Financial Globalization Can Wreck Societies And The World Economy: An Interview With Political Economist Gerald Epstein


Prof.dr. Gerald Epstein

Since the outbreak of the ‘global financial crisis’ of 2008, there has been an explosion of interest in finance capital and on the so-called ‘financialization’ of the economy. Yet, there is no general consensus among scholars either on the causes behind the rise of finance capital or on the actual impact of ‘financialization’ on the economy and society. One of the leading scholars in the field of political economy interested in the ‘financialization’ of the economy and on the links between neoliberalism, globalization and ‘financialization’ is Gerald Epstein, Professor of Economics and Co-Director of the Political Economy Research Institute (PERI) at the University of Massachusetts at Amherst. In the interview below, Professor Epstein addresses several issues related to ‘financialization’, including it’s macroeconomics and impact on the world economy, as well as it’s links to instability and capitalist crises.

J. Polychroniou and Marcus Rolle: Professor Epstein, an increasing number of scholars have been turning their attention since the outbreak of the ‘global financial crisis’ of 2008 to the role of the finance sector in advanced capitalist economies. Can you give us a sense of how we should proceed to understand ‘financialization’, and address the question on whether it represents a distinct ‘phase’ in the evolution of capitalism?

Gerald Epstein: ‘Financialization’ is the latest, and probably most widely used term by analysts trying to ‘name’ and understand the contemporary rise of finance and its powerful role. The term had been developed long before the crisis of 2008 but, understandably, since the crisis hit, it has become even more popular. This vast and rapidly expanding literature on financialization has a number of important strands. Some of the literature focuses on clarifying the definition of financialization, and assessing whether it is a dominant cause of the ills confronting capitalism or is just a symptom of other, deeper causes; some asks whether financialization is a new ‘phase: of capitalist development, perhaps a new ‘mode of accumulation’, or considers whether it is just one among a number of important developments along with ‘neo-liberalism’, ‘digitization’ and ‘globalization’ that are arising in the contemporary world; other literature is focused on less theoretical and more empirical matters, trying to measure the nature and extent of financialization, however defined, and to describe its institutional and economic dimensions; and still other work is focused on attempting to analyze theoretically and empirically the impact of financialization on important phenomena such as financial crises, productive investment, productivity growth, wages and income distribution; and finally, other parts of the literature are more policy-oriented, trying to grapple with policies and structural changes than can improve the role that finance plays in the economy. There are still many conundrums and open questions about ‘financialization’ which means it will remain a fruitful area for multi-disciplinary research and an important arena for political battles and structural reform for the foreseeable future.

As discussed by Malcolm Sawyer, the term financialization goes back at least to the 1990’s and probably was originated by Republican political operative and iconoclastic writer Kevin Phillips, who first used the term in his book Boiling Point (New York: Random House, 1993) and, a year later, used the term extensively in his Arrogant Capital in a chapter entitled the “Financialization of America”. Phillips defined financialization as “a prolonged split between the divergent real and financial economies (New York: Little, Brown and Co., 1994). (Sawyer, 2013, pp. 5-6).

Scholars have adopted the term, but have proposed numerous other definitions. Sociologist, Greta Krippner, for one, gives an excellent discussion of the history of the term and the pros and cons of various definitions. As she summarizes the discussion, some writers use the term ‘financialization’ to mean the ascendancy of “shareholder value” as a mode of corporate governance; some use it to refer to the growing dominance of capital market financial systems over bank-based financial systems; some follow Hilferding’s lead and use the term financialization to refer to the increasing political and economic power of a particular class segment, the rentier class; for some financialization represents the explosion of financial trading with myriad new financial instruments; finally, for Krippner herself, the term refers to a “pattern of accumulation in which profit making occurs increasingly through financial channels rather than through trade and commodity production”. (Greta Krippner, ‘Thought Financialization of the American Economy,’ Socio-Economic Review 3 (2), 2005, p. 174).

