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John Weeks is a professor emeritus of the University of London's School of Oriental and African Studies and author of The Economics of the 1%: How Mainstream Economics Serves the Rich, Obscures Reality and Distorts Policy. His recent policy work includes a supplemental unemployment program for the European Union and advising the central banks of Argentina and Zambia.
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Washington. As people continue to gather in New York City at the Occupy Wall Street and have been joined around the world by solidarity marches and protests in over 50 cities, the question of what are people demanding and why are they taking on Wall Street seems to be the debate of the day. Well, just why focus on the bankers has been the subject of a recent piece by John Weeks. He's a professor emeritus at the University of London. He's also the author of the book Capital, Exploitation and Economic Crisis. And he joins us now from the PERI institute in Amherst, Massachusetts. Thanks for joining us, John.JOHN WEEKS, ECONOMIST, PROF. EMERITUS, SCHOOL OF ORIENTAL AND AFRICAN STUDIES: Thank you very much for inviting me.JAY: So, in a recent piece you wrote on your website, you talk about why target the bankers and so on, and you raise the point that it's not just about, you know, some recent speculative activity; it's something more structural that's been going on for decades. Could you speak a bit about this?WEEKS: Certainly. I mean, I think the first thing that we have to realize is that for several decades, at least three, people, particularly in the United States, but also throughout Western Europe, in Britain, where I live--and I should say as an aside that also--as you mentioned, there are also demonstrations there. My son's trade union turned out thousands of people yesterday for the London Stock Exchange. So it's not just a phenomenon in New York, nor is it just a copy of that, but it is people outraged in different places. But the interesting thing--so the last 30 years, people have been convinced of something which is clearly contrary to their experience: they've been convinced that markets work in their favor, and particularly financial markets, and we ought to deregulate financial markets, and that will be good for everyone--not just for the bankers, but for everyone. And if you think about it, that's contrary to everyone's experience, or anyone that picks up the paper or has a bank account knows that banks are continually imposing charges that bear no relationship to the costs, and are instituting procedures which are only money-making for the banks and provide no convenience for the bank customers. So you're offered online paying of your checks, and that's supposed to be so convenient, then you discover that the main function of that is to lock you into the bank, and they introduce charges. So you have to ask yourself: how is it that over all these decades, you know, we've got this situation, how are people convinced of that? And I think that that is one of the most important things. I'll come back to that. But I think that really is the crucial question for progressives: how are people convinced of lies, if I may use the the technical term? Over the last 30 years, since--roughly since 1980, there has been a tremendous redistribution of income in the United States from the lower half of the distribution to the upper half. I mean, you can see it very clearly in the statistics. And so now if you think about--to give you an example [incompr.] grotesque example. A month ago, the Bureau of Economic Analysis of the Department of Commerce announced that the typical American's family income had fallen by 1 percent. Now, what they meant by "typical" is the family that has an income right in the middle that divides the population 50-50. But what they didn't tell you in that article was the average had gone up. Now, think about that for a moment. From 2009, 2010, the bottom 50 percent, their incomes went down by 1 percent, and the top 50 percent went up. This is in a recession. How could that happen? It's because of that powerful redistributive effect, and that is tied up with the financial sector. And you can see it in the statistics. In 1950 the financial sector of the United States accounted for less than 3 percent of the national income. Now it's up close to 9 percent. Public sector wages and salaries, all state governments, all local governments, the federal government, all of them put together come to 15 percent. And the financial sector's almost 9 percent. We aren't far from the day when the government will be smaller than financial sector. Of course, in terms of power it's already true. So that, I would say, is essential, the essence of the problem.JAY: The argument I would think you would get from the financial sector is this is part of the product of globalization, that you need so much more capital for global commerce that it's only natural they're making more money, 'cause they're just more involved in moving money all around the world, and that's a good thing, because they think globalization's a good thing.WEEKS: Alright. Let's think about that for a moment, you know, that the hypothesis that's being put forward to us, what we are offered to--being asked