advantage. This was a hypothetical construct where two nations – England and Portugal – both produced wine and cloth. Portugal had an absolute advantage in both. But a comparative advantage in wine. It would therefore benefit all if England were to specialise in cloth and Portugal in wine. This theory rested upon a number of questionable assumptions. These are as follows:

a) Factors of production are perfectly mobile within each country and they can be instantly switched between industries without any adjustment problems. However the same factors are immobile between countries, though final goods and services can be traded.

b) There are constant returns to scale and constant average costs of production in both industries and both countries

c) Both commodities, wine and cloth, are in demand in both countries.

d) The limited resources and factors of production in each country are fully employed.

e) Transportation and adjustment costs involved in trade are discounted

In the real world, however, none of the above assumptions hold. All governments are heavily involved in regulating overseas trade. They either seek entry into other markets or attempt to restrict entry into their own. Essentially all governments are in one way or another mercantilist (see below) and in this sense free-trade is just another policy option to be placed alongside protectionism: they are not antipodes but twins. International trade, like war, is a continuation of politics by other means.

NOTES

The development of political economy did not of course stop at this point, but quite simply I did not have any inclination to go further and summarise the significant impact of Karl Marx, John Stuart Mill in the 19^th century and J.M.Keynes and J.A.Schumpeter in the 20^th. The process is of course open ended.

(1) Overcharged: The High Costs of High Finance. 2016

(2) The Finance Curse – Nicholas Shaxson. – 2018 – p.11

(3) K.Marx – The Long Run Tendency for the Rate of Profit to Fall – Capital Volume 3, Chapter 25. And/or J.A.Schumpeter, ‘Business Cycles ‘- Schumpeter believes in the existence of the long wave of upswings (or boom) and downswings (or depression). Once the upswing ends, the long wave of downswing begins and the painful process of readjustment to the “point of previous neighbourhood of equilibrium” starts.

(4) M.Hudson – Terminal Infection – Killing The Host 2015

(5) The Big Bang – 1986 – finance goes global. See also, Fictious capital, Marx, chapter25 Volume 3 of Capital.

(6) What is a Eurodollar? The term Eurodollar refers to U.S. dollar-denominated deposits at foreign banks or at the overseas branches of American banks. Because they are held outside the United States, eurodollars are not subject to regulation by the Federal Reserve Board, including reserve requirements. Dollar-denominated deposits not subject to U.S. banking regulations were originally held almost exclusively in Europe (hence, the name Eurodollar). Now, they are also widely held in branches located in the Bahamas and the Cayman Islands. What is a euromarket? The euromarket extends beyond the Eurozone countries that use the euro currency to all countries signed on to that free trade agreement.

(7) Nicholas Shaxson – The Finance Curse – 2018 passim.

(8) Although there was no Aristocratic class in the US – perhaps in the South. There was King George of course but he was on the other side of the Atlantic.

River to Sea Uprooted Palestinian   

The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of the Blog!

Does the US Still Have an Economy?

February 10, 2021

Paul Craig Roberts

People want to know where the economy is headed.  What they should be asking is does the US still have an economy?  My answer is no, it doesn’t.  I will explain why.

For a quarter century I have pointed out the destructive effect of moving American investment and jobs to China and other points abroad.  Offshoring served the interests of corporate executives and shareholders. The lower labor costs raised profits and, thereby, executive bonuses and the prices of the stocks, resulting in capital gains for shareholders.  

These benefits accrued to a small percentage of the population.  For everyone else these closely held benefits imposed huge external costs many times greater than the rise in profits.  The American manufacturing workforce was devastated, as was the tax base of cities, states, and the federal government. The middle class shrunk and the populations of St Louis, Detroit, Cleveland, Pittsburgh, South Bend and Gary Indiana, Flint Michigan and other cities declined as much as 20%. The hopes and aspirations of millions of Americans were crushed. Once thriving American cities became blighted. Supply chains and real estate values collapsed. (See Paul Craig Roberts, The Failure of Laissez Faire Capitalism, Clarity Press, 2013. https://www.claritypress.com/book-author/paul-craig-roberts/ )

As incomes fell for the bulk of the American population, incomes rose for the One Percent. Income and wealth gains have been concentrated at the top resulting in the United States today having one of the most unequal distributions of income and wealth in the world.

As the offshoring of high productivity, high value-added manufacturing jobs reduced American incomes, US aggregate domestic demand was impacted and economic growth fell.  The Federal Reserve expanded credit and substituted an increase in consumer debt for the missing growth in consumer income.  This aggravated the indebtedness that economist Michael Hudson correctly emphasizes is exhausting consumer income to pay debt service—mortgages, car payments, credit card and student loan debts—which leaves little or no discretionary income to drive economic growth. 