I have defined the term quite broadly and generally as: “the increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies.” (Gerald Epstein, ed., Financialization and the World Economy. Northampton, MA: Edward Elgar Publishers, 2005). This definition focuses on financialization as a process, and is quite agnostic on the issue of whether it constitutes a new mode of accumulation or broadly characterizes an entire new phase of capitalism. Broad definitions like mine have the advantage of incorporating many features, but have the disadvantage, perhaps, of lacking specificity.

Other analysts have used variations on the term financialization to refer to more or less the same set of phenomena. Tom Palley has used the term ‘neo-liberal financializaton’ in his writings to emphasize the importance of neo-liberalism as part and parcel of the rise of financialization (Palley, 2013a, p. 8) Eckhard Hein and Tom Palley have not referred to financialization but to ‘finance-dominated capitalism’. Read more

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Imperialism Is Alive And Kicking: A Marxist Analysis Of Neoliberal Capitalism


Prabhat Patnaik – Photo: wikipedia

The concept of imperialism has fallen out of the political lexicon of many leftists in the West, with some deeming the concept irrelevant for understanding the dynamics of contemporary capitalism.
Marxist economist Prabhat Patnaik has been one of the leading voices countering this trend. In A Theory of Imperialism, a book he co-authored with Utsa Patnaik, Patnaik explores how a new form of imperialism is at work in the unfolding of the capitalist system.
In this exclusive interview for Truthout, Patnaik states the case for the continuing relevance of imperialism as an analytical construct for understanding and challenging effectively the logic and dynamics of contemporary capitalism.

C.J. Polychroniou: How do you define imperialism and what imperialist tendencies do you detect as inherent in the brutal expansion of the logic of capitalism in the neoliberal global era?

Prabhat Patnaik: The capitalist sector of the world, which began by being located, and continues largely to be located, in the temperate region, requires as its raw materials and means of consumption a whole range of primary commodities which are not available or producible, either at all or in adequate quantities, within its own borders. These commodities have to be obtained from the tropical and sub-tropical region within which almost the whole of the Third World is located; and the bulk of them (leaving aside minerals) are produced by a set of petty producers (peasants). What is more, they are subject to “increasing supply price,” in the sense that as demand for them increases in the capitalist sector, larger quantities of them can be obtained, if at all, only at higher prices, thanks to the fixed size of the tropical land mass.

This means an ex ante tendency toward accelerating inflation as capital accumulation proceeds, undermining the value of money under capitalism and hence the viability of the system as a whole. To prevent this, the system requires that with an increase in demand from the capitalist sector, as capital accumulation proceeds, there must be a compression of demand elsewhere for these commodities, so that the net demand does not increase, and increasing supply price does not get a chance to manifest itself at all.

Such demand-compression occurs above all through the imposition of an income deflation on the petty producers, and on the working population in general, in the Third World. This was done in the colonial period through two means: one, “deindustrialization” or the displacement of local craft production by imports of manufactures from the capitalist sector; and two, the “drain of surplus” where a part of the taxes extracted from petty producers was simply taken away in the form of exported goods without any quid pro quo. The income of the working population of the Third World, and hence its demand, was thus kept down; and metropolitan capitalism’s demand for such commodities was met without any inflationary threat to the value of money. Exactly a similar process of income deflation is imposed now upon the working population of the Third World by the neoliberal policies of globalization.

I mean by the term “imperialism” the arrangement that the capitalist system sets up for imposing income deflation on the working population of the Third World for countering the threat of inflation that would otherwise erode the value of money in the metropolis and make the system unviable. “Imperialism” in this sense characterizes both the colonial and the contemporary periods.

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Racist US Laws Provided Inspiration To The Nazis: An Interview With James Q. Whitman


James Q. Whitman is the Ford Foundation Professor of Comparative and Foreign Law at Yale Law School

At a time when white supremacist ideas are thriving in the United States, a recently published book by James Q. Whitman, professor of comparative and foreign law at Yale Law School, provides a chilling account of the way US race law provided inspiration for the Nazis, including Hitler himself, in the making of the Nuremberg Laws and their pursuit of a “perfect” racist order. In an exclusive interview for Truthout, Professor Whitman explains the connection between the centerpiece anti-Jewish legislation of the Nazi regime – the Nuremberg Laws – and US race law.

