Tuesday, January 16, 2018

Yanis Takes His Scalpel and Dissects Globalism

It is not easy to get people to think about globalization, capitalism in the neoliberal era and what lies ahead, if anything.  To use Bill Maher's indelicate metaphor, it's like waking up in a seedy motel room with a blistering hangover to find yourself handcuffed to a dead hooker.

Our dead hooker is globalism. John Ralston Saul declared it dead in 2005. He was right then and, guess what? It's still dead. We've been dragging it around ever since. The current management, Justin, somehow thinks he can bring it back to life.

Which brings us to Yanis Varoufakis, and a very important essay on globalism he penned published over the weekend in The Globe and Mail.  An early driving force in the Greek political movement, Syriza, the British-educated economist resigned when in a referendum the Greek people agreed to capitulate to their nation's EU creditors' demands for brutal austerity.

Varoufakis' take is that globalization is indeed dead. You'll never breathe life back into that dead hooker. A new order will emerge whether our leaders like it or not. The important question is whether we will control our future or allow ourselves to be overtaken by events. I urge you to read the essay, linked above, in its entirety. In the meantime here are a few excerpts:

At the discursive level, neo-parochialism is now trumping globalization's oeuvre in the United States, in Brexit Britain and elsewhere. Labour-saving technological change, meanwhile, underpins jobless deglobalization everywhere. None of these developments augur well for those who once believed in a borderless commonwealth of working people.

Humanity has been globalizing since our ancestors left Africa, the earliest economic migrants on record. Moreover, capitalism has been operating for two centuries like "heavy artillery," in Marx and Engels' words, using the "cheap prices of commodities" to batter "down all Chinese walls," "constantly expanding market for its products" and replacing "the old local and national seclusion and self-sufficiency" with "intercourse in every direction, universal interdependence of nations."

It wasn't until the 1990s, when we noticed the unleashing of momentous forces, that we required a new term to describe the emancipation of capital from all fetters, which led to a global economy whose growth and equilibrium relied on increasingly unbalanced trade and money movements. It is this relatively recent phenomenon – globalization, we called it – that is now in crisis and in retreat.

In 1944, the New Deal administration in Washington understood that the only way to avoid the Great Depression's return at war's end was to transfer America's surpluses to Europe (the Marshall Plan was but one example of this) and Japan, effectively recycling them to generate foreign demand for all the gleaming new products – washing machines, cars, television sets, passenger jets – that American industry would switch to from military hardware.

Thus began the project of dollarizing Europe, founding the European Union as a cartel of heavy industry, and building up Japan within the context of a global currency union based on the U.S. dollar. This would equilibrate a global system featuring fixed exchange rates, almost-constant interest rates and boring banks (operating under severe capital controls).

This dazzling design, also known as the Bretton Woods system, brought us a golden age of low unemployment and inflation, high growth and impressively diminished inequality.

When Nixon trashed Bretton Woods as its surplus capacity dwindled it embraced a new order of fiscal and trade deficits that saw its trading partners pour their surplus cash into Wall Street.

But for Wall Street to act as this magnet of other people's capital, there were two prerequisites. One was Wall Street's unshackling from New Deal-era regulations. Bank deregulation was central in this audacious reversal: From recycling Amercian surpluses, via transferring them to Europe and to Japan, the United States was now recycling the supluses of the rest of the world rushing into Wall Street, completing the loop necessary to pay for America's deficits and keep globalization in rude health.

The second condition was the cheapening of American labour and the substitution of growing wages with escalating credit, provided via Wall Street. This cheapening of American labour was essential to helping push Wall Street's capital returns above those of Frankfurt and Tokyo, where competitiveness was based instead on enhancements to productivity.

Through it all, neoliberalism emerged from the margins of political economics to dominate our discourse after the end of Bretton Woods. But it was nothing more than the sermon that steadied the hand of politicians repealing New Deal-era protections for workers and society at large from the motivated abuses of Wall Street bankers and predators such as Wal-Mart.

In summary, what we now call globalization was the result of a brave new financialized global recycling mechanism of immense energy and ever-increasing imbalances – with the rise of neoliberalism, wholesale bank deregulation and Wall Street's "greed is good" culture as its mere symptoms. 

"Speculators may do no harm," John Maynard Keynes once hypothesized, "as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation." Which is precisely what had happened by 2007: Atop the tsunami of European and Asian profits rushing into Wall Street, bankers built oversized bubbles of exotic forms of private debt that, at some point, acquired the properties of private money.

When these bubbles burst in 2008, the recycling loop sustaining globalization was broken – despite energetic money printing by central banks and the Chinese government's breathtaking credit and investment spree. U.S. deficits, even after returning to their pre-2007 levels, could no longer stabilize globalization. The reason? Socialist largesse for the few – plus ruthless market forces for the many – damaged aggregate demand, repressed entrepreneurs' sales expectations, restricted investment in productive jobs, diminished earnings for the many and, presto, confirmed the entrepreneurs' pessimism. Adding more liquidity to such a mix makes not an iota of difference, as the problem is not a dearth of liquidity but a dearth of demand.

