Greece and Economic Recovery: Fake News in Action

Ten years ago, the implosion of Lehman Brothers ignited a financial crisis whose impact and effects were felt virtually across the globe as banks and financial institutions everywhere that were exposed to subprime lending, formed part of a long chain of complicated and interconnected derivatives, and partook freely in Wall Street shenanigans.

In Europe, the global financial crisis that started in the United States did not reach shore until late 2009, and the first victim was the land that gave birth to democracy and laid the foundations for the emergence of Western civilization.

Enter Greece and an ongoing debt drama, with catastrophically spectacular economic, social, and political ramifications, that has no end in sight.

Indeed, now into its eighth year, Greece remains entirely dependent on international bailouts (three bailouts involving the European Union and the International Monetary Fund have been arranged since 2010), has lost a quarter of its GDP with no realistic expectations of recovering it for decades to come, experiences unemploymentlevels which have oscillated between a high 27.8 percent (in July 2013) and a low 21.2 percent (in June 2017), and has seen the standard of living decline to 1960s levels.

Worse, Greece’s debt-to-GDP ratio has exploded since the start of the bailout programs, rising from 128 percent in 2010 to over 185 percent in 2017, and, with no debt relief in sight, the small Mediterranean nation has become truly a permanent debt colony inside the world’s richest region. In the meantime, a mass exodus of young and educated people has been in motion for several years now (youth unemployment rate in Greece stands currently at 43.3 percent), a process that is bound to have long-term effects on demographic trends and a significant impact on future economic developments.

Nonetheless, the story line advanced these days from Athens, courtesy of a pseudo-leftist government that has not only reneged on every one of its promises to the Greek citizens since coming to power, but has ended up reinforcing the neoliberal agenda of the European Union/International Monetary Fund duo with more perseverance than all previous governments put together, is that the country has “turned page” and that the crisis is now practically over. Read more

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To Make Our Democracy Functional, We Must Confront Economic Inequality

Larry Bartels

The United States is a plutocratic disaster. Extreme levels of inequality and a political system in which elected officials cater primarily, if not exclusively, to the needs and interests of the rich have produced a social order beset with mounting problems and critical challenges that elections alone cannot realistically be expected to address. In this exclusive interview for Truthout, renowned political scientist Larry Bartels, author of the already classic work Unequal Democracy, provides a sweeping look at the state of our dysfunctional society.

C.J Polychroniou: In your book Unequal Democracy, you presented mountains of data revealing the seriousness of the problem of inequality in the United States. In your view, what have been the underlying factors for the emergence of a New Gilded Era, and why has the American political system failed to rise to the challenge of addressing the deep problem of inequality?

Larry Bartels: Most affluent democracies have experienced substantial increases in economic inequality over the past 30 or 40 years. In significant part, those increases are attributable to technological change, globalization and increased mobility of capital. … But different countries have responded to those changes in different ways. Most have mitigated their effects through increased redistribution, making post-tax-and-transfer incomes much less unequal. In the United States, there has been comparatively little redistribution. There have also been political shifts that have exacerbated pre-tax-and-transfer inequality, including deregulation of the financial industry, rules restricting the clout of labor unions and the erosion of the minimum wage.

Broadly, the difference is attributable to the economic ideology of America’s political leaders. More specifically, it is attributable to the economic ideology of Republican leaders. My historical analysis of partisan differences in income growth demonstrates that virtually all of the net increase in income inequality since the end of World War II has occurred under Republican presidents; income growth under Democratic presidents has tended to be faster and much more egalitarian.

What is the actual impact or effect of economic inequality on democracy?

We like to think that we can wall off our democratic political system from our capitalist economic system, leaving everyone free to get rich (or poor) but remain politically equal. In practice, however, that turns out to be impossible. Hence, “unequal democracy.”

My analysis of the voting behavior of US senators found that they are moderately responsive to the views of affluent constituents but completely ignore the views of low-income constituents. A study by Martin Gilens of policy outcomes likewise found that the probability that any given policy change will actually be adopted is pretty strongly related to the preferences of affluent people but virtually unaffected by the preferences of middle-class people, much less poor people.

Proposed explanations for these remarkable disparities in responsiveness often focus on distinctive features of the US — our permissive system of campaign finance, low rate of unionization, ethos of individualism and so on. But recent work along similar lines in other affluent democracies suggests that they, too, are marked by severe disparities in political influence rooted in economic inequality. Regardless of their specific political institutions, contexts and cultures, democratic systems seem to be chronically vulnerable to the conversion of economic power into political power. Read more

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Will Brexit Destroy The UK’s Economy? An Interview With Malcolm Sawyer

Malcolm Sawyer ~ Emeritus Professor of Economics. Leeds University Business School

More than a year ago, British voters sent waves of shock throughout Europe and the world economy with their decision to withdraw from the European Union (EU). However, the impact of Brexit on the UK’s economy and its implications for the future of the EU remain contested territory, especially since the conservative government of Theresa May has shown astonishing ineptness so far in terms of the conditions of the divorce. In this interview, well-known British economist Malcolm Sawyer of the University of Leeds provides an insightful analysis on the major issues and questions associated with Brexit, shedding light on what the future may hold for both the UK and the EU.