C.J. Polychroniou: Professor Whitman, most scholars before you have insisted that there was no direct US influence on Nazi race law, yet Hitler’s American Model argues something quite the opposite: that the Nazis not only did not regard the United States as an ideological enemy, but in fact modeled the Nuremberg Laws after US racist legislation. First, can you briefly point out some of the evidence for your thesis, and then explain why others have failed to see a direct connection?

James Q. Whitman: The evidence is pretty much in plain sight. Hitler himself described the United States in Mein Kampf as “the one state” that was making progress toward the creation of a racial order of the kind he hoped to establish in Germany. After the Nazis came to power, German lawyers regularly discussed American models — not only the model of Jim Crow segregation, but also American immigration law, which targeted Asians and southern and Eastern Europeans; American law establishing second-class citizenship for groups like Filipinos; and American anti-miscegenation statutes. Some of the most dramatic evidence comes from a stenographic transcript of a planning meeting for the Nuremberg Laws in 1934. In the very opening minutes of that meeting, the Nazi minister of justice presented a memorandum on American law, and the participants engaged in detailed discussion of the laws of many American states.

As for why other scholars haven’t seen the connections: One reason is that they have focused too much on the question of whether the Nazis were influenced by Jim Crow segregation. The answer, for the most part, is no – though there were some Nazis, including some especially vicious ones, who did want to bring Jim Crow to Germany. Another reason is that America did not have law [specifically] persecuting Jews. That is true enough, but it did not prevent the Nazis from taking an interest, and sometimes a pretty enthusiastic interest, in the law that America did have. Maybe the biggest reason is that it just seems too awful to be true.
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“Trump Feels A Kinship With Authoritarian Leaders”: Richard Falk On Turmoil In The Middle East


Prof.em. Richard Falk

Since Trump’s visit to the Middle East, the region is experiencing new forms of turmoil, with the boycott against Qatar by several Gulf countries and Egypt reflecting the manifestation of geopolitical rivalries encouraged by Trump’s support for dictatorial regimes in the region willing to join the US in the fight against terrorism. For the latest developments in the Middle East, Truthout spoke with Richard Falk, emeritus professor of international relations at Princeton University, who is now in the region for a series of public lectures.

C.J. Polychroniou: Richard, you are traveling and lecturing at the moment in the Middle East. How are the media in countries like Lebanon, Israel and Turkey treating Trump’s policies in the region, and what’s your reading of the mood on the ground among common folk?

Richard Falk: I have just arrived in Istanbul after spending several days in Beirut. While in Lebanon, in addition to giving a public lecture at the end of a cultural festival on the theme, “The rise of populism, Trumpism, and the decline of US leadership,” I had the opportunity to interact with a wide range of people. As far as Trump is concerned, there was virtual unanimity that he is worsening an already volatile situation in the region. His trip to Riyadh was viewed in Beirut as a stunning display of incompetence and bravado, topped off by succumbing to a Saudi/Israeli regional agenda focused on building a menacing anti-Iran coalition and misleading publicity surrounding a nominal commitment to join forces to combat ISIS (also known as Daesh). Trump was viewed as a leader who did not understand the region and was more interested in pushing destabilizing arms sales than in genuinely promoting stability and conflict resolution.

Why is Qatar singled out on terror when it is a well-known fact that Saudi Arabia has been a chief supporter of the most radical ideological version of Islam, and Turkey’s President Erdogan has been accused of aiding ISIS and other extremists against Kurds and Syrian President Bashar al-Assad?

The short answer is geopolitics. Saudi Arabia, like Israel, has a “special relationship” with the United States, meaning that in diplomatic practice, Washington adopts a subservient posture that includes seeing the world through a distorted optic provided by the Saudi monarchy. Trump did not initiate this American tendency to avert its eyes when it comes to the massive evidence of Saudi support for Islamic extremism, but he seems to be carrying further this form of geopolitical [ignorance].

