No subject

=20
during the New Deal. So this has been a collaborative type of hegemony or=
=20
Empire.=20

When Europe and Japan were put back on their feet after the Second World=20
War, and became competitive in terms of trade with the United States, the=
=20
notion arose that meant American hegemony was fading. It was a very common=
=20
view, but fundamentally misleading. It failed to understand that the=20
Europeans and Japanese wanted the Americans to play a more active role in=
=20
managing the global economy, not a lesser role. To the extent that they wer=
e=20
unhappy with American policy, it was mainly for that reason.=20

That has continued through the era of neoliberalism. There have been moment=
s=20
where in very economistic ways, based on the size of the trade deficit or=
=20
the penetration of foreign direct investment into the United States, people=
=20
have predicted U.S. decline as imminent. It has proved to be wrong in every=
=20
case. The American state is still seen as the most important protector of=
=20
global capital.=20

Many people think that the deficit means that the U.S. economy is a basket=
=20
case; but, through the technological revolution we've just lived through, i=
n=20
information technology and so on, it has managed to maintain its dynamism a=
s=20
a capitalist power.=20

The deficit has reflected the fact that the United States has been the=20
market for so much of what is produced in the world today. It has not=20
reflected a decline in American exports, which over the last 15 or 20 years=
=20
have increased more than any other G7 country's.=20

To read off from the size of the trade deficit a problem in terms of=20
American hegemony, I think, is not to understand the role that the United=
=20
States, and New York as a financial centre, and American banks in London,=
=20
play in terms of the glue of international capitalism. No-one is doing a=20
favour to the United States by putting short-term capital into New York, or=
=20
holding onto dollars. They are purchasing dollars and Treasury Bills becaus=
e=20
they remain the most stable store of value in a highly volatile capitalist=
=20
world.=20

The volatile nature of international finance, in which free trade in=20
currencies is a large factor, makes this a highly volatile set-up, and one=
=20
that is prone to financial crises. Notably, not many financial crises have=
=20
been dollar crises in the way that we saw sterling crises from the 1950s to=
=20
the 1970s, when sterling was still a central currency. (London is still a=
=20
big financial centre; but now it is essentially one of the great centres of=
=20
American dollar finance).=20

What's been quite remarkable, at least since the 1979 Volcker shock, has=20
been the extent to which, for all of the size of the deficit and the free=
=20
floating of the dollar, there hasn't been a massive run on the dollar. Even=
=20
in recent days, we've seen a rather managed decline of the dollar, and a=20
decline which is functional to reducing the size of the U.S. trade deficit.=
=20

When the dollar got inordinately high, after the very high interest rates=
=20
that established enormous confidence in the U.S. Treasury Bill and the=20
dollar, you then had the meetings around the Plaza Accord which coordinated=
=20
a readjustment.=20

People are constantly observing the level of the dollar, given the role it=
=20
plays in the international capitalist economy. But what's astonishing is th=
e=20
exent to which the dollar has not suffered.=20

So it's like Keynes's comment that if you owe the bank $100, you have a=20
problem, but if you owe the bank a million, the bank has a problem? The=20
capitalists of the rest of the world have to keep the dollar up because so=
=20
much of their interests are tied up with it.=20

Absolutely. And that reflects the degree of integration.=20

Marxists tend to discuss crises in terms of a decline in the rate of profit=
.=20
But, by most accounts, over the last several years, profits have recovered=
=20
quite considerably. Are we going to see a crisis without a prior fall in th=
e=20
rate of profit, or what?=20

Our position =E2=80=93 my position and that of my comrade and co-author Sam=
 Gindin =E2=80=93=20
has been that the profit squeeze of the late 60s and the 70s was resolved b=
y=20
the defeat of labour, and to some extent the defeat of the Third World=20
national-liberation radicalism that produced a rise in commodity prices=20
(though we may be seeing another surge of commodity prices now).=20

With the restructuring that was brought about in the 1980s in the banking=
=20
system and in industry, in the United States but also in Europe and=20
elsewhere, the basis was established for profit rates to recover as they=20
have done, especially in the last decade.=20

That account involves a very different interpretation of the cause of the=
=20
profit crisis of the 1960s and 70s than is offered by Bob Brenner. It=20
suggests an explanation of the profit crisis much more similar to the "wage=
=20
squeeze" explanation that was offered way back in the 1970s by Andrew Glyn=
=20
and Bob Sutcliffe.=20

