Interview with Richard Wolff
The United States and the Capitalist Crisis
Ian Seda (IS): Many economists are claiming that the “Great Recession” is finally over given a rebound in GDP growth in the US. What is your take on these types of analyzes?
Rick Wolff (RW): GDP numbers tell us nothing about the distribution of income and wealth, the profitability of enterprises, the prospects for growth, and much else of importance. Politicians often use GDP numbers if and when convenient to applaud policies they support or denounce those they oppose. In the US today, politicians interpret GDP growth since mid-2009 as a sign that capitalism is now “in recovery.” Yet extreme unevenness characterizes US capitalist development since mid-2009. Because of massive injection of money, lowering interest rates to near zero, and guaranteeing private bank obligations by the Federal Reserve (the US central bank), and simultaneous massive deficit spending by the US federal government, banks’ profitability recovered. Low interest rates also fueled a partial “recovery” of stock market prices. Huge government spending likewise slowed (but never reversed) rising unemployment and bankruptcies. Thus, while US GDP rose since mid-2009, unemployment and bankruptcies also rose, the housing crisis deepened (severe excess supply of housing alongside rapidly rising homelessness), and state and local governments slashed services (especially public education, welfare, support for the elderly, etc.).
For the present and the future of the US economy, what matters most since mid-2009 is the severity of rising unemployment and its negative consequences. Current living conditions of most Americans have deteriorated; that plus cutbacks in education seriously compromise the economic future for the US. Multinational corporate capitalists are relocating production, targeting future market growth, and making profits increasingly outside the US. They use their wealth and power to reduce their US taxes and to support US politicians who best manage this long-term decline of the US.
Since the mid-1970s, real wages in the US stagnated. Households maintained rising standards of living only because US workers (especially women) did more hours of paid labor and borrowed huge sums. Today, exhausted from that labor and anxious over unsustainable household debt, US workers confront the historic decline of their standard of living and its future prospects. Only a mass class response can change these historic developments. GDP numbers stressed in public discussions mostly distract attention from the social implications of the crisis and working class decline.
(IS): In what ways is this crisis and the responses to it different from the one of the 1930's?
(RW): President Roosevelt's response to the deepening US depression after 1932 was shaped by three key factors: (1) the severity of unemployment, bankruptcy, profit and output declines, etc. (2) the powerful working class response in an historically unprecedented unionization drive organized by the Congress of Industrial Organizations (CIO), and in rising electoral support and social influence of the Socialist and Communist Parties, and (3) the existence of an increasingly influential anti-capitalist alternative in the USSR. Thus Roosevelt's New Deal not only used massive Keynesian monetary and fiscal policies and regulations of businesses and markets; it also undertook massive programs of direct employment (hiring 11 million workers as federal employees between 1933 and 1942) while also established the social security system, unemployment insurance, etc.
In contrast, the Bush and Obama administrations faced only the first of the three key factors listed above: a massive collapse of the capitalist economy. The AFL-CIO has been declining without interruption for 50 years and now represents under 8 per cent of privaste employees. The socialist and communist parties have all but disappeared and nothing comparable has yet replaced them. Thus we have, quite predictably, Keynesianism without any major, direct, or massive social welfare system. Without political pressure from below, the US will continue to be ruled by a right-wing Keynesianism.
(IS): People like Noam Chomsky are worried that the current situation in the US has brought back the ghost of fascism given the lack of an organized labor movement and the role that nationalism acquires as a discourse of unity under situations of crisis. What are your thoughts on this?
(RW): Capitalism always provokes angers and resentments, especially among workers who get jobs in cyclical upswings and then get fired when crises hit. In sustained capitalist crises, the numbers of such workers rise. Their demands for relief, for jobs, etc. can quickly mature into criticisms of the capitalist system itself for so regularly revisiting crises and mass suffering on people. Then socialist and/or communist movements can become more socially powerful. Capitalism’s survival may require something that distracts angry workers and the unemployed away from socialist and communist movements. Fascism is often the solution for capitalism if and when its organizers use nationalism, religion, racism, anti-immigration sentiments or other such means to generate mass movements that do NOT attack capitalism and do attack socialism and/or communism. The ghost of fascism – like economic crisis - always haunts capitalism. The current crisis in the US only brings that ghost closer. As in the past, extended crises can produce a kind of state capitalism (e.g. Nazism) to ward off socialism and communism.