Hudson, who has been on the job of analyzing America’s eroding economy for a long time, emphasizes that the US economy is no longer a productive or industrial economy but a financialized economy in which bank lending is not used for new plant and equipment but for the financing of takeovers of existing assets in pursuit of interest, fees, and capital gains– what the classical economists called unearned income or “economic rent.”  In short, Hudson demonstrates that the American economy is no longer a productive economy.  It is a rent-seeking economy.

Hudson points out that as the economy is increasingly financialized, looting shifts to the privatization of public assets.  The examples are endless. In the UK the post office was privatized at a fraction of its value, along with public housing, transportation and British Telephone, resulting in huge private gains. The French also privatized public holdings. In Greece the municipal ports and water companies were privatized along with Greek protected islands. In the US, segments of the armed forces are privatized, along with prisons. Chicago sold 75 years of its parking meter fees to a private entity for one lump sum payment. Everywhere public assets, including services, are being sold to private interests.  In Florida, for example, the issuance of the annual vehicle license tag is privately provided. When there is nothing left to privatize, what will banks finance?

Hudson notes that the real economists, the classical ones, focused on taxing unearned economic rent, not labor income and productive activity.  Today’s neoliberal economists are unable to differentiate between economic rent and productive activity. Consequently, GDP analysis fails to reveal the economy’s transformation from a productive to a rentier economy. Hudson terms neoliberal economists “junk economists,” and I concur.  Essentially, they are shills for the financial sector and for the offshoring corporations who paid them to conflate job and investment offshoring with free trade.

I am convinced that if the entirety of neoliberal economics were erased nothing of value would be lost.  Economists, particularly academic economists, are in the way of truth. They live in a make-believe world that they created with assumptions and models that do not bear on reality.

I am familiar with universities and academic economics. I graduated from an engineering and scientific institution—Georgia Tech—and then was a graduate student in economics at the University of Virginia, University of California, Berkeley, and Oxford University. I had four Nobel prize-winners as professors. I have a Ph.D. in Economics. I have made contributions to major journals of economics and to others outside the field, 30 published articles altogether before I left academia. I served for years as a reviewer for the Journal of Political Economy with the power to decide publication of submitted research.  I have peer-reviewed books from Harvard University Press and Oxford University Press. I have debated Nobel prize winners before professional audiences. I served as a Wall Street Journal editor and as Assistant Secretary of the US Treasury, and have had many university appointments.  Michael Hudson also has real world experience in major financial institutions, international organizations, and governments, as well as US and overseas professorships  and  contributions to academic publications in many languages.

In other words, we know what we are talking about. We have no interest to serve except truth. No one pays us to serve an agenda. 

But we are only two voices.

Two decades ago I was presented with the prospect of a large increase in amplification of my voice about the deleterious effects of offshoring.  In December 2003 I received a telephone call from US Senator Charles Schumer, Democrat, New York. Senator Schumer had been reading my columns in which I made the case that under the guise of free trade, jobs and investment were being moved offshore at the expense of US economic success. Senator Schumer shared my concern and asked if a Reagan Treasury official would agree to coauthor with a Democrat Senator an article for the New York Times raising the issue whether job offshoring was in America’s interest. 

Our article appeared on January 6, 2004.  Here it is:

Second Thoughts on Free Trade

By CHARLES SCHUMER and PAUL CRAIG ROBERTS

New York Times, January 6, 2004

“I was brought up, like most Englishmen, to respect free trade not only as an economic doctrine which a rational and instructed person could not doubt but almost as a part of the moral law,” wrote John Maynard Keynes in 1933. And indeed, to this day, nothing gets an economist’s blood boiling more quickly than a challenge to the doctrine of free trade.

“Yet in that essay of 70 years ago, Keynes himself was beginning to question some of the assumptions supporting free trade. The question today is whether the case for free trade made two centuries ago is undermined by the changes now evident in the modern global economy.

“Two recent examples illustrate this concern. Over the next three years, a major New York securities firm plans to replace its team of 800 American software engineers, who each earns about $150,000 per year, with an equally competent team in India earning an average of only $20,000. Second, within five years the number of radiologists in this country is expected to decline significantly because M.R.I. data can be sent over the Internet to Asian radiologists capable of diagnosing the problem at a small fraction of the cost.

“These anecdotes suggest a seismic shift in the world economy brought on by three major developments. First, new political stability is allowing capital and technology to flow far more freely around the world. Second, strong educational systems are producing tens of millions of intelligent, motivated workers in the developing world, particularly in India and China, who are as capable as the most highly educated workers in the developed world but available to work at a tiny fraction of the cost. Last, inexpensive, high-bandwidth communications make it feasible for large work forces to be located and effectively managed anywhere.