We think you have to have a broader understanding of the factors squeezing=
=20
profits than just wage militancy, though that was very important in some=20
countries, in Britain and to some extent in the United States. There was a=
=20
much more general range of pressures on capital that were expressed by the=
=20
civil rights movement, the women's movement, the radicalisation of the=20
students, all of which produced the fiscal crisis of the state and not as=
=20
much room, for a period, for the state to cut back on corporate taxes.=20

Put all that together with the wage militancy of the working class, and we=
=20
think that had a lot to do with the profit crisis =E2=80=93 of course in th=
e context=20
of the renewed competition which made it difficult for any individual firm=
=20
to raise prices.=20

We think that was resolved by breaking the back not only of the wage=20
militancy but also of the tendency of the social movements to win extension=
s=20
in the welfare state =E2=80=93 by introducing neoliberalism.=20

Brenner thinks the crisis was largely one of competition between national=
=20
capitals, and that there has been a problem ever since in terms of not=20
enough firms exiting. They're making some profits, not as high as they used=
=20
to, but they stay in business.=20

In our view, by contrast, we have been living through one of the most=20
dynamic periods in the whole history of capitalism. It has been enormously=
=20
exploitative, and has created enormous insecurity around the world,=20
including in the heart of the Empire itself, but its dynamism has been=20
related to its ability to be exploitative and create insecurity.=20

It isn't only a matter of increased exploitation of the industrial working=
=20
class, or of the low-paid service sector; it's a matter of getting the=20
middle class, the petty bourgeoisie, the professionals, to work for=20
corporations enormous hours.=20

The recovery of profits that we have seen has been substantial and real, an=
d=20
not, as Bob Brenner usually explains it, a matter of ad hoc ways of getting=
=20
out of a continuing structural crisis. In my view, it doesn't make sense as=
=20
a Marxist to speak of a crisis that lasts for forty or more years.=20

Does all that rule out another serious profits crisis? No, it does not do=
=20
so, by any means. We need to keep looking, even if not in orthodox terms of=
=20
the "tendency of the rate of profit to fall", for the possibility of a=20
serious profit crisis.=20

How serious a profit crisis will be depends, I think, on how much the rate=
=20
of exploitation can be raised again =E2=80=93 that is, on how much working-=
class=20
resistance there is to the type of restructuring that allows capital to get=
=20
out of it. That is why so much hinges on how we interpret all these things=
=20
in terms of working-class renewal and working-class strategy.=20

Capitalism is crisis-prone above all in the financial sector, but it remain=
s=20
crisis-prone in a deeper sense in the productive sector. How serious crises=
=20
are depends, in the end, on class relations. The most serious crises of=20
capitalism are those in which it is difficult to increase the rate of=20
exploitation. That is why the 1970s crises was so protracted, because it wa=
s=20
difficult to increase the rate of exploitation then, given the strength of=
=20
militancy of rank-and-file labour.=20

Has the credit system become more crisis-prone?=20

The system has become larger, more complex, in some ways more efficient, an=
d=20
also more crisis-prone. The size and complexity of it are directly related=
=20
to the neoliberal re-regulation which has allowed a lot more competition in=
=20
the financial sector than was allowed in the New Deal type of legislation.=
=20

The expanded credit system has been quite functional to the growth of globa=
l=20
capitalism. When so much capital and trade is flowing round the world with=
=20
free-floating currencies, you need a highly complex system of financial=20
trading in order to be able to adjust the enormous risks involved in the=20
marginal changes in currencies and interest rates, etc.=20

This goes all the way back to the situation the farmer faced in the 1870s,=
=20
and still faces today. When a wheat farmer in western Canada puts seed in=
=20
the soil, in the spring, he doesn't know what the price of a Canadian dolla=
r=20
is going to be in October, when he will be selling the grain.=20

One of the ways of dealing with that is by developing co-operatives, but th=
e=20
most fundamental way of dealing with it, going all the way back to the=20
1870s, when the Chicago Mercantile Exchange was established, is through a=
=20
large, complex set of financial intermediations.=20

That farmer would go into his little local bank and begin to hedge the pric=
e=20
he might be able to sell the wheat when he was signing a contract in April=
=20
to deliver it in October; and that would go through fifteen intermediaries=
=20
before it would get to the Chicago Mercantile Exchange, where there would b=
e=20
a trade in wheat futures.=20