(IS): How do you view the announcement of the USW-Mondragón alliance and its proposal to develop manufacturing jobs around the green economy initiative in light of the intense debates within leftist groupsa bout the role of cooperatives within capitalism?
(RW): Cooperative productive enterprises have long been another way for workers to vote with their lives and work against the capitalist organization of production. Instead of a tiny minority of shareholders selecting boards of directors to decide what, where, and how to produce and what to do with the profits, producer coops take all such powers into the hands of the workers themselves. The USW-Mondragon alliance is an important step of recognition by a major US trade union that its basic strategy of organizing capitalist employees to bargain collectively with capitalist employers needs to be broadened to include an alliance with workers interested in producer coops. The alliance of the USW and Mondragon can transform a still-largely implicit critique of capitalism that they share into a powerful new twenty-first century movement toward the goal of realizing much more democratic, post-capitalist forms of organizing production.
(IS): What is your impression of the dynamics that are taking place in Latin America regarding the 21st Century Socialism alternative to the neo-liberalism?
(RW): What is most impressive about Latin America’s leadership in challenging global neoliberalism is the broad political support for that challenge, the leadership’s sophisticated respect for and attention to mass organization of that support, and its refusal to date to sell out to or knuckle under to US counter-pressures. These dimensions of 21st century Latin American socialism are inspiring for much of the rest of the world. At the same time, what is important to stress is that the problem for socialists is not neo-liberalism – one form of capitalism – but rather capitalism per se in all its forms. Even on those rare occasions when capitalism can be given a human face, that face is never secure. The underlying contradictions of capitalism can – and usually do – quickly reverse the human face and impose again the ugly dictatorship of capital. Thus we see today, across so much of the industrialized capitalist world, the destruction of welfare states in favor of new “austerity” regimes. Capitalism demands them as the necessary response to its crisis. What we all need from the Latin American movements for socialism is (1) a strong, clear refusal not only of austerities but also the capitalism that demands them to repair the crises it creates, and (2) a program for an alternative, non-capitalist organization of production.
(IS): What has led to the various austerity measures that have been proposed and implemented in various European countries during the last months?
(RW):Austerity’s immediate cause was the threat by lenders that they might not renew existing loans or make additional loans to these countries and/or charge them much higher interest rates unless those countries raised significant new money to guarantee the servicing of their debts. Lenders demanded that indebted governments either raise more in taxes or cut expenditures or both: i.e., “austerity”. Because the US borrowed so much more over the last 2 years and because it remains the world’s least risky debtor, lenders can demand more from all other countries. Lenders can lend all they want to the low-risk, heavily borrowing US, so they demand much more from riskier borrowing nations unless those nations impose an austerity that reduces lenders’ risks.
The global crisis suddenly forced the US and many other countries to vastly increase global borrowing to finance crisis management. New borrowings added to the long accumulation of debt by many governments who borrow rather than face (1) the political enmity of the business interests and wealthy who do not want to pay taxes and/or (2) the mass resistance of people who will not pay more in taxes. Borrowing allows such nations’ leaders to support business and the masses without taxing them more. That option for those leaders has now been damaged by the global capitalist crisis.
Not the least irony of the situation is that among the most important lenders to national governments are major global banks whose collapse provoked governments to undertake massive borrowing to rescue those banks (as well as global credit markets). The banks benefited because rising national debts financed their rescue by governments; in return, they now threaten their riskier benefactors and press austerity upon them.
Of course austerity can take different forms. Imposing austerity is a risky move by a desperate governmental apparatus, since it sharpens struggles internally over who will pay more taxes and who will suffer cuts in payments and services from the government.
(IS): Who are the major lenders to the U.S?
