Leo Panitch: We are witnessing the irrationality of capitalism and the incredible struggle of people in the street
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Toronto. In Greece, Prime Minister Papandreou announced a referendum, letting the Greek people decide whether or not they would accept a bailout package that is about $178 billion, some kind of restructuring of Greek debt, and deeper austerity measures. This threw the markets into chaos, threw the European bailout plan up in the air. And the G-20 meetings are just about to begin, with the European leaders telling Greece, we ain’t giving you a better deal, so what’s the point of a referendum anyway. Now joining us to talk about chaos in Europe is Professor Leo Panitch. Leo is at the Political Science Department at York University and has a new book coming out. And tell us the title, Leo.
LEO PANITCH, PROF. POLITICAL SCIENCE, YORK UNIVERSITY: The Making of Global Capitalism: The Political Economy of American Empire. Maybe it should be called the unmaking of global capitalism.
JAY: You took the words out of my mouth, ’cause we’re certainly going through, at the very least, a period of unmaking. So what do you make of Papandreou’s referendum and the general disorder? I mean, all this–they were going to come, and rational minds were going to come together and solve the problem, and they head into the G-20 meetings and it’s all up in the air again.
PANITCH: Well, nothing is rational about this. What we’re witnessing and have been witnessing since 2007-08 is the irrationality of capitalism. That’s not to say there aren’t some very rational speculators trying to make a buck out of this.
JAY: Give us a little bit of historical context. We’ve had these moments before, and obviously one’s [crosstalk] 1930s.
PANITCH: Yeah, and I think that that’s a very good question. And, you know, that’s why Papandreou having to respond to the incredible struggle of the Greek people in the street, which the legislators can no longer ignore, is telling us something in relation to what happened in previous crises. If we go back to the crash of ’29 and what followed, the automatic thing that was expected was austerity. They had brought back the gold standard after the war, and that meant that automatically when governments’ currencies were being sold off, where you couldn’t sell a government’s bonds, what happened was the gold standard told them that they had to engage in austerity. Currencies moved in such a way that they had no choice but to try to limit their imports.
JAY: ‘Cause their currencies would depreciate so much.
PANITCH: ‘Cause their currencies would depreciate, and that way they’d be able to maximize their exports, limit their imports. And people would suffer inside until that was done. Now it’s a matter of government policy, in the sense that this is imposed by the lenders as a condition for bailing out the government, now that we no longer have the gold standard and governments can’t manipulate their currencies within the euro.
JAY: Well, in theory, something was supposed to have been learned from that, because early in this crisis, the G-20 economies got together, they all agreed there needed to be stimulus, and there was some stimulus spending.
PANITCH: And they did learn.
JAY: They said, we’re not going to repeat it. And now they’re all back on the austerity train, with Greece being the poster child.
PANITCH: Well, the main thing that they learned was that they weren’t going to go back to doing away with free trade. They had brought the world back–and much further then–to 19th century free trade with all of these free trade agreements. And the European Union itself is one big free trade agreement. And free trade, after all, we know is not just about no tariffs; it’s also about free capital movement, and it’s about guaranteeing in free trade agreements that nobody’s property will be touched if you’re a foreigner inside another country when you’ve invested, etc. That’s what free trade agreements really are–and their trade in services. So they’ve gone much further than existed in 1929. What happened by 1930 was that every government after another [was] not able to carry this austerity, because they were afraid of their own people. Democracy had already brought enough people the right to vote. Working-class parties had emerged. Some very right-wing nationalist parties had emerged, as we know, in Italy and Germany, etc. And they felt that they wouldn’t be able to do this automatic austerity. So they started introducing restrictions on trade. Right? Restrictions on capital flows. You wouldn’t be able to flow the money out of these countries. And that brought economic rivalry and nationalism to Europe and then the whole world in the 1930s.
JAY: And more.