The same was true in almost every other agricultural product. Today we see=
=20
that all around the world in =E2=80=9Cderivatives.=E2=80=9D They play that =
role in the=20
management of risk. It's no accident that, with the help of Milton Friedman=
,=20
when Bretton Woods broke down in 1971, the market in derivatives around=20
currencies was established at the Chicago Mercantile Exchange.=20

The system has become larger, much more complex. The derivatives now cover=
=20
not only real products, but financial instruments of all kinds. There are a=
=20
gazillion players in this market, and they are all speculating.=20

But, as Dick Bryan argues [Capitalism with derivatives: a political economy=
=20
of financial derivatives, capital and class, Palgrave Macmillan, 2006] this=
=20
may be the most important development in capitalism since the joint-stock=
=20
company in terms of its ability to smooth out the enormous risk that's=20
involved in this complicated and diverse global capitalism.=20

At the same time the system is more crisis-prone. It is more crisis-prone=
=20
because it does involve speculation. It is enormously complex, and the=20
people trading in it are operating on the basis of highly complex algebra=
=20
that most of us don't understand and very few of them fully do. It's not=20
clear, to anyone in the system, who holds a given piece of paper at a given=
=20
time.=20

Also, neoliberal regulation is mainly self-regulation. The banks are=20
regulated through Basel and the Bank of International Settlements and the=
=20
national or regional central banks; but they are regulated in a way that=20
requires them to be self-regulating, that is, to keep a certain amount of=
=20
capital adequacy on their books; and they are able to get around the=20
regulation quite easily.=20

What happened with the subprime mortgage market is that, going back to 1988=
,=20
American investment banks began setting up in London the "structured=20
investment vehicles" that allowed them to get round the capital adequacy=20
standards that had been set up in Basel 1. They set up off-book accounts=20
that allowed them to trade in risky products such as the subprime mortgage=
=20
derivatives.=20

On top of it all, most national banking systems are not deep. I once heard=
=20
Volcker speak at the Board of Trade in Toronto. He had just come back from=
=20
Argentina. This was before the Argentine crisis. He had asked the head of=
=20
the Argentine central bank what the total capitalisation of their banking=
=20
system was. Before coming to Toronto he had stopped in Philadelphia, at a=
=20
bankers' dinner there, and asked the second-largest bank in Philadelphia, a=
=20
regional bank, what its capitalisation was. It was larger than all of=20
Argentina's!=20

So he came to Toronto and said: =E2=80=9CLook, this is impossible. What's g=
oing to=20
have to happen is that Western banks are going to have to buy these banking=
=20
systems.=E2=80=9D The former head of the Bank of Canada got up =E2=80=93 an=
d this guy is a=20
pure monetarist =E2=80=93 and said: =E2=80=9CWell, that is all well and goo=
d, but most=20
countries don't want their banking systems to be owned by foreigners.=E2=80=
=9D=20

So there are contradictions, as well as efficiencies and functionalities, i=
n=20
this highly volatile, global financial capitalism.=20

The central banks and the finance ministries =E2=80=93 and the Federal Rese=
rve as a=20
proto-world-bank, and the Treasury, though it has played this role less=20
under Bush than it did under Clinton =E2=80=93 have managed to keep the cap=
italist=20
system going; they have managed to fire-fight; the crises have been=20
contained, from moment of chaos to moment of chaos.=20

One never knows whether they can keep on doing this. Their main function in=
=20
terms of regulation is to know enough about the players in the financial=20
market that they can manage crises. We may be seeing, out of this crisis, a=
=20
turn toward increasing mandatory regulation, which will also be coordinated=
.=20

I still think the system would be mostly self-regulated. It would be like=
=20
Sarbanes-Oxley, where the boards of directors are required to sign off on=
=20
accounting papers and become legally liable.=20

But maybe global capitalism doesn't have to continue to be neoliberal in th=
e=20
sense we have known it. I wrote an article ten years ago called The Social=
=20
Democratisation of Globalisation, and I think that is possible out of the=
=20
current crisis. How far it will go, and whether it means anything in terms=
=20
of shifting the balance of class forces =E2=80=93 that really depends on wh=
ether the=20
working classes, broadly defined, manage to act to shift the balance of=20
class forces from below.=20