When it comes to Turkey, the American attitude is ambivalent, regarding Turkey as a sufficiently important strategic partner via NATO, as well as the site of the important American Incirlik Air Base to justify looking the other way when it comes to indications of earlier Turkish support for ISIS in the context of implementing its anti-Assad Syrian policies. Of course, there is evidence of contradictions along similar lines with respect to pre-Trump US policies in Syria. All hands are dirty with regard to Syria. The Syrian people are continuing to pay a huge price for this mixture of internal struggle and a multilevel proxy war engaging regional and global actors.

Singling out Qatar is the strongest instance of the Saudi regional game. Saudi Arabia has long been bothered by the relative independence of Qatar in relation to a series of issues that have nothing to do with terrorism. These include the creation of Al Jazeera, a show of sympathy for the Arab Spring movements of 2011, asylum for the Muslim Brotherhood leadership after the Sisi coup of 2013, hosting Hamas leaders and tangible support for the Palestinian struggle — including aid to Gaza, and relatively friendly relations with Iran partly as a result of sharing a huge natural gas field.
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Myths Of Globalization: Noam Chomsky And Ha-Joon Chang In Conversation


Ha-Joon Chang Photo: Wikipedia

Since the late 1970s, the world’s economy and dominant nations have been marching to the tune of (neoliberal) globalization, whose impact and effects on average people’s livelihood and communities everywhere are generating great popular discontent, accompanied by a rising wave of nationalist and anti-elitist sentiments. But what exactly is driving globalization? And who really benefits from globalization? Are globalization and capitalism interwoven? How do we deal with the growing levels of inequality and massive economic insecurity? Should progressives and radicals rally behind the call for the introduction of a universal basic income? In the unique and exclusive interview below, two leading minds of our time, linguist and public intellectual Noam Chomsky and Cambridge University economist Ha-Joon Chang, share their views on these essential questions.

C. J. Polychroniou: Globalization is usually referred to as a process of interaction and integration among the economies and people of the world through international trade and foreign investment with the aid of information technology. Is globalization then simply a neutral, inevitable process of economic, social and technological interlinkages, or something of a more political nature in which state action produces global transformations (state-led globalization)?

Ha-Joon Chang: The biggest myth about globalization is that it is a process driven by technological progress. This has allowed the defenders of globalization to brand the critics as “modern Luddites” who are trying to turn back the clock against the relentless progress of science and technology.

However, if technology is what determines the degree of globalization, how can you explain that the world was far more globalized in the late 19th and the early 20th century than in the mid-20th century? During the first Liberal era, roughly between 1870 and 1914, we relied upon steamships and wired telegraphy, but the world economy was on almost all accounts more globalized than during the far less liberal period in the mid-20th century (roughly between 1945 and 1973), when we had all the technologies of transportation and communications that we have today, except for the internet and cellular phones, albeit in less efficient forms.

The reason why the world was much less globalized in the latter period is that, during the period, most countries imposed rather significant restrictions on the movements of goods, services, capital and people, and liberalized them only gradually. What is notable is that, despite [its] lower degree of globalization … this period is when capitalism has done the best: the fastest growth, the lowest degree of inequality, the highest degree of financial stability, and — in the case of the advanced capitalist economies — the lowest level of unemployment in the 250-year history of capitalism. This is why the period is often called “the Golden Age of Capitalism.”

Technology only sets the outer boundary of globalization — it was impossible for the world to reach a high degree of globalization with only sail ships. It is economic policy (or politics, if you like) that determines exactly how much globalization is achieved in what areas.

The current form of market-oriented and corporate-driven globalization is not the only — not to speak of being the best — possible form of globalization. A more equitable, more dynamic and more sustainable form of globalization is possible.

We know that globalization properly began in the 15th century, and that there have been different stages of globalization since, with each stage reflecting the underlying impact of imperial state power and of the transformations that were taking place in institutional forms, such as firms and the emergence of new technologies and communications. What distinguishes the current stage of globalization (1973-present) from previous ones?

Chang: The current stage of globalization is different from the previous ones in two important ways.

The first difference is that there is less open imperialism.

Before 1945, the advanced capitalist countries practised [overt] imperialism. They colonized weaker countries or imposed “unequal treaties” on them, which made them virtual colonies — for example, they occupied parts of territories through “leasing,” deprived them of the right to set tariffs, etc.