C.J. Polychroniou and Marcus Rolle: Britain’s decision last year to leave the European Union represents a shattering political development, the effects of which remain incalculable both for the future of the United Kingdom and for the EU itself. But before we explore the political economy of Brexit, let’s start by asking you to explain to us what you believe were the key factors that prompted British voters to seek a divorce from the European Union.

Malcolm Sawyer: The result of the referendum vote of June 2016 was close — 52 percent [voted] “leave EU” and 48 percent [voted] to remain. In any referendum (and indeed other elections), it is difficult [if not] impossible to discern what people thought they were voting for or against. In this referendum, whilst the consequences of a “remain” majority could be perceived as continuation with present arrangements, those of a “leave” majority were obscure — and indeed, the UK government is now grappling with working out what the consequences will be.

For those who voted for the UK to leave, my impressions are that the key factors include:
– The appeal of “take back control,” particularly with regard to immigration and the free movement of labor within the EU. Whilst there appear to be net economic benefits for the UK from immigration, there will be winners and losers, and people’s perceptions may often be of little or no benefits: added to which, hostility towards foreigners.
– The remoteness of the EU, often labelled in terms of “Brussels” with connotations that decisions of the EU were being imposed on the UK without input from the UK. This interacted with the “take back control” and could be stoked up by stories (often false) of decisions made by the EU.
– Disbelief that the UK’s membership of the EU brought economic benefits. The UK’s contribution to the EU budget (a net cost of around ½ percent of GDP) was apparent (though much overstated by the leave campaign), and the benefits for enhanced trade and cooperation much more nebulous. The remain campaign would cite 3 million jobs dependent on trade with EU (again overstated), but that would mean 27 million jobs were not dependent on such trade.

A breakdown of the vote revealed two fractures: a sharp division between young and old, and a huge gap between London and the North. What does the political economy have to do with these two fractures, and what sort of economic policies can be implemented in the future that can heal a divided nation?

The voting patterns with regard to remain/leave can be broken down along a number of lines — a tendency for large cities to vote remain (not just London), two countries voted to remain (Scotland, Northern Ireland) and two to leave (England, Wales). Having a university education tended to be associated with voting “remain,” and the old were much more likely than the young to vote leave (there being overlap between the two in that participation in higher education was much lower in the 1950s and 1960s than in the past two decades).

There appears to be association between socially conservative attitudes and voting leave. Areas of industrial decline appeared more likely to vote leave, [as did] areas where immigration had increased substantially in the past decade (noting that migration from other EU countries rose sharply after 2004 with the entry of the new member states in that year).

There is, in my view, a division between remain voters and leave voters running along the lines of “what matters to them.” A potent slogan of the leave campaign was “taking back control” — applied to immigration (as the free movement of labor places few constraints on migration within the EU), and to the role of [the] European Court of Justice, and more generally, to adoption of laws (though the impact of EU legislation on UK legislation was often grossly overstated by leave campaign), and to some degree, over regulations associated with the single market, and over policies, such as the common fishery policy.

The remain campaign focused on the adverse economic consequences of the UK leaving the EU, and failed to address the issues raised by the leave campaign in connection with “take back control.” Although large numbers were bandied about for the economic losses associated with leave, in proportional terms, the losses were relatively small (less than 5 percent of GDP over a 15-year period, and then as compared with what would have otherwise occurred). If a person’s concern is over perception of a loss of control, and striving to take “back control,” then some economic loss may well appear inconsequential. But also, the leave campaign’s slogan to the effect that £350 million a week (equivalent to around 1 percent of UK GDP) was the cost to the UK of EU’s membership, money which could be spent on the NHS, served as an antidote to the remain campaign’s claims over economic damage from leaving the EU. The £350 million per week claim was much derided as inaccurate, representing the gross payments by UK to the EU and ignoring the money flowing back to the UK for the agricultural support policy, regional and structural funds, and research moneys to universities.
Read more

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Trump And The Infrastructure Of Fascism

Prof.dr. Gerald Epstein

Infrastructure investment: it’s that economic policy sweet spot that everyone loves to love.