But I do think it's possible that out of this crisis there will be more=20
directive oversight on the part of capitalist states and the American state=
,=20
even if the crisis drags on, as it may do, for a couple of years, with a=20
shake-out in the banking system that produces further concentration in it.=
=20

The Federal Reserve and the European Central Bank have followed sharply=20
different policies in the current crisis. International coordination doesn'=
t=20
seem to be working very well.=20

Yes and no. Going back to the beginning of this particular crisis, last=20
August, there was immediately coordination between the U.S. Treasury and=20
Federal Reserve in terms of throwing liquidity into the markets, and the=20
European banks threw most of it in.=20

Some of the banks hit mostly heavily by the crisis with the subprime=20
derivatives were ironically the quasi-public Landesbanks in Germany, and th=
e=20
European Central Bank, really acting for the Bundesbank, oversaw the=20
remedial measures.=20

Interestingly, most of what they pumped in then immediately made its way to=
=20
London, to the interbank market. There was coordination then.=20

Then there was coordination around the liquidity thrown in in December.=20

So on that level there been quite a lot of cooperation, and the European=20
Central Bank has played a central role.=20

On the question of inflation, however =E2=80=93 on the question of whether =
lowering=20
interest rates is the way to go =E2=80=93 you're right. It partly reflects =
the fact=20
that the Bundesbank =E2=80=93 and the European Central Bank has carried the=
 same=20
tradition forward =E2=80=93 has always been, from the time Bretton Woods be=
gan, much=20
more monetarist than any other central bank, much more concerned about=20
inflation.=20

The New York Fed has been much more pragmatic about that. And it has had th=
e=20
room to be, because of the world confidence in the Treasury Bill and in the=
=20
weakness of the left in the United States =E2=80=93 there is much more conf=
idence in=20
the guarantee that the American state offers against default. Also, the=20
United States is more populist. The Fed does not have the de facto=20
independence from the political system, that the European Central Bank has.=
=20

The different approaches are also, I would guess, a reflection of different=
=20
policy judgements. There's a sense that the lowering of the interest rate i=
s=20
not enough, in itself, to make the financial system ready to be lending, an=
d=20
you see this in the fact that long-term interest rates are not declining.=
=20
People have been saying that the Fed is pushing against a string, and that=
=20
may be the case to some extent.=20

There is one way in which I think the Fed has acted as world central bank i=
n=20
a way that the ECB never does =E2=80=93 so you see the hierarchy of imperia=
l=20
apparatuses here. When there were the beginnings of a stock market crash, i=
n=20
Asia and spreading to Europe, in January or early February, the Fed met on =
a=20
Monday night and then on Tuesday morning announced the big interest rate=20
reduction. The Fed felt it had to send that signal of a drastic reduction i=
n=20
interest rates, not so much for what it would accomplish, but for its=20
symbolic effect in terms of reassuring the stock markets. The stock market=
=20
has traditionally taken the view that a reduction in interest rates means=
=20
that people shift from bonds to stocks, though I'm not sure how much that=
=20
continues to operate today. In any case, the signal from the Fed did have a=
n=20
effect.=20

There's a special role which the Fed plays which the European Central Bank=
=20
does not play vis-a-vis global stock markets.=20

Some financial crises in recent decades have had relatively little knock-on=
=20
effect on trade and production. Do you think that one factor in this is tha=
t=20
the financial sphere is feeding much more off consumer credit? And then=20
could we see this financial crisis, rather bigger than previous ones,=20
feeding into a crisis in trade and production initially through a reduction=
=20
in consumer spending rather than in investment spending?=20

So far, the indication is that it's not impossible in Europe, or in North=
=20
America, or least of all in the Third World, to be raising funds for=20
investment.=20

If the derivatives play the central role they do, as Dick Bryan explains, i=
n=20
hedging risk, there is a question whether the financial crisis will affect=
=20
trade in the long run.=20

People tend to overlook the extent to which, even though real wages have no=
t=20
increased, or not increased much, since the 70s, living standards for=20
workers in the advanced capitalist world have gone up. They've gone up=20
primarily through those workers becoming integrated into finance.=20