“We are concerned that the United States may be entering a new economic era in which American workers will face direct global competition at almost every job level — from the machinist to the software engineer to the Wall Street analyst. Any worker whose job does not require daily face-to-face interaction is now in jeopardy of being replaced by a lower-paid, equally skilled worker thousands of miles away. American jobs are being lost not to competition from foreign companies, but to multinational corporations, often with American roots, that are cutting costs by shifting operations to low-wage countries.

“Most economists want to view these changes through the classic prism of “free trade,” and they label any challenge as protectionism. But these new developments call into question some of the key assumptions supporting the doctrine of free trade.

“The case for free trade is based on the British economist David Ricardo’s principle of “comparative advantage” — the idea that each nation should specialize in what it does best and trade with others for other needs. If each country focused on its comparative advantage, productivity would be highest and every nation would share part of a bigger global economic pie.

“However, when Ricardo said that free trade would produce shared gains for all nations, he assumed that the resources used to produce goods — what he called the “factors of production” — would not be easily moved over international borders. Comparative advantage is undermined if the factors of production can relocate to wherever they are most productive: in today’s case, to a relatively few countries with abundant cheap labor. In this situation, there are no longer shared gains — some countries win and others lose.

“When Ricardo proposed his theory in the early 1800’s, major factors of production — soil, climate, geography and even most workers — could not be moved to other countries. But today’s vital factors of production — capital, technology and ideas — can be moved around the world at the push of a button. They are as easy to export as cars.

“This is a very different world than Ricardo envisioned. When American companies replace domestic employees with lower-cost foreign workers in order to sell more cheaply in home markets, it seems hard to argue that this is the way free trade is supposed to work.

“To call this a “jobless recovery” is inaccurate: lots of new jobs are being created, just not here in the United States.

“In the past, we have supported free trade policies. But if the case for free trade is undermined by changes in the global economy, our policies should reflect the new realities. While some economists and elected officials suggest that all we need is a robust retraining effort for laid-off workers, we do not believe retraining alone is an answer, because almost the entire range of “knowledge jobs” can be done overseas. Likewise, we do not believe that offering tax incentives to companies that keep American jobs at home can compensate for the enormous wage differentials driving jobs offshore.

“America’s trade agreements need to to reflect the new reality. The first step is to begin an honest debate about where our economy really is and where we are headed as a nation. Old-fashioned protectionist measures are not the answer, but the new era will demand new thinking and new solutions. And one thing is certain: real and effective solutions will emerge only when economists and policymakers end the confusion between the free flow of goods and the free flow of factors of production.

“Charles Schumer is the senior senator from New York. Paul Craig Roberts was assistant secretary of the Treasury for economic policy in the Reagan administration.”

Senator Schumer’s staff seemed to think that free trade was the problem because real world conditions had changed.  My position was that jobs offshoring was not free trade.  But I realized that any opening of the question was promising.

Our article in the New York Times had an extraordinary impact. The Brookings Institution, at that time an important liberal economic policy think tank that was home to former economic policy makers, called a Washington conference to hear us and examine our position. There was a panel with myself, Schumer, a former policymaker and the head of the US manufacturing lobby who could not figure out which side to be on.  C-Span gave the conference  live coverage and rebroadcast it a number of times.

Here is the video of the conference called in Washington to submit the argument by Schumer and myself to scrutiny: https://www.c-span.org/video/?179821-1/us-trade-policy-global-economy 

Schumer and I carried the day. Members of the audience came up afterwards, including World Bank economist Herman Daly, in support of my position that the destruction of the American manufacturing economy could not be reasoned away as a free trade result.

Senator Schumer had a sincere interest in what job offshoring was doing to his constituents.  He proposed that we continue our collaboration and write a second article for the New York Times. In those days the Times was still, partly, a newspaper rather than a total propaganda voice for the Establishment, and the Times assumed nevertheless that a Democrat Senator from New York and an Treasury Official who had been confirmed in office by the US Senate  were part of the establishment. 

The second column began and then suddenly went dead.  No response.  A telephone call revealed that the staffer with whom I was working was no longer there.  After discussing this with old Washington hands, I concluded that Schumer had not realized that he was threatening Wall Street’s interest in higher profits by opening the question of jobs offshoring and had received a good talking to.  

Wall Street Killed the Schumer/Roberts truth squad and protected the profits from job and investment offshoring.

