COSTAS LAPAVITSAS, ECONOMICS PROFESSOR, UNIV. OF LONDON: This is a deeply unequal system. It isn’t just unequal; it’s also a deeply unstable system. Financialized capitalism is also deeply unstable. I don’t need to go in depth into this. All I need to do is refer you to the crisis of 2007-2009, which is a crisis of financialization if there ever was one. And this basically shows you what financialization is very, very clearly. That crisis was global, systemic. The entire system came very close to collapse. And it was structural. It was deep. It wasn’t because of some accident. This was a crisis, then, of financialization. And where did it come from? As Paul said just a few minutes ago, strikingly enough, it came out of the financial system and out of lending to the poorest sections of the United States working class. It’s an extraordinary thing. And historically we’ve never seen anything like it, that lending to workers, and particularly to poor workers, could destroy the capitalist system. I mean, if you told people in the 19th century that something like that could happen, they would be astounded. They would tell you, there’s no way. And yet that’s what nearly happened a few years back. And that’s an indication of how unstable the financialized capitalism is. It’s a deeply unstable system.
I don’t want to say more about the crisis. We’ll probably discuss it in question-and-answer.
What I want to move on to is how the crisis was dealt with, because that shows us another important aspect of financialization. So who dealt with the crisis? Was it the financial institutions themselves? Was it big business? No. It was a state, the state that is supposed to be the enemy of all good, the state that’s supposed to be the force that destroys economies and so on. It was actually the state that quite clearly was mobilized to deal with the crisis and to rescue financialization.
How did state do it? In three ways. The state used three levers do it. First, the state drove interest rates down to zero, practically zero. Which interest rates? Public interest rates, right, the interest rates charged by the central bank, which is effectively a public bank. That’s what it is, just because–and the people who ran it are public employees, basically. Some public interest rates were driven down to zero.
By driving interest rates down to zero, you create profits for banks. That’s what you do. You’re manufacturing profits for banks. It’s a subsidy. It’s a huge subsidy to banks given by the public. That’s basically what’s happening. So that’s the first thing that the state did.
The second thing the state did was to create liquidity for the financial system. How? By printingn money, basically. What kind of money? Public money, of course. Once again, public liquidity, the credit and the trust of the American people, was used to create liquidity, which was made available to banks.
And the third way in which the crisis was resolved was by making capital available to banks. What is capital? Tax income, effectively. The tax income of the American people again–and other people–was mobilized to support the banks. In other words, the state rescued financialization, protected the profits of banks by using levers of public intervention. Who carried the cost of this? Working people, because the other side of the coin was of course the imposition of austerity, the rise of unemployment, problems with incomes, problems with social spending, and so on. You can see it in this country, too. You can see it very, very clearly in Europe and elsewhere. So the state intervenes, rescues financialization, prevents significant change, and passes the cost on to working people. The class nature of what’s been happening and the class nature of finance is very, very clear, it seems to me.
Now, I’m running out of time. Because Paul is a hard taskmaster, he’s only allowed me 15 minutes. So in the remaining five minutes I want to mention and broach some ideas about what can be done about financialization, which is something that I know that a lot of you would be interested in.
Now, what to do about financialization if this is such a deeply rooted historical development? Traditionally, people who like to think of progressive measures, changing the world in a progressive direction, like to consider the changes that the capitalist system produces by itself, as it were, and separate the progressive components from the problematic components, and wish to retain the progressive component and do something with it. So, for instance, capitalism can improve the productivity of labor. It can create big factories, it can create big, great means of transit, and so on. These are good things for society. We wish to maintain them but transform them.
If we think along those lines about financialization, we would be disappointed, because from my perspective it’s actually next to nothing that’s worth preserving about financialization–from financialization. Next to nothing. What exactly is the benefit to society? What’s the social benefit from a lot of highly trained PhDs in physics using exceptionally expensive technology across the world to be able to set derivatives prices in a split second? Why set them in a split second? Set them in an hour. Set them in a day. Never set them at all. What’s the benefit? I can’t see the social benefit from this at all, and there is no social benefit that can be identified.