They've gone up to the extent to which those workers have become indebted=
=20
and the financial system has been willing to integrate them through the=20
enormous growth in the credit card market and in mortgages. That is also=20
reflected to a certain extent in the fact that workers' savings have been=
=20
picked up through pension funds and institutional investment so that worker=
s=20
tend to think of themselves, astonishingly, as investors whose net wealth=
=20
will increase as they get older.=20

That all went so far, and then it fell apart, because it penetrated, not=20
only in the credit card market but also in the mortgage market, to that=20
portion of the American working class which has always been the Achilles=20
heel of the integration of American workers into the American dream, and=20
that is the African-American working class.=20

You don't understand it at first when you walk around Washington Heights in=
=20
New York and you see unemployed young black men wearing $200 sneakers.=20
They're doing it on credit. It seems hard to believe that capital extended=
=20
the types of loans it did to African-Americans in Cleveland to buy=20
sub-standard housing stock with the promise that it, too, would increase in=
=20
value; but it did that.=20

The question now is whether the ability of advanced capitalism to integrate=
=20
workers through the credit market has run up against its limits, and what=
=20
are the implications if it has. What are the implications in terms of=20
economic crisis, and what are the implications in terms of workers not=20
taking it any more.=20

One wishes one would see much more radical protest than we have seen so far=
=20
around the housing crisis in the United States. You hear enough about it in=
=20
terms of politicians talking about people being affected as victims, but yo=
u=20
don't yet see much mobilisation. That's not to say there won't be.=20

There is speculation in the Wall Street Journal today that the market is=20
waiting for the American state to buy up all this bad debt =E2=80=93 whethe=
r=20
directly through the Fed, or through a special agency =E2=80=93 in other wo=
rds, to=20
socialise it. The Wall Street Journal quotes one analyst from a private=20
investment firm saying that he is not predicting that this will be done, bu=
t=20
he is saying that it is what the market is looking for.=20

The operation would be like the British government has done with Northern=
=20
Rock, but on a massively bigger scale. The bad debt even in the United=20
States is probably in the hundreds of billions of dollars, let alone the=20
total around the world.=20

It's conceivable that might happen, and then the consumer's ability to get=
=20
into the credit system would be replenished. But that hasn't happened yet,=
=20
and I don't want to predict it necessarily will. It's not impossible that=
=20
this crisis will be dealt with by Band-Aid measures, and it could lead to a=
=20
significant shake-out whereby regional banks in the United States would=20
close, intermediaries would go bankrupt, a piece of Citibank might be sold=
=20
off...=20

I remember the late Harry Magdoff saying to me, in his apartment, after the=
=20
stock market crash in 1987, when the question was to what extent were the=
=20
banks implicated by their loans to the stockbrokers: "Well, so they'll=20
nationalise a couple of banks!"=20

In this context we have to understand nationalisation in an entirely=20
different way than one might have understood it as a left-wing social=20
democrat in England in 1945.=20

It's socialism for the rich!=20

Exactly. In the first place for the rich. But not only for the rich...=20

Even the perspective of a massive bailout implies that the edges of the=20
consumer credit system are pulled back in. Northern Rock is not writing=20
ultra-easy mortgages any more.=20

Yes. And they're very worried about it. They're very worried about the fact=
=20
that the financial system is reluctant to lend.=20

On the other hand, Martin Wolf in the Financial Times says essentially that=
=20
what the Federal Reserve is doing might work, but he sort of hopes it=20
doesn't, because there are fundamental structural problems with the very lo=
w=20
level of savings in the USA, and if the Federal Reserve's measures allow=20
things to stagger on a bit further, they are just paving the way for a=20
bigger crisis down the road.=20

Yes. Wolf's a very smart guy. There's a more reactionary variant of the sam=
e=20
argument coming from the Wall Street Journal.=20

You hear the argument that if the Fed had not lowered interest rates in 200=
1=20
after the "new economy" bubble and 9/11, you wouldn't have had the housing=
=20
bubble. But what are they saying? That they'd prefer to have this crisis=20
then?=20

They're saying that they'd prefer to have a smaller crisis now that forces=
=20
the resolution of unsustainable imbalances, before those imbalances become=
=20
bigger.=20

But the fact is that agencies like the Fed are going to try to prevent=20
crises =E2=80=93 or, if not to prevent them, to stop them being catapulted =
into=20
global capitalist crises. That is their nature.=20