This is what happens to elected officials when they attempt to represent the general interest rather than the special interests that finance political campaigns. The public interest is blocked off by a brick wall posted with a sign that says get compliant with the Establishment or get out of politics. Unless money is taken completely out of electoral politics, there will be no democracy.

Globalism serves to destroy sovereign and accountable government. In the US globalism destroyed the manufacturing middle class. Now Covid lockdowns are destroying the remainder of the middle class—family businesses.  Businesses have fixed costs.  When they cannot operate red ink mounts and the businesses fail.  The lockdowns together with jobs offshoring monopolize the economy in few hands.  This is not a theory.  It is what we are experiencing.  Feudalism is being resurrected.  A few lords and many serfs. The serfs will be dependent on the lords and will have no independence.

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The Democratic Facade

 NOVEMBER 07, 2020 BY GILAD ATZMON

by Gilad Atzmon 

On election day, countless progressive and liberal commentators throughout the entire mainstream media were foolish enough to admit that the battle at stake wasn’t really about ‘Trump or Biden’ but about the ‘American way,’ the future, so to say, of the public discourse and public life in the USA. Progressives and liberals were confident enough to believe that with nearly 100 million ballots given in before election day, Americans had already cast an unprecedented spectacle of rejection of everything that may even mildly resemble ‘conservative values.’ They were convinced that America had made its choice already. For them, I must assume, the election was just an act of formality. The battle was basically won already.

 But then just a few hours later, it became clear that the pollsters failed them completely once again. The ‘Trumpsters’ refused to evaporate. They grew substantially and even expanded demographically into some ‘unexpected’ electoral territories traditionally associated with Democratic politics.

 The clear meaning of the election is that America, like most other Western states, is divided in the middle into two opposing societies that have very little in common.  Far more worrying is the clear fact that the two sides of the divide cannot tolerate each other. 

As much as the Left, Progressives and Liberals are convinced by the absolute validity of their way of thinking, to the point that they insist to dictate them by authoritarian and tyrannical measures, at least as many people do not buy, follow and even reject those values.   Many Americans do not accept the identiterian shift. Many Americans are not convinced at all that gender isn’t binary. I assume that most disappointing and worrying for the DNC is the fact that members of ‘diverse minorities’ as the Democrats call them, have switched sides. They became vocal Trump supporters.

Watch a Cuban fusion band sings “I will Vote for Donald Trump” https://www.youtube.com/watch?v=6HpwNRSE4nM

This is very easy to explain. The Democratic Party offers Blacks, Gays, Latinos and so called ‘diverse minorities’ to be marginalized forever in an amalgam of ‘Others United’.  The GOP is offering those people an immediate integration as ordinary people into the American realm. All you need to do is get yourself a red Trump baseball cap and join your next local Trump rally. It is this most basic existential togetherness that was so vivid within the Left revolutionary discourse, but only materialized into a populist sustained tsunami of political resistance within the contexts of right-wing populist politics. 

In the upside-down world in which we live. The Republican party has become the party of the American working-class people. People who are defined by their adherence to family values, the church, hard work and see themselves as the ‘Americans.’  The Democratic party that claimed to be the voice of those working people, has gradually morphed into an urban identiatrian conglomerate.  A collective of ‘as a’ people: humans who insist to identify with their biology:  ‘as a Woman,’ ‘as a Gay,’ ‘as a Trans,’ ‘as a Black,’ ‘as a Jew.’

In the upside down world in which we live, the Left ended up adopting the most embarrassing and problematic Hitlerian ideological aspect: Unlike Italian fascism that adhered to the concept of ‘socialism of the Italian people,’ or early Nazism that pushed for the idea of ‘equality of German speaking people,’ Hitler insisted upon ‘socialism of one race.’ Hitler believed that people’s politics is intrinsic to their biology. As opposed to traditional inclusive Left thinking that was class oriented, the contemporary Left pushes people to identify politically on biological terms: ‘as a woman,’ ‘as a black,’ ‘as a gay,’ ‘as a trans’ etc. The GOP on the other hand, is coming closer and closer to universal class politics.  

On the morning of the 3rd of November, the liberal press was ready to announce that the ‘as a’ philosophy had won. But as things stand right now, this  battle between the ‘as a’ people  and the ‘Americans’ may escalate into a real violent conflict as there is no one in America or anywhere else who knows how to unite the people into a simple concept of peoplehood. Again, this is hardly an American phenomenon. The exact same division and the lack of a political unifying prospect is currently apparent in every Western State.

On Thursday, Wall Street rose substantially. Naturally, many commentators believed that our oligarchs and financial tycoons were excited by Biden’s likeliness to win the American election. But it may also be possible that Wall Street was way more thrilled by the prospect of a possible civil war. When people fight each other, capitalism, mammonism and usury can be celebrated mercilessly and boundlessly. This is exactly what Wall Street is after.   