to believe is that with globalization, the opening up of international markets, that more capital is needed, and so therefore the banks become more important. Alright. If that is the case, what would we expect to see? I mean, what sort of evidence would be? Well, we would expect to see a more rapid rate of growth, yes? I mean, if we, back in the pre-antediluvian, before-globalization days, you know, before 1980s there, 1985, whenever you want to date it, then things must have been pretty bad, yes, because we didn't have such free flow of capital. But what we know is that in fact growth rates from 1950 to 1980 were much higher than they've been from--to 2010. So we haven't seen it in, you might say, more total output. So total output hasn't grown. Well, maybe, however people are better off [incompr.] got a better redistribution. Well, we know that's not true either. The opposite. Since 1980, the average American family income has grown at about 1 percent in real terms, while the economy as a whole has grown about 2.5 percent. Okay, so it's not redistribution. It's not growth. Where are the benefits that this was supposed to bring about? Alright, let's say perhaps there's a more modest argument going on here, though bankers normally aren't modest. But let's say that there's a more modest argument saying, if it hadn't been for this growth of the financial sector, then it's true we haven't done that great, but it would've been much, much worse. Okay. Well, let's look at different countries, at their financial sector and at their growth performances. One of the best-performing countries in terms of growth (let's just look at a developed country to begin with) is Germany. Has a very small financial sector, much smaller than the United States. The only two countries with large financial sectors in GNP are Britain and the United States. And they're--certainly Britain would not be considered to have been a rapid grower, and nor would the United States over the last ten years. Who have been the rapid growers? China.JAY: Is that partly because the Germans sort of depend on the Americans to play this role?WEEKS: Once that was true, but most of Germany's trade is with the European Union. Let me begin to say I'm--let me--I'm not a great defender of Germany. Some people are. Some progressives say that there are many aspects of the German social model, particularly participation of trade unions in corporations, that we should emulate. Germany, to a great extent its rapid growth has been the result of mercantilist policies over the last 30 years. Most of its trade is with the European Union, overwhelmingly. It is the only big country in Europe with a trade surplus. Basically, everybody else is Germany's market. It has an enormous trade surplus. Some years--in 2000 it had a larger trade surplus than China. Okay. So there are--if what you're looking for is economic success, you don't have to go for finance. I wouldn't recommend Germany's either, but you don't have to go to finance. If you stop and think about it, what do financiers do? What do banks do? They don't produce anything. They don't design anything. They don't transport anything. What they do is they allow companies to carry on investments and trade in excess of the cash the companies have. And we would have a much more primitive economy, we would be like the 19th century in the absence of banks, because banks allow a company to make an investment without having to save up for, you know, decades to invest in a plant that's going to last 50 years. They can borrow the money, which in effect is redistributing income from companies that are contracting to companies that are expanding. Now, that's an important function. But if you think about it, it's a pretty modest function. And pretty much that's what banks did until 1980. They were regulated. That's what they could do, and they did an alright job of it. And we didn't have banking crises from 1945 to 1980 of any significant size. We had a fairly good rate of growth, much higher rate of investment in the United States than we have now. What finance has done, basically, is to discover ways of making money without producing. That's what the deregulation did. Forgive me if I'm wandering around, but I'll try to come back and sum it up in a minute. But basically what happened what--the situation before 1980 is, in order to make big money in United States, you had to produce something. You couldn't speculate. Speculation was very restricted. So you had to produce useful things like the, you know, furniture and food and so on, or environmentally destroying things like automobiles, or unhealthy things like cigarettes, but you had to produce something. After 1980, increasingly the banks began to be deregulated, and that created the scope to accumulate wealth without going through production. And you could do it by speculating on price changes in the future, by dealing with vulnerable borrowers, such as the subprime crisis. All those things were not allowed before that. And so that's what we've seen in the last 30 years. Globalization, I would say, is incidental to that. That could've happened, and did, without globalization. That's what brought the Great Depression of--I mean, the great crash of 1929, long before we were globalized. Now we're seeing it