Ben Bernanke, the head of the Federal Reserve, wrote his PhD thesis on how=
=20
the Fed and the Treasury could have prevented the Great Depression by=20
supplying liquidity to the banking system instead of playing the orthodox=
=20
banker role and requiring that the books be balanced. As I read all the=20
inclination in the American state, and I think for the most part in Europe,=
=20
that is the role that the central banks will try to play.=20

Also, I don't see that the result of a bigger crisis would be that American=
s=20
started saving again. I don't see that people would have the capacity to=20
save. On the contrary, you'd see a rundown of savings of wealth.=20

The greatest imbalance that people worry about is the U.S. trade deficit.=
=20
But that is being dealt with, so far, by this relatively managed decline of=
=20
the dollar. There may be inflationary consequences; but the deficit was up=
=20
at 7%, and it has fallen to 5% of GDP.=20

Moreover, we need to remember that the world is not doing America a favour,=
=20
as accountants seem to think, by covering the deficit with short-term=20
capital inflows. People are buying Treasury Bills today because in this=20
highly unstable world they are the closest things to gold that pays some=20
interest rate. People are also buying gold and commodities and so on, and=
=20
that reflects the volatility, but in so far as they are buying bonds, and=
=20
they are, they are buying Treasury Bills.=20

In Gindin's and my view, only the United States, by virtue of the=20
asymmetrical nature of power in today's capitalism, can sustain such a=20
deficit for a long time. But it can, because of the role that the dollar an=
d=20
the U.S. Treasury Bill play in the world economy.=20

It's a bit like London, as a financial centre, and its "trade deficit"=20
vis-a-vis the UK. It's a bit like New York, and its deficit vis-a-vis North=
=20
America.=20

Without thinking at all that national borders have been done away with, I=
=20
think we need to look at the American deficit in the light of the special=
=20
role of the dollar, which I don't the euro is about to displace.=20

What about the effect of the decline of the dollar, and the resulting=20
squeeze on U.S. imports and rise in U.S. exports, on China and the other bi=
g=20
new exporting countries?=20

I don't have a crystal ball. The people who talked about "decoupling" are=
=20
wrong. There is no "decoupling" that China can yet do from Western markets,=
=20
above all from the American market. In that sense, to speak of a realignmen=
t=20
of forces in global capitalism, as Giovanni Arrighi does, is misleading.=20

We are seeing an increasing integration of global capitalism. China's role=
=20
in global capitalism is much enhanced. But realignment is not the right=20
word, if it is understood as Chinese capital displacing American capital, o=
r=20
Chinese power displacing American power.=20

But the decline of the dollar could have inflationary effects in those=20
countries whose currencies remain pegged to the dollar.=20

If the measures that have been introduced in China to alleviate some of the=
=20
discontent of the working class, whereby they've offered some=20
labour-standards protections and some requirements for representation by th=
e=20
party-run Chinese unions, or the promised reform of the health system, were=
=20
to come through, and you were to get inflationary pressures, you might get=
=20
considerable class conflict, and that might spill over into regional=20
conflict inside China. The uneven development in China is astonishing, and=
=20
people in the regions not undergoing rapid capitalist development are highl=
y=20
dependent on remittances from workers in the cities.=20

The repercussions could be very real. But the different new exporting power=
s=20
are all very different. Brazil and Russia are doing very well out of the=20
high price of commodities, which represents a cost to China and India.=20

I find it very difficult to gaze in a crystal ball here, given the=20
enormously different social formations we are talking about, or to make any=
=20
hard predictions.=20

You said that out of this crisis we will see more directive oversight by=20
capitalist states, and we might even see something you called =E2=80=9Cthe=
=20
social-democratisation of globalisation.=E2=80=9D Do you see things going t=
hat way?=20
And what will it look like?=20

With all the calls for regulation; with states buying shares in banks, not=
=20
taking any directive control over them, but using moral suasion the way=20
Brown has been doing to get them to reduce interest rates as the Bank of=20
England reduces interest rates; with the kind of fiscal stimulus programmes=
=20
that all the governments are committed to =E2=80=93 the British and the Ame=
ricans,=20
interestingly, more than the Germans =E2=80=93 I think you are getting a=20
=E2=80=9Csocial-democratisation of globalisation.=E2=80=9D=20