PANITCH: And they were responding to the threat of class struggle, of conflict within their countries, by introducing conflict amongst countries–trade conflict amongst countries, and eventually military conflict amongst countries. Now, what they’ve done–and the G-20’s been very important to this since 2008. People don’t know that the first time the G-20 leaders ever met was when they were summoned by George Bush to Washington in the fall of 2008. Before that, just G-20 finance ministers had met. And that had only been created out of the Asian crisis ten years before as a way of taking the large Third World countries into the system so they’d bear some responsibility for the system. Okay. So they bring them together, and they pledge themselves to keep free trade and free capital movements going. And then, when the Toronto summit happens two years later, they said, we did the right thing. See? Countries have not engaged in economic warfare against one another. And we pledge to do it for another three years. Okay. Now, precisely by doing that, it means that the conflict is then born within each country. And what we see in Greece, as Greece does–isn’t pulling out of the euro, is open to free trade and free capital movements, is that the burden that that government is facing is class struggle within their country, and they’re unable to keep a lid on it. So, as a desperate last attempt to get legitimacy in the face of, yes, what is a real bailout–it’s an effective Greece default that you’ll only be paying 50 percent to the bondholders. Nevertheless, what goes with that is the promise that you will engage in privatization, switch government expenditures towards paying bondholders the remainder that’s due to them, away from education and social services and public employment, etc. What we see is that this crisis is taking the form of class struggle within each country rather than struggles between countries.
JAY: So far.
PANITCH: So far.
JAY: Now, we hear in Germany–there’s a strong body of public opinion–to hell with those Greek union workers. Why should we subsidize their social benefits? And the same they feel towards Spain and Portugal. And there seems to be the ingredients here for–at least within Germany, and maybe France–to have a rise of this same kind of nationalism.
PANITCH: Well, yes, I mean, except that that–it’s interesting that all these capitalist politicians, right-wing capitalist politicians, Sarkozy, Merkel, etc., are desperately trying to bail Greece out. That kind of know-nothing mentality amongst the German people is really astonishing, because Germany’s wealth is precisely based on their exporting to countries like Greece. And it was–Greece got in debt because they were borrowing money in order to buy German exports. Right? So, insofar–I’m not saying that, you know, German wages went through the roof in the last 20, 30 years. They certainly didn’t. There was a lot of restraint. But they were restraining in order to export. Right? This kind of attitude is extremely irrational as well. It’s common. It’s very common. And the notion that the main problem is that the Greeks don’t pay taxes, or the Greek clientalism, which is serious enough–there’s no question Greek governments forever have gotten elected by offering you and your cousin a job. That’s how they get your votes. It’s true. But that’s not the main problem. The main problem at the core of the euro crisis is that Germany exports, and then those country it exports to have to borrow money in order to buy those exports. And that’s the core of the problem. And there’s no way to resolve it, except, probably, breaking out of the European Union, except–. Now, the question is: will we get a right-wing economic nationalism, or will we get something much more progressive, in terms of support for more regionally oriented, internally oriented economic development? Doesn’t mean cutting off imports and exports altogether, but it does mean investment planning within each region.
JAY: Now, this whole thing, one of the main features of it is no one–none of them seem to be in control of this process.
PANITCH: That’s absolutely right.
JAY: And number two, the so-called global leader of the world and the manager of global capitalism–for real, not so-called. But where are they? The Americans [crosstalk] absent from all of this.
PANITCH: Oh, no, they’re very much there. They’re urging the European Central Bank to do much, much more than they’ve been willing to do. The trouble is that Europe really doesn’t have a lender of last resort like the Federal Reserve.
JAY: Is it an important piece of this, is it not, is this eurozone debt is all in euros, so when it comes to that debt, they actually can print and create more euros if they wanted to?
PANITCH: They could, but they don’t want to, because ultimately it would mean that the European Central Bank would be able to call on the resources of the rich countries to back that purchasing, that issuing of dollars, and they don’t want to do that. What we’re seeing here is the contradictions of an imperial system in which sovereignty is nevertheless real. The Americans can’t simply tell other countries–least of all the rich other capitalist countries–to do something. It’s always been imperialism by invitation. It’s retained, in that sense, sovereignty for each state, even for a rich dependency like Canada. So they’ve been subject to constraints, which means they have to respond to American pressures, etc. And in this case, American pressures would be positive in terms of dampening down the crisis. But as you say, they’re also responding to these nationalist, localist, parochial, know-nothing attitudes on the part of right-wing German voters who elect this Christian Democratic Government. They’re responding to that. Then the other tragedy here–and this takes us back to 1917–I think we mentioned this before–was that is–were the deal being rejected in Greece–and the implication of that would be that they should pull out of the euro, which would mean, you know, pulling out of the European Union, perhaps, which a lot of Greeks don’t want, because they want to be part of, you know, this broad system, for cultural as well as economic reasons. But were they to do it, the suffering of the Greek people would be immense unless there was a balance of forces in Germany and France, elsewhere, that would begin to shift the whole policy matrix, the whole state structure and class structure, the balance of class forces in Europe as a whole. This is what the Russians faced in 1917 when Lenin said, yeah, okay, Russia’s the weakest link, but it’ll break the whole imperial chain. Well, it didn’t. I mean, there were revolutions in Hungary and other countries, and indeed in Germany, but they were defeated. And we don’t see the kinds of forces in the other countries in Europe that would provide space for the Greeks, not inside the euro, but especially outside the euro, if they break this.