Since 1945, we have seen the emergence of a global system that rejects such naked imperialism. There has been a continuous process of de-colonialization and, once you get sovereignty, you became a member of the United Nations, which is based upon the principle of one-country-one-vote.
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The Single-Payer Breakthrough In California: Robert Pollin On The Economics Of Universal Care


On June 1, California senators voted to replace private health insurance with a single-payer system. Senate Bill 562, by State Senators Ricardo Lara and Toni Atkins, passed 23-14, and will now advance to the Assembly where the measure would require two-thirds vote in both chambers to become law.

Clearly, the June 1 vote by California senators is an initial step toward the adoption of a government-run universal health care system, but it already signifies a major political victory for progressives in this country, who have long advocated for a publicly funded health care system. The proposed measure, i.e., SB-562, was backed by an economic analysis undertaken by the Political Economy Research Institute (PERI) of the University of Massachusetts at Amherst. Its lead author, Distinguished Professor of Economics and Co-Director of PERI Robert Pollin, introduced the study at a capitol news conference a day before the State Senate vote — and it was undeniably instrumental in the passing of SB-562. Now that the first hurdle toward the replacement of private health insurance in California with government-run health care has been cleared, we asked Pollin to weigh in on the bill’s financial implications and its future. In the exclusive interview below, Robert Pollin discusses why a transition to a truly universal health care system makes economic sense for the state of California — and the country.

C. J. Polychroniou: Bob, could you start by briefly outlining the key features of SB-562 and tell us how you and PERI got involved in providing the financial analysis for the proposed measure?

Robert Pollin: SB-562, in its essentials, proposes a classic single-payer, or Medicare-for-All, health care system for the State of California. That means basically two things: First, everyone in California is guaranteed access to decent health care, regardless of their income level, where they work or whether they have a job at all. This principle is quite straightforward. It is the equivalent to the principle on which we operate public schools in the US. It is also the principle that operates for Medicare right now, covering everyone 65 and over. And second, [the bill provides that] private insurance companies are no longer permitted to offer health care coverage for residents of California.

The way I got involved is also simple: I was asked to get involved by RoseAnn DeMoro, who is the longtime executive director of the California Nurses Association and National Nurses United. In my view, the nurses’ union is the most progressive and innovative union in the US and probably the single most effective force for good in US mainstream politics today. So, when they asked me to get involved, it would have been very hard to say “no.” On top of that, I have worked with them for years now, on the issue of taxing Wall Street — i.e., the “Robin Hood Tax.” In all of my previous work with them, they have had total respect for my independence as a researcher. That is critical. They knew that, if I took this commission, I was doing it to produce a serious piece of analytic work. I was not about to just do cheerleading for them.

One of the major objections launched against SB-562 was that it would be financially unsustainable. However, the study that you and your colleagues undertook says providing universal coverage would increase overall system costs by about 10 percent, but the single-payer system could produce savings of about 18 percent. Can you elaborate a bit on this?

At present, the total cost of health care in California — including everything — is roughly $370 billion. But even with this level of spending — about 14 percent of total GDP in California — there is still about 7.5 percent of California’s population (2.7 million people) who have no health insurance, and another 36 percent of the population (about 12 million people) who are underinsured, i.e., they have limited access to health care because their insurance premiums, deductibles and/or co-payments are extremely high relative to their income levels. My co-authors James Heintz, Peter Arno and Jeannette Wicks-Lim and I estimated that to provide good health care to all those who are presently either uninsured or underinsured would raise total system costs to about $400 billion, assuming that the health care system remained intact otherwise. We then estimated that, with the single-payer system, we could extract about 18 percent in total cost savings. We get those savings through reducing excessive administration, controlling pharmaceutical prices, fixing fees for doctors and hospitals at Medicare rates, and reducing the high degree of waste in the present system of service provision (such as doctors ordering excessive procedures).

Through these cost-control measures, we estimate that the single-payer system can provide everyone in California with decent health care at a total cost of $330 billion, i.e., a savings of about 8 percent relative to the current system while still delivering universal coverage.
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