Fixing bridges, building roads, modernizing airports, improving mass transportation, keeping lead out of our water: nearly everyone can relate to the need for it and can imagine how much better their lives would be with more of it.  For years, most people have faced crazy-making delays in traffic, long lines at airports, and have seen pictures of bridges collapsing. And the experts agree. Economists and engineers have warned us about the problem for decades.  The most recent report by the American Society of Civil Engineers gave the U.S. a D+ on its infrastructure building and maintenance, which means that, overall, our infrastructure is in critical condition. These civil engineers estimate that over the next 10 years, the U.S. will have about a $1.2 trillion in infrastructure financing shortfall unless something dramatic is done. Studies have confirmed that, properly done, infrastructure investment can generate millions of jobs, create big time saving efficiencies, and keep people safer. These infrastructure shortfalls, fed by years of Republican austerity initiatives at the Federal and State levels, too often aided and abetted by Democratic bankers and other Democratic “deficit hawks,” are much in the everyday texture of American life.

On the campaign trail, then-candidate Trump jumped on the bandwagon, decrying America’s “Third World” infrastructure and touting his ability to fix it in short order—as “demonstrated” by his “building prowess “in New York City and “around the world.” Trump promised to quickly fix the country’s decaying infrastructure and generate millions of good paying job with a $1 trillion program that will “Make America Great Again.”

That Trump had hit a political “sweet spot” was made clear early on by the number of prominent Democrats and labor leaders who announced not only an interest but real enthusiasm for cooperating with Trump on making a $ 1 trillion building-spree a reality. How could they resist? A true, well designed, well-implemented $1 Trillion government investment in infrastructure is a plan many Democrats, progressive economists and labor leaders had been promoting for years. As Richard Trumpka, President of the AFL-CIO explained: “During my January meeting with President Trump, we identified a few important areas where compromise seemed possible. On manufacturing, infrastructure and especially trade, we were generally in agreement. Mr. Trump spoke of $1 trillion to rebuild our schools, roads and bridges. He challenged companies to keep jobs in the United States. He promoted ‘Buy America.’ He promised to renegotiate the North American Free Trade Agreement.” Read more

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Is Capitalism In Crisis? Latest Trends Of A System Run Amok

To order the book: see below

Having survived the financial meltdown of 2008, corporate capitalism and the financial masters of the universe have made a triumphant return to their “business as usual” approach: They are now savoring a new era of wealth, even as the rest of the population continues to struggle with income stagnation, job insecurity and unemployment.
This travesty was made possible in large part by the massive US government bailout plan that essentially rescued major banks and financial institutions from bankruptcy with taxpayer money (the total commitment on the part of the government to the bank bailout plan was over $16 trillion). In the meantime, corporate capitalism has continued running recklessly to the precipice with regard to the environment, as profits take precedence not only over people but over the sustainability of the planet itself.
Capitalism has always been a highly irrational socioeconomic system, but the constant drive for accumulation has especially run amok in the age of high finance, privatization and globalization.
Today, the question that should haunt progressive-minded and radical scholars and activists alike is whether capitalism itself is in crisis, given that the latest trends in the system are working perfectly well for global corporations and the rich, producing new levels of wealth and increasing inequality. For insights into the above questions, I interviewed David M. Kotz, professor of economics at the University of Massachusetts at Amherst and author of The Rise and Fall of Neoliberal Capitalism (Harvard University Press, 2015).

C.J. Polychroniou: David, corporate capitalism and the masters of the universe have bounced back quite nicely from the global financial crisis of 2008. Is this an indication of the system’s resilience, or do we need to think about larger considerations, such as the trajectory of the class struggle in the contemporary world, the role of ideology and the power of the state?

David M. Kotz: The severe phase of the economic and financial crisis ended in the summer of 2009. By then the banks had been bailed out and the Great Recession ended, as production stopped falling and began to rise in North America and Europe. As you say, since then profits have recovered quite well. However, normal capitalist economic expansion has not resumed, but instead, global capitalism has been stuck in stagnation.

Stagnation means no economic growth or very slow economic growth. Stagnation has afflicted most of the developed countries since 2010, with some countries, such as Greece, still in a severe depression. US GDP growth has averaged only 2.1 percent per year since the bottom of the Great Recession in 2009. That is by far the slowest expansion following a recession since the end of World War II. Even mainstream economists, such as Lawrence Summers and Paul Krugman, have recognized that the economy is stuck in a severe stagnation.

In the US, the official unemployment rate has fallen to a low level, but that is due to millions of people being dropped from the official labor force as a result of giving up looking for work after finding none for a long period. Most of the new jobs pay low wages and provide little or no job security. Meanwhile, the rich continue to get still richer.

The long-lasting stagnation has brought stagnating wages and worsening job opportunities. This creates a severe problem for capitalism, even with rising corporate profits and growing wealth for the top 1 percent. This problem has an ideological and a political dimension. While capitalism always brings a high degree of inequality, it is tolerable for those holding the short end of the stick as long as living standards are rising and job opportunities are good for most people. A long period of stagnation delegitimizes the existing system. As growing numbers of people turn against “the system” and the elites who run it, a political crisis develops. The bourgeois democracy that normally acts to stabilize capitalism turns into a source of instability, as anti-establishment parties and candidates start winning elections. Read more

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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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