It may as well be possible that in the global universe in which we live, in a world where all existential concerns reintroduced themselves as ‘global threats’ to do with: global warming, global financial turmoil, global pandemics etc., a state of bitter civil war is exactly where global capitalism wants us the people to be. Democracy and the fantasy of political choice, as such, are just a camouflage. It is there to convey the image that the current chaos is merely our own choice or fault.  

To understand ID politics and its disastrous impact on contemporary society read Being in Time

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The Death of the Nation State has been somewhat exaggerated (Part 2)

October 12, 2020

By Francis Lee for the Saker Blog

Globalization – i.e., neo-liberalism writ large – is essentially a negative phenomenon destroying the sovereignty and cohesion of nation states and thereby depriving markets of the social and political guidance without which they cannot function effectively…The result will be a socially divisive, politically destructive, ethically abhorrent and even economically inefficient structure.(1)

JOINED AT THE HIP

Transnational Corporations (TNCs) can be compared to a tree: they have extensive branches everywhere, but their roots are firmly based at National HQ. Of late this has become a disputed view. One of the contemporary clichés in the current discussion of global political economy is the rather dubious concept of the end of the nation state and the subsequent breaking of the shackles which had hitherto tied TNCs to specific geographical and legal locations. It has been argued that these organizations have moved beyond the control of nation states who can no longer exercise effective jurisdiction over their activities.

This ‘state-denial’ thesis has been articulated by the influential hyper-globalist faction ensconced in the financial press, academic economics departments and political parties. In a ‘borderless’ world the state apparently no longer matters; economic power has shifted from sovereign states to global markets. In the words of the German political and social theorist, Wolfgang Streeck, ‘Markets were once fitted into states; now states are fitted into markets.’(2)This change has involved a global transmutation which reputedly has been brought about by the invention of revolutionary technologies in transport and communications. Such is the thesis put forward by the spokespersons of globalization.

True to say that in general terms all states have to choose a global strategy; they have to look at the full range of choices, then they have to decide what is in their best interests. In the current era of global competition, trade liberalization via the market remains the riskiest choice of all. It demands that trade barriers of all kinds be dismantled – the EU model being the archetype. With this policy governments have to let international competitive pressures restructure industries without recourse to state aids or other protectionist methods. This requires states to open their borders regardless of the costs and consequences in industries and vulnerable workers. Russia in the 1990s was a textbook example of what would happen if a state opened its economy too early, namely, a massive economic contraction. In the official textbooks among the neo-classical scribblers in academe and the media, markets are seen to be self-organizing social and economic space responding to universal demand and supply signals.

For countries which accept this view of the world economy, state power to make policy independent of a country’s major trading partner is being progressively eroded as countries find themselves trapped in a seamless web of interdependency. Larger markets do not come without a cost. This much is axiomatic.

Since the 2008 crisis, however, and now the 2020 blowout the state-denialist view has been more difficult if not actually impossible to sustain. It was after all the allegedly redundant state (or states) which pulled capitalism’s chestnuts out of the fire with the bail-out of insolvent American banks in 2008. As the story goes, during the meeting between Obama and the Wall Street elite at the height of the 2008 crisis the President apparently remarked that it was only himself who stood between the assembled financial movers and shakers of Wall Street and ‘the pitchforks’. The US government also ponied up some US$50 billion to bail out distressed auto manufacturers General Motors and Ford who were based in ‘Motor City’ (Detroit). Detroit itself was also bankrupt but the Federal government was unable to find an additional US$13 billion to bail out the city itself. Maybe – just a thought – because the population of Motor City was largely African-American.

However, the received wisdom emanating from the neoliberal elite has been challenged with a more critical assessment coming from heterodox economic theorists.

As follows.

‘’Contrary to the globalist supposition and as a matter of fact, the (sovereign) state always has, and continues to be the mobilizing force in shaping and guiding national economic development, including globalization itself. Given that an increased capability to overcome geographical distance made possible by technological innovations in transport and communication technologies is of little use if there are political barriers to such movements. Thus, policies of liberalization, deregulation and privatisation were necessary to overcome non-technical barriers to the free flow of labour, capital, and commodities. Therefore, the enabling force of globalization was the state. In fact, the bigger and more powerful states have used globalization as a means of increasing their own power and interests.

