PAUL JAY, SENIOR EDITOR, TRNN: I have a little bit lengthy question. I hope you don’t mind. Who’s we?
COSTAS LAPAVITSAS, PROF. ECONOMICS, UNIV. OF LONDON: You mean in the title of my book, or generally?
JAY: No. In the talk, you said, we have to do this and we have to do that. Who’s we?
LAPAVITSAS: This is a question that’s been around for a long time, as you know. In old-fashioned terms, you were looking for the agent that will change the world. We’re looking for the force that will change the world. Well, the we that we should be looking towards these days is not the we of 50 years ago or 100 years ago.
Clearly, wage labor is a big part of this we, people who work for their wages, people who are employed by others on the basis of wages and have got their own forms of organization, their trade unions, and whatever other institutions they have. We start there, as we always do in a capitalist country. Wage labor is key.
But it isn’t just wage wage labor. Because finance has grown and penetrated so many areas of economic and social life, we need broader alliances. Wage labor must look towards parts of society that rely on small and medium businesses, which have actually been crushed by this. And they’re looking for new ways out. They’re looking for a way to survive. In other parts of the world–not in the United States, but in other parts of the world, wage labor in the small and medium businesses can look towards parts of agriculture, ’cause there are large agrarian classes that have been ruined by this contemporary capitalism.
JAY: I mean, part of what I have in mind with the question is that most of the conversations about what to do about finance, what to do about banking, in fact, most of the conversations that take place in the media and academia, it’s all really asking the existing power structure to make changes. Like, financial reform needs to somehow come out of the existing Congress and the existing parties. And a lot of the economists I wind up interviewing on The Real News–less so now, but too much so in the past, I think–were less talking to ordinary people about what they’re going to have to do to change things and were more talking to the political elite. Financial reform, I think, is one of the best examples of it, which is you would have all kinds of suggestions on how to regulate banking, but the truth of it is, you couldn’t pass even the most measly regulation, even on–like, they tried to pass position limits about how much of any one thing you could own in the commodities future trading exchange. And that became such Swiss cheese, weak-kneed stuff that finally made it out of the commission. And then it was even overturned in the federal court. They couldn’t even get that stuff passed. I asked Ralph Nader a while ago whether some of the reforms he was capable of lobbying for and successfully winning, anywhere from seatbelts to the EPA and other very important pieces of legislation–he didn’t think any of that could be done now. So what I mean, who’s we, I mean is this political elite capable of reforming the financial sector?
LAPAVITSAS: I see. I immediately and automatically think that ordinary people should do it, which is why I answered that way. I mean, I take it for granted and I take it as read that if you rely on the elites, you’re not going to get very far. And the reason you’re not going to get very far is that the people who’ve got a vested interest in financialization, the people who earn profits and big salaries out of finance in one way or another, have also effected policy capture. Basically, it’s very clear in this country and elsewhere, through financial means, through presence in Washington, D.C., and so on, the influence of these layers of the economy on the policymaking process is enormous in obvious and less obvious ways.
JAY: And this kind of speaks to the same thing, ’cause a lot of people suggest, you know, if only Glass-Steagall would come back–.
Glass-Steagall is–how many people know what Glass-Steagall is? About half.
Why don’t you quickly tell people what Glass-Steagall was? And then we’ll talk about–.
LAPAVITSAS: Glass-Steagall is a regulation that was passed in the interwar years which basically prevented large commercial banks from engaging in investment banking activity–in other words, from using people’s deposits to play games in the financial markets, stock markets, and so on, and make profits in that way. This was abolished not so long ago.
JAY: Under Clinton.
LAPAVITSAS: Under Clinton, yes. But, actually, the process and the trend started before that.
JAY: Yeah, sure.
LAPAVITSAS: And so, basically this was part of the financialization process that I mentioned. That’s exactly what financialization of banks was all about. Banks were then able to engage in activities in financial markets and making profits out of these derivatives and so on and making fees and commissions rather than plain-vanilla lending.
JAY: So some people have made the argument if only Glass-Steagall could come back, if only there was better regulation, that it’s policy changes that created the opportunity for this finance sector to become what it is.
LAPAVITSAS: I mean, like I said and I stressed, regulation and reregulation is very important. But to me, financialization is something that is deeply rooted in the way that I’ve discussed. The deregulation of finance has helped, and it has made it possible, and it has probably speeded it up, if you could measure these things. But that’s not where it comes from. It doesn’t come from a sudden change of heart or a sudden change of mind among policymakers, which then allows finance to do all these terrible things. It comes from slow structural changes such as the ones that I’ve discussed in the realm of the nonfinancial enterprises, and then banks and so on. That’s why confronting it is not simply a matter of passing laws that will reregulate finance, even if you could do that, bearing in mind the policy capture that I mentioned.
It’s actually a lot deeper than that, which is why you need to rely on ordinary people. You need to rely on alliances, political and social alliances of people who are affected by this, whose lives are basically ruined by these processes, and who want a better solution and a better outcome.
JAY: Any questions? Over there.
AUDIENCE MEMBER: So what does that look like?
JAY: What does the alternative look like?
AUDIENCE MEMBER: Well, in terms of the populace. You know, we are not very organized. You know, you look at Mexico or someplace like that, and there’s something that the government does or whatever and people take to the streets. We take to our iPads and it doesn’t–. So what is this kind of mobilization of the people, the labor markets, the small businesses, medium businesses? What does that process look like to change the big business, to change the banking institutions, and even the household dynamics?