Bear in mind that my view of "social-democratisation" is that it is in no=
=20
sense the old type of reformist, gradual socialism. It is=20
"social-democratisation" in the sense of what the Labour Party has become=
=20
under Blair and Brown.=20

So this is not social democracy as in the 1940s, 50s, and 60s?=20

No. I never had a very positive view of that in any case. That orientation=
=20
was more about corporatist arrangements with labour. I don't see much of=20
that going on. I see that it's unlikely that Obama will press for the labou=
r=20
legislation that U.S. unions have been calling for. That would be more like=
=20
an old-style social-democratisation.=20

The governments are trying to put into practice everything that economists=
=20
can suggest to them, in the way of stabilisation policies, that they have=
=20
learned from the study of the 1930s and from the depression in Japan in the=
=20
1990s. How would you assess the possibilities, the limits, and the defects=
=20
of these as stabilisation policies?=20

We have seen massive drops of liquidity into the banking systems. We have=
=20
seen it being decided that the problem is solvency, not liquidity, and the=
=20
governments putting public capital into the banks, so that the banks will=
=20
have enough trust in each others' solvency to lend to each other. None of=
=20
this is solving the crisis.=20

This indicates that the banks may not be able to go back to lending at thei=
r=20
previous rates. The decades-long process of banking and financial-system=20
securitisation, where lending has been done on the basis of slicing and=20
dicing and repackaging loans so as to turn them into securities to be trade=
d=20
internationally, was a fundamental basis for the dynamism of financial=20
capitalism and globalisation in the last twenty years or more.=20

That system of securitisation is now weak everywhere, even in corporate=20
financing, and not only in the financing of mortgages and consumer debts. I=
t=20
has largely imploded. That is in large part why the banks have not been=20
lending =E2=80=93 they have been restructured to depend on doing lending th=
rough=20
that securitisation.=20

That indicates that the crisis is really very severe. In terms of what is t=
o=20
be done about it, it raises =E2=80=93 and we should be raising, as socialis=
ts =E2=80=93 the=20
obvious question of converting the banks into a public utility.=20

In a complex society, you can't have banking for the masses without having=
=20
state guarantees of deposits. The system has been kept going on the basis o=
f=20
central banks acting as lenders of last resort. The case for the banks bein=
g=20
brought into public ownership properly needs to be put on the agenda, much=
=20
more vociferously than the left is putting it on the agenda.=20

I do not mean, as in Britain, just giving public capital to the banks and=
=20
saying please operate on commercial lines, a move involving no executive=20
powers whatsoever. I mean taking the banks properly into public ownership=
=20
and changing the function of the banks, as Mitterrand did not do in France=
=20
in the 1980s, so that the criteria on which they invest are redefined as=20
social purposes, to be democratically determined.=20

Looking back on it, the subprime mortgage crisis seems to involve tiny sums=
,=20
compared to the fall-out now. How did that subprime crisis =E2=80=93 sizeab=
le, but=20
small compared to what is in play now =E2=80=93 produce such huge repercuss=
ions?=20

The subprime crisis was comparatively small, but subprime mortgages were=20
packaged with other mortgages and then the securities were sold on. People=
=20
were buying general mortgage-backed securities based on a mixture of=20
mortgages. When the defaults started in the subprime sector, it became=20
difficult to sell, or to sell on, any mortgage-backed securities.=20

It had the effect of making the banks more reluctant to lend for new=20
mortgages, and that helped burst the house-price bubble. Then the loans mad=
e=20
more generally on the basis that house prices would continue to rise were=
=20
called into question. You got a vicious circle in the whole housing and=20
mortgage sector.=20

Once you had this loss of confidence, and inability to value securities =E2=
=80=93=20
you didn't know how to value those securities any more, because you couldn'=
t=20
sell them; the formulas on which the valuations of those mortgage-backed=20
securities fell down =E2=80=93 then a whole set of questions came onto the =
books in=20
respect to other sorts of securities and how those might be valued.=20

Here there is an element of confidence and psychology. However much we as=
=20
Marxists see that as not primary, it is an element. The banks knew damn wel=
l=20
how over-leveraged they all were. They began to wonder whether even the=20
people they lend overnight to =E2=80=93 the other banks =E2=80=93 were solv=
ent. They became=20
reluctant to lend.=20

And so the disturbance moved beyond the original source of the problem.=20
Insofar as the risk was spread so widely =E2=80=93 and that was the point, =
credit=20
was cheap because risk was spread so widely =E2=80=93 it pulled in vast sec=
tors in=20
other countries and across the world.=20