States actively construct globalization and use it as soft geo-politics and to acquire greater power over, and autonomy from, their national economies and societies respectively … E.g. … The US and G7s other dominant members design and establish the international trade agreements, organizations, and legislation that support and govern trans-border investments, production networks, and market penetration constitutive of contemporary globalization. Advanced capitalist states, particularly, use these political instruments to shape international economic decision making and policy making in their interests.’’ (3)

In addition, nation-states protect, subsidize, manipulate currencies, impose quotas, sanctions, give tax breaks and exemptions to export industries, R&D, and grant patents, use procurement policies and intellectual property rights to their indigenous corporations to both protect their home markets and help them penetrate overseas markets. This is laughingly described as ‘free trade’. States and corporations are not antipodes they are twins, and arguably the state is the senior partner in this arrangement.

For example, in 1934 the Roosevelt administration passed the Glass-Steagall Act. This involved a forced separation of investment banking from commercial banking which stopped banks speculating with depositors’ monies. In 1999, however, Bill Clinton signed the Financial Services Modernization Act, commonly known as Gramm-Leach-Bliley, repealing the key components of Glass-Steagall whose articles became largely toothless. This was what Wall Street had been angling for and which gave an additional push to the eventual debacle in 2008.

The state giveth, and the state taketh away.

Thus, the notion that powerful trends of internationalization and interdependence have ended national sovereignty is vastly overstated. States remain in charge of the essential part of their national sovereignty: monetary policy, (except in the Eurozone of course) law-making, macroeconomic policy, finance and taxation, environment, education, labour markets, industrial relations, pensions, health and welfare, social policy, science and technology and so forth. Arguably no supra-national entity has yet been designed to replace what has been an effective system of national government. Unimpeded global flows of capital in search of lucrative investment opportunities, are hardly conducive for countries wishing to plan and stabilize their future free from the vagaries of uncontrolled markets

TENSIONS

Power to shape/control the global system is concentrated in the hands of states and/or the newly emergent TNCs. Of course, there is not going to be a simple description of this development as the relationship between these two pillars of modern imperialism is both fractious and permanently mutating. The received wisdom, as put forward by the various spokespersons for globalization, ranging from the Bank of International Settlements (BIS) OECD, WTO, World Bank and IMF, and through the globalist house journals of the global Transnational Uberklasse – The Financial Times, The Economist and Wall Street Journal – is predictable enough. Namely that the state is always in a subservient position vis-à-vis the dominant TNCs.

This perhaps would qualify as a procrustean effort to make the facts fit the theory. Contrary to the image of the all-powerful TNC demanding fealty and obedience from prostrate states, the relationship is somewhat more symmetrical; corporations and states are always to a certain degree joined at the hip.

They are both competitive and competing, both supportive and conflictual. They operate in a fully dialectical relationship, locked into unified but contradictory roles and positions, neither one nor the other partner completely able to dominate.

NO PLACE LIKE HOME

Additionally, the widespread notion that a TNC can simply up sticks and move lock, stock, and barrel to a more compatible venue if its home base no longer suits its purposes, is fanciful in the extreme. All TNCs have home bases, national HQs. Here is where global strategy is determined; here is where top-end R&D is carried out; here is where design and marketing strategies take place; here is where the domestic market is situated and where long-term domestic suppliers are located; here is where overseas operations are conceived planned and carried through; here is where AGMs of the Corporations takes place with published accounts circulated to all shareholders; here is where the local workforce, at all levels, is recruited; here is where the political bureaucracy and the above mentioned institutions are situated and amenable to lobbying. Picking an obvious example, the US defence industries, Raytheon, Lockheed-Martin, Northrop-Grumman, General Dynamics, Boeing, are all based domestically and are not, even if they could, going to jump ship anytime soon.

It is unquestionably true that TNCs and states often have divergent goals: TNCs’ primary function is to maximise profits and enhance shareholder value, whereas the economic role of the state should be to maximise the economic welfare of its society. But although this conflictual relationship exists, states and TNCs need and lean on each other in a variety of ways. States might wish that TNCs are bound by allegiance to national borders – and in many ways they are (see above) – but total allegiance is not an option in a liberal capitalist economy. Indeed, it would be true to say that some states regard TNC (activities) as being complementary to their foreign policy. Here economic issues merge with geopolitical imperatives. For example, American political leaders have believed that the national interest has also been served by the foreign expansion of US corporations in manufacturing and services. Foreign Direct Investment (FDI) has been considered a major instrument through which the US could maintain its relative position in world markets – as is of course the US$ acting as the world’s reserve currency – with the overseas expansion of TNCs being regarded as a means to maintain America’s dominant world position. As it was succinctly stated. ’What’s good for General Motors is Good for America’.

THE EU: SUPRANATIONAL OR NATIONAL STATES.

