Leo Panitch: Republicans claim they want smaller government but during crisis support intervention in economy
PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. I’m Paul Jay in Washington. Now joining us to talk about the whole concept of less American government is Leo Panitch. He’s a distinguished research professor at York University in Toronto. He has a new book. His book is called In and Out of Crisis: Global Economic Meltdown and Left Alternatives. Thanks for joining us, Leo.
LEO PANITCH, POLITICAL SCIENCE PROF., YORK UNIVERSITY: Hi again, Paul.
JAY: Talk about this whole concept, not coming so much from Tea Party advocates, who perhaps might actually mean it, but what about the Republican leadership, who are demanding less government in the economy?
PANITCH: Well, it’s an old claim of theirs. And, of course, they did it when Bush got elected in 2000. He appointed a secretary of the Treasury, Paul O’Neill, who said that unlike Clinton’s Democrats, the United States on his watch, the American Treasury on his watch would not be the firefighter-in-chief, because there had been a series of economic crises, of financial crises through the 1990s in which the American state did indeed play the role of chief of the fire department.
JAY: So where were the fires and what do you mean by the Americans played fire chief?
PANITCH: Well, there were 72 financial crises around the world in the 1990s as a result of the enormous flow of capital that we call globalization, with the removal of capital controls, the enormous flow of foreign direct investment and short-term financial investment to the Third World, etc. That was the root of Ireland’s development and current situation, as well as China’s and Brazil’s, etc. This produced a series of financial crises because there was so much hot money and short-term money floating around the globe. And you saw it a year after, for instance, NAFTA was signed, just after Mexico had an election and tried to raise its interest rates to cope with the enormous size of its fiscal deficit, as they were (as usual) bribing people to vote for them. Investors reacted with panic at these higher interest rates and began to pull their money out of Mexico. The American Treasury immediately had to come in and bail out Mexico. But in bailing out Mexico, they were bailing out Wall Street. Congress didn’t want them to do it, and so they used the fund that they’ve had since the New Deal, since the Great Depression to directly put billions of dollars into what were known as Mexican "tE-s@-%bo-noUz/, Mexican bonds, in order to bail out the Wall Street banks. This was commonly done, but it was most importantly done in the 1997 and ’98 Asian crisis, which, as you’ll remember, spread to Russia, which defaulted on its Treasury bills, and then to Brazil. And then, again, it was the United States, the American Treasury, above all, which played the central role in coordinating and organizing the saving of the banks through–either directly or via the IMF, or in conjunction with the finance ministries and central banks of Japan and Europe, bailing out first Taiwan, then Indonesia, and above all, you’ll remember, South Korea. Now, the crucial thing here–and it’s going on exactly today in Greece and Ireland, and we’ll soon see it in Portugal and probably in Spain–the crucial thing here is that there’s a run on a nation’s currency and capital starts flowing out of the country as banks refuse to start rolling over the lending that they’ve done to these governments, or more commonly (’cause it isn’t always going to governments) the lending they’ve done to banks in those countries.
JAY: By “rolling over” you mean loaning countries more money to be able to continue paying debt they’ve already borrowed.
PANITCH: That’s right, whether it’s a bank or whether it’s a government, they borrow for a certain period, and then they have to pay off that debt–not only the interest on it but the principal on it. They then try to secure another loan in order to keep going. And insofar as things are ticking over, they’re provided with that loan. When there’s a fear that they will not be able to secure the same rates as they secured before, or that the bank won’t be able to pay or the government won’t be able to pay, then those debts aren’t rolled over. This happened in the great debt crisis of the 1990s. It happened all the more after the 1990s and to the current period. And it’s harder to control, ’cause it isn’t only bank lending; it’s lending coming from hedge funds, insurance companies, pension funds, all of whom are buying private bonds and government bonds. So the American state plays the crucial role. This is the sense in which it’s the state of global capital, and it’s the sense in which capitalists everywhere look to the American state to save their property, to be the greatest defender of their investments. It plays the central role in organizing the bailouts, the central role in being the firefighter-in-chief. Now, the Republicans don’t like big states, so when Bush comes in, he has [Paul] O’Neill say, we won’t play this role. But as soon as he comes in, first with Enron at home and then with, of course, Argentina abroad, they are behind the IMF in trying to ensure that Argentina doesn’t default on its debt. It does, but then they’re organizing the means whereby capital will take the least of a haircut and begin to flow back in again. And despite [Henry] Paulson being extremely reluctant–the secretary of the Treasury under Bush when the crisis first hit in 2007–extremely reluctant to play the same role, he immediately, within weeks, was doing so, not only when Lehman Brothers collapsed and the whole thing came apart in 2008, but in the year before that, as they organized a rescue of Bear Stearns and as they coordinated with all the world’s leading central banks and finance ministries the attempt to contain the crisis, and then, as you saw, when they weren’t able to contain it, putting in the enormous TARP program, nationalizing (unheard of) sections of the American financial sector, taking responsibility, which is what the state, the capitalist state, ultimately does for finance–it is the lender of last resort. Now, I’d want to point out that if it wouldn’t play this role, we would all suffer egregiously and enormously. Peoples’ wages go into their bank accounts. People depend on insurance companies and their pension funds in order to be able to draw on their life savings. So the irony is not that the government does this. That is not the scandal. The scandal is that we live in a society that is this dependent on private finance. The whole society is dependent and the state is dependent on private finance. Now, what that ought to tell us is that private finance should be a public utility. It should not be in the hands of increasingly rapacious capitalist institutions, and yet it has become increasingly [so], not less so. And that is the lesson we need to draw from this. In Ireland today, one wants to say default on the debt. Don’t wait for creditors to force you to roll over that debt through the type of austerity measures you’re engaged in, through turning that short-term debt, which was privately held in the banks and then was taken over in the public sector, turning that into a long-term debt, with which you’ll be in hock to these banks for generations, but default on that debt. Now, this was said in the 1980s in Latin America. Castro was constantly calling for the states of Latin America, who were utterly bankrupted by this (the lost decade in Latin America, the enormous pain and suffering), that they should coordinate a default on the debt, that they should coordinate not paying these bastards back. Heaven knows, they’ve taken enough out of Latin America already.