LAPAVITSAS: In some ways I would expect you to inform me and teach me about this, because each country has its own particularities and specificities. It has its own history, its own institutions, its own conditions. The U.S. working-class and the U.S. people have got their own traditions in this, and their traditions are violent and, you know, acute struggle with these things. So they’re not the same as countries in Europe and so on.
But the broad parameters, they seem to be applicable here in this country as in others. There is no magic bullet. There is no easy trick. To some extent it’s a slow process of organizing things like this and broader networks such as this and giving people the confidence of standing up for their rights, explaining to them what is actually going on, not believing the stuff that’s coming from the mass media and so on, beginning to challenge this and give people the knowledge they need, and then gradually helping them to begin to organize it at the level of the neighborhood, at the level of the workplace, in order to take on the pressures and problems that come up that microlevel. If you’re good at that and if you begin to create the networks you need, then you give it a political dimension and you begin to take on the system on a bigger level too.
JAY: I mean, I think it’s not really what we can talk about tonight, ’cause it’s like it’s really–it’s whole-subject. But probably sort of some of the things you’re seeing in Latin America are closer to what it might look like, where you start having, you could say, progressive takeovers of certain cities. And eventually, like in Brazil, you had some cities before you had a national government. It’s going to be–there’s no reason to think it isn’t going to be some kind of electoral form, as long as there’s still elections, and there’s no tradition here of not having elections, even if there is a tradition of rigging them. But probably it starts at the level of cities is my guess, and it’s part of the reason we’re here.
What we’re trying to grapple with now, because I don’t think much can happen unless you have a plan, unless there’s a vision–. Like, what would you do if you took control of Baltimore? It’s easy to say what’s wrong, but if you actually had to grapple with the problems of a big city–and you almost have to include the state, because the state would take over the city if the city pushed too far ahead of where the state was.
I mean, we want to have a lot of conversations at that level. But right now we want to talk more–I think tonight’s more about what’s–if you–like I said at the beginning, let’s say you already controlled the city and the state. What would that financial model look like? And that–I think there’s things in common with what’s being talked about in Europe. I mean, Costas is very involved in Greece, and they may have a fairly progressive party in power in the next few months. He’s involved with them, and they may have to actually answer this question at SYRIZA, which is one of the–you know, left-wing party Greece. If they get elected–and they might well, and they’re going to walk into a–excuse the language–they’re going to walk into a shitstorm of an economy. What are they going to do?
So it’s very real. Like, we don’t want to talk about what would be the perfect model in the sky if you could do anything you wanted, what would be the most lovely social-economic system. We’re talking about what could you do, knowing that what you’re going to do is going to be a fight? Like, for example, you want to turn boarded-up housing–I mean, the city’s one of the biggest landlords of the city. Why isn’t the city turning boarded-up housing into low-income housing? One, we want to imagine a plan for that. On the other hand, you’re going to be in a war with real estate speculators, because they want to gentrify these neighborhoods. They want the last black families to get the hell out so that they can start making money out of these neighborhoods.
So if you start with a municipal plan to actually bring people back into the communities and revive these communities with low-income houses under the roof of the city, well, number one, you’re going to run into what’s happened in Richmond, California, where they’ve used eminent domain to stop foreclosures, and now the banks won’t give mortgages to the people. And that’s what would happen here.
So now you’ve got to–in fact, my next question to you is so now let’s imagine you’re in this moment. You’ve got to find another way to finance mortgages for people, because the banks are really pissed off at you that you just took all this housing that they thought could be knocked down and slowly gentrified, and now you’re saying you want low-income families there, and the banks don’t want to loan anybody money to move into these houses. How do you start building an alternative financial system in today’s real-world if you controlled, say, the city, maybe the state?
LAPAVITSAS: Yeah. Every country has got different problems but related. So in the U.S., the banks are very, very careful about–they burned their fingers, and they’re not lending, basically. And that creates all kinds of problems for housing.
Now, how do you go about it? How do you go about dealing with that? Well, think about how the central bank has dealt with the problem so far. The central bankers basically intervened by providing the banks with massive liquidity under quantitative easing, so-called, in the hope that the banks would do wonderful things with this finance. And what have the banks done? They made it available to their friends the financial system. So you’ve ended up with another bubble effectively emerging in Wall Street, and you’ve ended up with a lot of capital flowing out of the country and going into developing countries and creating financial growth there, too. And now, if it comes back, it’s going to leave disaster behind it.
Well, the central bank didn’t have to intervene in that way. It didn’t have to follow that policy. Obviously, it had to do something, but you could have targeted its interventions, you could have regulated credit where it went, and you could have regulated this price. So you will need to think of ways in which the price and the quantity of credit can be set, can be regulated. And we don’t need free markets in the provision of credit, free markets and the price of credit.
JAY: Do you think that can be done at the level of a state?
LAPAVITSAS: I think at the level of the state–I mean, I don’t really know. I need to look at the particulars.
JAY: And I’m perhaps asking you questions that aren’t fair, ’cause this is real American questions.
LAPAVITSAS: Yeah, I need to look at the particulars of it, because finance varies from place to place [incompr.] had an institutional character in every place.
But, yeah, there are regulations that you can begin to introduce and real effects that you can have on the activities of financial institutions, even at the micro level.
Now, how possible that would be Maryland or somewhere else I don’t know.
JAY: But you could do something where the city rallies the abilities of the credit unions.
LAPAVITSAS: So both at the level, say, of the central bank, it’s clear what happened there, and at the level of other institutional operators, you could intervene in the realm of finance and target what credit is doing rather than give to these private financiers public support and hope that they will do the best for the people. They don’t. They don’t. They just make profits as best they can, and, you know, good luck to you, basically.
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