Which brings me to the EU. The state-declinist thesis seems to have gained a considerable traction in Europe among the orthodox left. No less a personage than Yanis Varoufakis – the initiator of DiEM2025 (Democracy in Europe) – has been reading the last rites of state democracy and sovereignty in Europe. Apparently, the model of politics based on the nation state is ‘finished’. The sovereignty of national parliaments has been dissolved. Today, national electoral mandates are impossible to fulfil. Hence, reform of the European institutions (specifically the Euro Parliament), is the only remaining option.

Essentially this is the latest version of the TINA ‘argument’, (there is no alternative), pioneered by Mrs Thatcher and rolled out with monotonous regularity ever since by every cornered establishment politician, both left and right. As has been noted elsewhere. ‘’Tell the population that the nation-state is ‘finished,’ that it is unable to guarantee full employment (or to work towards it) and you free yourself of the responsibility of even trying.’’ The same goes for austerity or anything else. If the nation state is ‘kaput’ it is futile to oppose it.’’(4)

Globalization, however, is far from being the all-powerful and all- encompassing Leviathan postulated by the declinists. ’There are major cultural and linguistic differences that preclude a full mobilisation of resources across national borders. There is ‘home bias in investment portfolios. There is a high correlation between national investment rates and national saving rates. Capital flows between rich and poor nations fall considerably short of what theoretical models predict. There are still severe restrictions to the international mobility of labour. The truth is that we do not live in a completely globalised world, far from it. Ergo, nation-states can pursue their own fiscal and monetary policies.

Ex-leader of the British Labour Party, Jeremy Corbyn’s (quite moderate) policy proposals, during the 2017 and 2019 UK elections, namely, peoples’ QE, renationalisation of the Railways, taking into public ownership the energy and water industries together with the Royal Mail were not beyond the scope of the UK qua sovereign and democratic state. Additionally, these policies found considerable support among the UK’s population at large. (5) Unfortunately Corbyn’s programme was derailed by pro-EU elements in the Parliamentary Labour Party, the MSM and a vicious and mendacious ‘antisemitic’ smear campaign aimed at Corbyn. But this doesn’t alter the fact that a sovereign country can issue its own currency and formulate its own fiscal and monetary policy that can override the EU neo-liberal package of free movement of labour, capital, and commodities. This in addition to blocking the drive to deregulate labour markets (euphemistically, ‘flexibilization’). The sovereign state is perfectly capable of a policy for growth rather than for continued austerity which has become the hallmark of the EU area. But to carry out such growth policies would require an exit from the EU. There’s the rub. Social-democratic policies are incompatible to the EU’s liberal orientation, which is a structurally, neo-liberal capitalist institution.

The euro has in fact simply been designed to ensure that Germany runs a permanent trade surplus whilst the southern periphery runs continuing trade deficits – a simple accounting identity. Eventually something will have to give. It is also noticeable that Germany seems to be harbouring increasingly regional hegemonic ambitions regarding the rest of Europe. It seems to be positioning itself as the EUs anti-Russian key front-line probably with US backing. Euro state Socialism or even tepid social democracy can never truly thrive within such a hostile and increasingly militarised political environment. But that’s another explosive can of worms.

The position of the globalist left as outlined in the DiEM2025 manifesto, however, seems like a back-to-front attempt to by-pass national institutions and to attempt through a supra-national democracy to make fundamental reforms, through a democratised and strengthened EU. But even Varoufakis regards this as being ‘utopian.’ But he continues, it is ‘a lot more realistic than trying to maintain the system as it is’ or ‘trying to leave.’ (6)

More realistic, really? But this begs the obvious question of why such an entity is going to be any different from the present dispensation; will be any less neo-liberal and undemocratic if it is given greater powers and is integrated further? It seems to make more sense to work from the national to the supra-national level than the other way around – particularly given that most states in the EU are governed by centre right coalitions with social-democrats in tow (but acting like centre right liberals). Moreover, the transfer of local democracy – which we are told is now obsolete – to supranational democracy contributes to a weakening of popular control. This leapfrogging of national democracy to supranational democracy perforce requires a supranational electorate. This is problematic however since for the great majority of ordinary European citizens linguistic barriers and cultural differences impair the opportunity for political participation at a supra-national level. And so the dialogue, such as it is, goes on – ad nauseam.

This should not be considered a mere academic nit-picking issue for Socratic Senior Common Room dialogue. It is the key geopolitical issue of the day, as to whether sovereign nation states can determine their own future and political structures and policies, against the globalist project to turn the world into a borderless playground for international finance, corporate hegemony and the corollary of extinguishing democracy.