You could say that the crisis was triggered by the subprime crash. There is=
=20
a certain racist element to the story, insofar as the growth of subprime=20
mortgages was the attempt to incorporate the black working class through=20
finance into the American dream. When that weakest link in the chain of=20
financial capitalism went, then =E2=80=93 unlike when Lenin used the metaph=
or of the=20
weakest link for Russia in the chain of world capitalism =E2=80=93 it began=
 to undo=20
the whole chain.=20

A few months you said that you thought U.S. hegemony had not waned, and=20
would not wane in the very near future. I agreed with that then. But you=20
compared that U.S. hegemony with the sort of hegemony that a financial=20
centre like New York or London has in its national economy. It used to be=
=20
the case that the global financial markets, centred in New York, centred=20
round the dollar, were where any large capitalist anywhere in the world=20
could go for credit. Isn't that ceasing to be true? Aren't governments and=
=20
firms looking elsewhere for credit? Aren't we seeing the beginning of that=
=20
process of U.S. hegemony waning?=20

I don't think so. I'm not sure where else people would go for credit. And i=
n=20
fact capital has flowed to the dollar and to the U.S. Treasury Bill. That i=
s=20
puzzling unless you understand that the U.S. state is the state of global=
=20
capital. Despite everything that has happened, global capital still looks o=
n=20
the U.S. as the safest haven and the ultimate guarantor. And the U.S.=20
government has behaved that way. The decisions to nationalise Fannie Mae an=
d=20
Freddie Mac and AIG were taken very much with an eye to the U.S.'s=20
responsibility to honour its commitments to China and Japan and Germany and=
=20
Britain =E2=80=93 above all to China, because the Chinese had bought a lot =
of Fannie=20
Mae and Freddie Mac securities.=20

The American state is absolutely central. It is no accident that the G20=20
meeting took place in Washington. Everyone sees that whatever resolution=20
there is to this crisis will have to be undertaken under the aegis of the=
=20
American state, and everyone is hoping that Obama will be able to provide=
=20
the kind of leadership =E2=80=93 for capitalists =E2=80=93 that will accomp=
lish that.=20

So I think the American state is still very much at the centre of global=20
capitalism. The material underpinnings of that hegemony have rested in part=
=20
on New York as a financial centre. So it's a good question, what happens to=
=20
that hegemony if New York seizes up as a financial centre? But I just don't=
=20
see what could conceivably replace it. Certainly nothing in Asia could=20
replace New York as a financial centre. People can start arguing that the=
=20
Chinese state has financial clout, but we see how much the Chinese economy=
=20
has been affected by this crisis originating in the U.S. economy.=20

It will certainly be an enormous challenge for the Americans to hold it all=
=20
together. But it is only the Americans that can hold it all together; and=
=20
all the world's capital, more than ever, is looking to the Americans to hol=
d=20
it all together.=20

But if the U.S. government does it very imperfectly...=20

Yes, but I don't see any grounds for serious inter-imperial rivalry unless=
=20
there are fundamental changes in the balance of class forces and state=20
structures in other parts of the world, so that countries move in a=20
national-socialist, fascist direction which would break down globalisation,=
=20
or there is the kind of change in class relations that would put socialist=
=20
options on the agenda, which would mean disarticulating from capitalist=20
globalisation and attempting to re-articulate on the basis of new=20
international socialist strategies. On the basis of the class configuration=
s=20
that exist in the regions outside North America, I don't see either of thos=
e=20
things happening soon.=20

The question remains of whether the Americans will pull it off. If they=20
don't, will that produce social and political disruptions that would lead t=
o=20
something else? Maybe. But on the basis of the current configurations, with=
=20
the types of capitalist classes and state bureaucracies that are oriented t=
o=20
maintaining the relationships that have developed over the last 30 years=20
under global capitalism, I don't think we can speak seriously of=20
inter-imperialist rivalry. =E2=80=A2=20

Leo Panitch is the Canada Research Chair in comparative political economy a=
t=20
York University. His most recently published books are American Empire and=
=20
the Political Economy of International Finance and Renewing Socialism:=20
Transforming Democracy, Strategy and Imagination. This article first=20
appeared on the Workers' Liberty website.=20