JAY: But that goes to the very core of how the finance system is organized if states start to say that.
PANITCH: And this is what needs to be done in Europe. Now, if it were to be done, it would mean the end of the economic union as we know it. It would mean the reintroduction of capital controls. It would mean the control of investment within these countries. It would mean the nationalization of the banks in a real sense, not in the sense of the nationalization of their debts, which is what we’ve seen so far, but their nationalization in the sense of turning them into public utilities, in which what passes through the banking system, which after all is the people’s money, becomes part of an economic planning process where a democratic means of deciding what’s invested, where it’s invested, how it’s invested is done. It would be much better if this could be coordinated throughout Europe and if we could have a very different type of economic union–not one that is a neoliberal economic union, which is what it’s primarily been, designed to allow the free flow of capital rather than planned and equitable capital investment in Europe.
JAY: But if you get back to the American situation, it’s easy for the Republicans, I guess, to say this while they’re not in power, but they do have this internal contradiction now with the Tea Party people, who seem to be much more serious about the American state not playing this role domestically or globally. You know, they talk about keeping afloat on artificial system. With them controlling the House now, they’re going to be in a position where they may have to vote for some more fire chief activity.
PANITCH: I think they are going to have to, and this has always been the case. You know, this was the same when I mentioned the Mexican crisis in 1994. You’ll remember Newt Gingrich came in in a very similar way, on a wave of Republican elections to the House of Representatives. Clinton lost control of it. There was a very similar moment, and Gingrich was leading the charge in terms of the United States not bailing out Mexico. But as he later admitted to Robert Rubin, the finance secretary, the Treasury secretary, directly, I was very happy to see you bail them out, so long as you took responsibility for it and we didn’t have to. And that has repeatedly been the case in American history, including all the way back to the famous decade of the 1920s, known as the isolationist decade. It really wasn’t very isolationist. Congress broke the League of Nations, but the United States was a very, very active player around the world–in Latin America in this hemisphere, in Europe, in Asia, etc. But Congress didn’t take responsibility for it, and it had to be done more surreptitiously than openly. I’d like to point out, in terms of who voted, the way they voted in this recent congressional election, that 35 percent–a massive survey of over 17,000 voters on exit polls were asked who they blame for the current mess: 35 percent of them said Wall Street; 29 percent of them said Bush. Now, that’s very interesting in terms of the confusion of the American people. There’s a certain understanding of what it was all about. And then there’s an enormous confusion about what is to be done about that in relation to voting. So, you know, there’s openings. And one shouldn’t think that when people, even if they do vote Tea Party–and, of course, there’s a regional and racist element to what’s going on here–but even if they do vote Tea Party, that doesn’t mean they’re unreachable.
JAY: I think a lot of Tea Party people may not understand the full breadth of the economic question, but a lot of them, I think, quite genuinely just understand that the current system is broken.
PANITCH: I think that’s absolutely true, and I think a lot of them do blame Wall Street and Bush. Now, they in the same breath may be ideologically trapped in the notion that the problem isn’t some general [inaudible] government. And certainly, the way government is run in the United States, they’re not entirely wrong. So what needs to be done is a massive political campaign that would be not just about changing the private sector but changing the public sector so that it wasn’t a handmaiden to Wall Street.
JAY: Thanks very much for joining us, Leo.
PANITCH: Good to talk to you, Paul.
JAY: And thank you for joining us on Real News Network.
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