IDEOLOGICAL INTEGRATION OF STATES INTO NEOLIBERAL MARKET THEORY

But perhaps a more disturbing feature of the state/economy relationship has been the ongoing and gradual privatisation of the state itself. The role of the state has traditionally been a provider of public goods – education, healthcare, culture, parks, libraries, museums, transport infrastructure, including water, energy, forests and national parks, defence, law and order and judiciary, telecommunications, egalitarian social policies and so forth. The role of the market qua economy is to produce private goods and services for sale on a market. There has always been a tension between ‘the commons’- i.e., that which is public and open for everyone to use – and ‘commodification’ which turns things into commodities for private ownership and money-making. To use Marxist terminology, the commons has use-value, not an exchange-value (a market price) simply because it is not – and by definition cannot be – a commodity that can be bought, sold, or commercialised. The elevation of use-value over exchange-value is integral to the commons.

Throughout history, powerful interests have sought to privatise, close, and commodify the commons whether land, other spaces, amenities, or even intellectual ideas – to contrive scarcity and create income-earning assets. To the extent to which the succeeding enclosure and privatisation drives up rental income and proliferate its sources, increasing private riches while eroding public wealth. Such asset-stripping, rent-seeking behaviour by private companies intent on rent-extraction is not only tolerated by public authorities but actually encouraged.

Other examples of this have been the government/private sector liaison whereby private companies are now employed by the government to perform the role which was once the prerogative of governments. These government/private financial arrangements were called Private Financial Initiatives PFIs or Public Private Partnerships PPPs and were operationalised in both the UK and Australia. These predatory organizations were simply looking for public authority institutions to milk. Their incompetence – and outright looting – was legendary. The privatisation of British Rail, for example, led to increased accidents, higher costs, monopolistic rents (in terms of ticket prices), overcrowded trains, and failure to meet the timetable criteria.

In Australia, a report by the New South Wales Auditor General in 2002 warned of the considerable risks associated with the outsourcing of information technology and of the need to ensure that agencies are clear why they should do so. The previously inconceivable opportunities for the security of private information, collected and held by governments to be compromised, opening the way for identity fraud and held by governments was dramatically exposed in November 2007, when the British Department of Revenue and Customs was unable to account for two compact disks which had been sent through the mail at the National Audit Office. These disks contained highly detailed personal information concerning the 25 million citizens who received child benefits, information which included their addresses and bank account numbers, along with details of their children.

This was not an unusual occurrence it was simply another example – among many – of the ongoing rip-off of the public taxpayer by rent-seeking marauders. The market is always right, always works best, and always delivers the goods, or so it is ordained. Such is the categorical imperative of neoliberalism.

Coming full circle, the point of arrival involves a recognition that the relationship between (usually capitalist) states and markets has been a permanent and alternating process which started with the industrial revolutions in western Europe and North America. On the one side there are the permanent state bureaucracies and organizations which function as the basis for the production of public goods, and the national interest as they define it. This is complemented by the free-wheeling, cosmopolitan, financial and corporate interests whose outlook and policies are global as well as national and whose objectives are both practical and ideological. Practical in the sense that their motives are commercial and predicated on the imperative of growth and development not necessarily restricted to their national base. Ideological in terms of their neo-liberal Weltanschauung.

It was the great American social and political theorist C. Wright Mills who postulated the existence of what he called, The Power Elite as early as 1956. The American elite groups were composed of most importantly The Corporate Rich, The Warlords and The Political Directorate which together with various lower ranking sub-elite groups controlled the United States. State and Economy have to an extent always coexisted, their positions and influence moving back and forth, but in recent years (circa 1980) there has been – to put it mildly – a marked tendency of power and influence to tilt away from the state and toward the corporate/commercial configurations. Whether this trend will continue is an open question; but it would not be amiss to assert that nothing goes on forever.

NOTES

(1)Manfred Bienefeld – Is a Strong National Economy a Utopian Goal at the end of the 20^th Century? – States Against Markets – pp. 434,435

(2) Wolfgang Streeck – ‘Buying Time’ – The Democratic Crisis Of Democratic Capitalism. ‘

(3) M. Gritsch – (2005: 2-3) (Nye 2002) Quoted in – The State Really Does Matter, Global Shift 2012 – p.223

(4) Picciotto, S. 1991 The Internationalisation of the State – Capital and Class 43.43-63 – quoted in Global Shift 2012– Peter Dicken)

(5) Although it should be said that the 2019 – the Brexit election – was very much watered down to the policies of the electoral manifesto of 2017.

(6) The Independent. UK Newspaper

(7) In Government We Trust – Market Failure and the Delusions of Privatisation. pp.90

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The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of the Blog!