again, but in a globalized world.JAY: The more narrow function of banking--as you say, to take capital from where parts of the economy are accumulating to where it needs to expand--you say in your article that this doesn't have to be for profit or private. That function could be done, I guess, through some kind of public banking.WEEKS: Yeah. I mean, there are a number of possibilities, some of which we have experience with. So, for example, in Britain there were things called building societies, which are similar to savings and loans [incompr.] building. They were mutual societies. You know, you are a member, you paid into it, you could borrow out of it, and the--they kept their balance because they were holding mortgages. So people were repaying them and money was going out, and the excess money they had they would then for--primarily for industrial investments. Now, they were restricted in what they could do and what they could lend for, because it had to be fairly safe, you know, because people's homes and mortgages and all were tied up, and so it's fairly restrictive. But that was--and they were limited in--they were not allowed to make profits. They could, of course, pay their executives, but there was a limit on that. The money had to be returned to the mutual fund holders. You could certainly do that. That's one possibility. Another possibility is you could put a cap on the profits of banks. You could run a bank as--rather like charitable foundations--you know, the Ford Foundation, the Rockefeller Foundation--such that they would engage in these activities but they would be limited in the income they could generate. Now, you could say, oh, well, if you're going to limit their profits, they aren't going to take chances, are they? Hello! That's exactly the point. Right? Wouldn't we like to have a financial sector that was secure, which funded reliable, productive investment activities of the private sector, which was not speculative and fraud--full of fraud? I mean, that's what we're seeking. One way to do that is to remove it from the pure profit model.JAY: When you talk to--when I talk to people who do commodities trading or commodities regulation, they talk about there being a problem with what they call excessive speculation, but that they say some speculation's good. For example, if a farmer wants to hedge on the price of wheat or something or corn, he needs to speculate around the other side of that bet. And so what they call--they're talking about reasonable speculation and excessive. Do you buy that?WEEKS: No. Okay? But I'll explain a little bit. It is true that in a market society there are risks and there are uncertainties. It's unavoidable. It is inherent in the mechanism. It's inherent in society, because there is a competitive process, and that competitive process will tend to push actors to do things which would otherwise be unwise--excuse me for repeating myself there. That is to say, in the absence of competition, say, in the old days Bell Telephone, which had no competition, you're going to get pretty dull and slow innovation, and it will be quite safe, and very little will happen. Now, when you open it up to competition, more people will be willing to take chances, because--precisely because that is the route to profit. However, it also opens up a very dangerous avenue, namely the struggle among oligopolies under competitive pressure. So we aren't talking about perfect competition here, where there are, you know, 1,000 little telephone companies all trying to get your business. We're talking about a few huge ones that are fighting over very big stakes indeed. And that's a potentially unstable situation. Now, let's get back to your question. So could you have little bit of speculation? I would say it's dangerous and there are alternatives. For example, I'd like to take the farmer example. What I would suggest--and was suggested and has been implemented in many countries--is that there should be a federal-administered insurance scheme for farmers. And there has been in the past. It was associated with farm price supports (doesn't have to be associated with farm price supports, and there are countries where that's true). Why does that have to be in the private market? It seems to me absolutely clear that that is the case where there's no real argument for being in the private sector. First of all, most farmers are weak. The big conglomerates that run, you know, huge maize estates and cattle farms and so on, they don't have--they aren't hedging for the purpose of protecting themselves. They're hedging for a more nefarious purpose. It's the small farmer that's hedging to protect himself, and they're in a very weak position with regard to the speculators. When you're weak, your weak. Speculation, I would say, makes you weaker.JAY: In the next segment of our interview, John, let's talk about the last paragraph in your piece. And it goes like this: "why are so many people protesting against Wall Street? Because it has become stronger than our democratic state and if unrestrained will take us down the dark road to political dictatorship to join the economic tyranny it currently enjoys." So please join us for part two of our interview with John Weeks on The Real News Network.
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