So it seems to me that the attitude towards financialization in that context should not be to preserve what is good and scrap the rest; it should be to reverse it. Financialization is one of these unique instances in historical development that calls for reversal. It must be reversed.
How? What does reversal mean, though? Let’s think about that, and let’s think about it generally, and then see if it has any kind of applicability to particular cases like a big city and so on.
Well, a reversal cannot be simply the result of regulation. I want to come clean and say that. Regulation is very important. Re-regulating and severely regulating finance is very important, and we need regulation of activities and so on. But if, as I’ve argued, financialization is a deeply rooted historical thing, clearly regulation alone is not enough. We need to do something about the roots of it. What does that mean? Well, obviously, we need to intervene at the level of big business. If big business is financialized and that’s a big element in financialization, then we need to do something about big business in the first place. What do we need there? Well, we need public policy of investment, because big business doesn’t particularly invest. We need public policy of intervention for big business to stop it from making financial profits and playing financial games. We need public policy that would actually encourage enterprises to change their structures, move them away from looking towards the stock market and start thinking about jobs, growth, investment, and so on. These are difficult ideas, but you see the difficulty of reversing financialization. We must start at that level. Right? We need public policy at that level. So that’s first, that’s the first thing.
Then we need to think about banks and financial institutions. Yes, we need to re-regulate them. But as I’ve argued already, regulation is not enough. We need to think of essentially the failure of private banking, ’cause it has failed and it’s been rescued by the state, and we need to think seriously about public banking and public financial institutions. It’s about time the idea of public financial institutions was put on the table in a serious way. What does that mean? Not simply nationalizing the banks. That happens in country after country, capitalist country after capitalist country. And to a certain extent the United Kingdom nationalized its own banks, Sweden nationalized its own banks, and not very much changed. So we need to think of public banking–different approach. We need to think in terms of a public mandate for banks under public ownership, operated in a public spirit, organized in a different way, to begin to provide credit to a certain extent as a utility for consumption and so on. That doesn’t mean never repay credit back, of course. Credit must be repaid. But credit could be thought of as a public utility in that spirit. Public banks could also begin to approach the question of investment in a publicly spirited way and to spur investment, to create investment for growth and so on. So that much about banks.
And then households. What we do about financialization of households? It isn’t simply a case of reducing household debt. To a certain extent that’s happening now, because households are forced to pay back that debt because they cannot survive. That’s why the economy is not picking up as fast as it might have done. If the financialization of households is as complex as I indicated previously, we need a complex approach to deal with it. In other words, we need public mechanisms of provision to be reintroduced for housing, for health, for education, and for a whole host of other things that people need on an everyday basis so that they can stop relying on private finance, which basically exploits them and creates negative results in all these areas. We need think of innovative new, communally based ways and associational ways in which these fundamental needs of households could be met without relying on private finance.
In sum–and here I will finish–it seems to me that the more you think about how to reverse financialization, the more you realize that you need a broad program. This isn’t simply about finance. It’s actually about restructuring the whole of the economy. That’s how you would get rid of financialization. It’s about restructuring the whole of the economy in a complex way and in a way that would be fundamentally, I would argue, anticapitalist. There must be an anticapitalist element there, because this rampant capitalism over the last three or four decades on a financial basis has basically ruined economy after economy. So we need to think of programmatic ideas of this kind and we need to think in a democratic and associational way of how to apply them across economies and across societies. I think that’s the future. And the more we discuss it and the more closely we debate it, the better the ideas we’re going to get. That’s what I’ve got to say.
PAUL JAY, SENIOR EDITOR, TRNN: Thank you very much.
I’ll kick things off of the question, and then we’ll open it up to the audience and go back and forth.
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