Treasury securities – the main form of the US national debt – are owned by both private (60 per cent) and public (40 per cent) creditors. The biggest single creditor is the U.S. Federal Reserve which buys and sometimes sells Treasury securities as a means of manipulating the money supply to influence the economy. The nations whose private and public creditors together have by far the largest holdings of US treasury debt today are the People’s Republic of China and Japan with roughly
$ 900 and $ 800 billion respectively out of a total foreign ownership of Treasury debt equal to $ 4 trillion (all data as of April 2010). Private owners of US Treasury debt include banks (on their own accounts and as trust and fund managers and advisers), pension funds, insurance companies, stock brokerages, etc
(IS): You recently had the chance to visit the latest scapegoat of the crisis, Greece. What general thoughts can you share with us about that particular situation?
(RW): Greece is a place now of sharpening struggles. Europe is close behind as the schedule of general strikes into Fall 2010 show. Greece has a militant working class that cannot be squeezed as easily as in many other capitalist countries. At the same time, it has a highly concentrated business structure and the small wealthy strata it sustains. Notorious tax evasion has been coupled with a relatively generous public employment and remuneration system: both financed with borrowing.
The plan for Greece – both its harsh form demanded by private lenders and the EU’s less harsh substitute loan – have one goal: reduce the risk of Greek default. They do not want default hanging dangerously over Europe and spreading from Greece. Imposing austerity on Greece aims to remove the risk of defaults renewing crisis as lenders collapse again.
Greek workers are fighting back against an austerity aimed with mounting general strikes. While initially defensive, such actions might evolve into more basic challenges of capitalism itself.
(IS): What should we expect of the G-20 meetings in Toronto which have, as one of the important topics in agenda. the restructuring of the world financial system? Will we see something similar to the Bretton Woods Agreement in terms of the dominant role of the US in such proceedings?
(RW): In Toronto, capitalism’s leaders rediscovered Marx’s insight that capitalism is caught in a contradiction: capitalists constantly aim to lower the wages only to discover that workers can then not buy what capitalists need to sell. Thus Obama worried that austerity would reduce what workers and governments buy. Would that not hurt rather that help efforts to emerge from recession? Europe’s leaders simply repeated the “need” to impose austerity given what horrors defaults might unleash. Europeans, Americans, Japan, the BRIC – all experience the uneven global capitalist crisis differently. Each seeks to emerge from it in better shape than the others. The relative decline of the US excites many other capitalist countries even as they fear being destroyed by it.
(IS): What is your take on those that say that China and India will dethrone the US in terms of global hegemony?
(RW): At this point, that is pure speculation provoked by the much more rapid rates of growth of both Asian economies over the last 20 years when compared to that of the US. However, both economies remain much poorer than the US, and more dependent on the US as an export market than the US is dependent on them in any way. The recent economic development of both India and China has been extremely uneven. A relatively small part of those societies has gotten much richer while huge populations - in India even more than in China – remain outside the zones of rapid development. This has been typical for economic development paths of both private capitalism (private shareholders select private corporate boards of directors who employ workers and distribute their surpluses) and state capitalism (state apparatuses select state officials who employ workers and distribute their surpluses). No one can predict how the class struggles inside all three nations will evolve and interact with the complex interdependencies and competitions within and among them. The current global capitalist crisis has impacted them in different ways as each scrambles to minimize the damage and gain advantages vis-à-vis the others.
The long history of capitalism has repeatedly included wars – including world wars of unprecedented savagery – resulting from the internal class and other contradictions and national competitions among nations. Neither China nor India can contest the US hegemony militarily, nor will that change quickly. While US hegemony economically and politically is declining relative to its position in the last half of the 20th century, it is premature to declare whether that decline will continue, what forms that decline would take, how the US might deploy its military and continuing wealth advantages, and how India and China will manage their own internal contradictions and external relations.
Note: Interview done by Ian J. Seda-Irizarry, graduate student and instructor at the University of Massachusetts at Amherst. Originally published in the Puerto Rican weekly newspaper Claridad (July 29th- August 4th, 2010).