JAY: Now, for most ordinary Americans and Canadians, this–unless you’re an investor, this still seems a little abstract. It’s over there. It’s not here. If this does unravel the way it looks like it might, how is it going to affect people here?
PANITCH: Well, if it leads to more banks failing, as the bank run by Corzine, the former governor of New Jersey and head of Goldman Sachs and senator for a while–if–and they were very worried about it. They’re very worried that other banks might go. Now, it won’t be a direct thing. It would be an indirect thing. That is, if some of the German and French banks, especially French banks (and one of them’s already gone; it was a joint bank with the Belgians), were to go as a result of this, then they aren’t sure what the knock-on effects are, they’re–not just in the sense of overnight loans to these other banks in this interbank system where they lend each other money overnight in order to balance their books; also in the sense that everybody’s issued these credit default swaps. So when you’ve been buying Greek bonds or other bonds, you at the same time buy a derivative, called a credit default, on what might happen to the Greek debt if–would it default or not. So the reason for getting this deal, in saying, okay, Greek only has to pay back 50 percent, and getting the banks to agree to it, it means that there is not officially a default. So the way the insurance is written or the derivative is written, you can’t then turn around and say to another bank, an investment bank that’s issued this derivative, okay, I’ve lost 50 percent of it, pay me that 50 percent.
JAY: And even that’s not clear, ’cause some of the rating agencies are saying actually this is a default.
PANITCH: It might be. This’ll be–this will be in the courts.
JAY: So even that’s up in the air.
PANITCH: This will be in the courts [incompr.] all on thin ice.
JAY: So, just quickly again, if you’re a North American, what public policy do you want to try to deal with this? What are you fighting for?
PANITCH: Depends which side of the fence you’re on.
JAY: Ordinary people.
PANITCH: You know, they’re full–they themselves are full of contradictory interests. Ordinary people are so integrated into capitalism that getting out of it costs them. And, you know, the result of this may well be that their pension funds, which have mutual funds that include bonds, or this kind of chaos in the market leads to–.
JAY: Yeah [crosstalk] pension funds might be in Corzine’s bank.
PANITCH: Exactly. And if the chaos–you know, people were switching out of bonds and into stocks in this month, which pushed up the Dow Jones average again, the Standard & Poor’s average. Now, since this deal seems to be falling apart, it’s even affecting the stock market. So then if their mutual funds–not their own, but their pension funds’ mutual funds are in stocks, that can take a hit too. So people will be afraid of this all falling apart. So it’s very easy to say, you know, let them go, don’t bail them out. And probably the right thing to do is to take the matter in hand and try to say, we need to take, as I’ve said before, the whole of banking systems into democratic control, to make them public utilities. That is probably going to entail a cost–I think one has to be honest about this–a cost for ordinary people who are dependent on their pension funds and invest in this private market. We aren’t going to get out of this system without re-conceiving what our standard of living is. In the same way we understand that the only solution to the ecological crisis is re-conceiving what our standard of living is, getting out of this finance-driven capitalism is going to have to mean re-conceiving what our standard of living is. It’s not a bad thing. It might well be that we’ll have much better control of what gets invested publicly in education and public transit. It will probably mean that people’s children will be able to get jobs, because states will be able to use those public banks in order to invest directly and provide jobs directly.
JAY: Thanks for joining us.
PANITCH: Good to talk to you, Paul.
JAY: Thank you for joining us on The Real News Network.
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