Wall Street, Wal-Mart and walled citizens – those were globalization's symbolic foundations. Today, all three have become a drag on it. Banks are failing to maintain the capital movements that globalization used to reply upon, as total financial movements across the globe are less than a fourth of what they were in early 2007. Wal-Mart, whose ideology of cheapness symbolized the devaluation of labour and the gutting of traditional local businesses, is itself being squeezed by the Amazon model, whose ultimate effect is a further shrinking of overall spending. And the walls that were the nasty underbelly of the "global village" are now a source of political discontent, exposing the absurdity of a system that promotes the free movement of money and trucks while people remain fenced in.

Looking at the world from an Archimedean distance, globalization has been caught in a steel trap of its own making. Its crisis is due to too much money in the wrong hands. Humanity's accumulated savings per capita are at the highest level in history. However, our investment levels (especially in the things humanity needs, such as green energy) are particularly low. In the United States, massive sums are accumulating in the accounts of companies and people with no use for them, while those without prospects or good jobs are immersed in mountains of debt. In China, savings approaching half of all income sit side by side with the largest credit bubble imaginable. Europe is even worse: There are countries with gigantic trade surpluses but nowhere to invest them domestically (Germany and the Netherlands), countries with deficits and no capacity to invest in badly needed labour and capital (Italy, Spain, Greece) and a euro zone unable to mediate between the two types of countries because it lacks the federal-like institutions that could do this.

The Case for a New Bretton Woods

Lest we forget, our problems are global. Like climate change, they demand local action but also a level of international co-operation not seen since Bretton Woods. Neither North America nor Europe nor China can solve them in isolation or even via trade deals. Nothing short of a new Bretton Woods system can deal with tax injustice, the dearth of good jobs, wage stagnation, public and personal debt, low investment in things we desperately need, too much spending on things that are bad for us, increasing depravity in a world awash with cash, robots that are marginalizing an increasing section of our work forces, prohibitively expensive education that the many need to compete with the robots, etc. National solutions, to be implemented under the deception of "getting our country back" and behind strengthened border fences, are bound to yield further discontent, as they enable our oligarchs-without-borders to strike trade agreements that condemn the many to a race to the bottom while securing their loot in offshore havens.

The Shape of an International New Deal

First, we need higher wages everywhere, supported by trade agreements and conditions that prevent the Uberization of waged labour domestically.

Tax havens are crying out for international harmonization, including a simple commitment to deny companies registered in offshore tax havens legal protection of their property rights.

We desperately need a green-energy union focusing on common environmental standards, with the active support of public investment and central banks.

We should create a New Bretton Woods system that recalibrates our financial infrastructure, with one umbrella digital currency in which all trade is denominated in a manner that curtails destabilizing trade surpluses and deficits.

And we need a universal basic dividend that would be administered by the New Bretton Woods institutions and funded by a percentage of big tech shares deposited in a world wealth fund.

The financial genie needs to be put back in its bottle, with capital controls domestically and globally to be imposed by co-ordinated action in the Americas, Europe and Asia. Money must be democratized and internationally managed in a manner that shrinks both trade deficits and surpluses. The robots must become humanity's slaves, a feat that requires common ownership, at least partly.


the salamander said...

.. your posts usuallly get a 2nd careful read..
This one may get a 4th or 5th..

The Mound of Sound said...

Yeah, there's a lot to digest, Sal.

bcwaterboy said...

Indeed, brilliant analysis, those who need to read and let it sink in are the least likely to pay any attention and we continue the race to the bottom. What we will witness in the next 18 months or so with Trump's heinous tax reform will pretty much seal the fate of the gullibilies and no doubt have global implications. Meanwhile as we're all on our cell phones, the Jeff Bezos head of Amazon will continue to rake in all the cash as the general public sinks small business crucial to local economies. Expect even more churn in jobs than even Bill Morneau condemned Canadians to.

The Mound of Sound said...

I felt uncomfortable reading your predictions, BCWB, and yet I suspect they're accurate. The masthead of this blog records that it is "dedicated to the restoration of progressive democracy." The cornerstone of that is a recalibration of the competing interests of labour and capital.

In Canada, labour, with the complicit but deathly quiet support of the NDP, has been abandoned by successive Liberal and Conservative governments. The rights of organized labour, enshrined in the Universal Declaration of Human Rights to which Canada is bound as a signatory, have been observed since Harper primarily in the breach. Harper undermined "federal" unions by relentlessly legislating them back to work often before they had even gone on strike. Depriving labour of its one bargaining chip, the right to strike, renders unions largely irrelevant. What did the NDP do? Little to nothing. What have the Trudeau Liberals done to redress Harper's union-busting excesses? Nothing. Mustn't empower the working class, not when there are 'free' trade deals to negotiate.