(Translated by Christine A.)
Communist economist Paul Boccara has just published a book about the transformations and the crisis of global capitalism, in which he deals with the financial crisis, among other topics. Paul Boccara puts forward proposals to initiate emancipation from this ‘gone mad’ system.
The financial crisis that originated in the United States is now severely shaking Europe and France. Why do you speak about a ‘global crisis of capitalism’ rather than a failure of Financial Liberalism?
Paul Boccara. I insist, in my book, on the crisis of global capitalism, but also on its deep changes. These changes exacerbate capitalism. The financial crisis is revealing the maturation of the crisis in capitalism. To be satisfied with challenging ‘liberalism’ or the lack of regulation or ‘deregulated finance », as people typically say, is a basic error, leading to holding onto a system that is becoming more and more harmful.
It is not by deviating from a ‘normal’ capitalism that would be ‘healthy’, as claimed by Nicolas Sarkozy, because the system itself has gone crazy.
This system, now dominating the world, is mad because its logic of profitability is reaching its climax. That’s capitalism squared. It is therefore, capitalism as a system, which puts making money before and against people lives, that needs to be questioned.
It is futile to speak of ‘morality’ and ‘transparency’ without attacking the logic of the system. In addition, there is no possible going back to capitalism of grandpa, because the exacerbating transformations are irreversible.
You distinguish three ‘revolutions’ in the transformation of capitalism: information, monetary and ecological revolutions. In what respects are these mutations leading to an overall crisis ?
Paul Boccara. At the heart of this systemic crisis, which is much deeper than between the two World Wars, we can observe the revolutions of the technical and social operations. With the industrial revolution, material and money predominate against people in production. The accumulation of capital has helped to replace hand tools with machine tools. This has led to the firing of workers, to pressure on wages in favour of profit, while increasing production.
With the information revolution, there is a radical change. Science and information, rather than machines, now dominate production. Computers replace some functions of the human brain. This is an extraordinary change, since information, like research, can be shared throughout the world, while a machine tool can only be here or there and can therefore be privately owned.
This mutation gives rise to both a need for sharing and an expansion of the system. This is noticeable with the expansion of private multinational companies that are able to share the costs of global research, in contrast to purely domestic enterprises. Hence the new privatisations. Hence, too, deregulation of markets, opening them as much as possible and building multi-states, from the European Union to the global hegemony of the United States.
Other indications of the failure of capitalism : employees are competing worldwide (with the tremendous increase of workers and industry in emerging countries, particularly in Asia) and the enormous fall-back onto the use of the financial market by multi-national firms. It is this contradiction between financial accumulation and material over-exploitation, putting pressure onto wages everywhere, that provokes crises like the one in 2001 or the one that is looming behind the current financial crisis.
How does the monetary revolution that you analyse, fit in the financial crisis?
Paul Boccara. Historically, money has been gradually freed from gold, though ostensibly keeping gold as its ground basis. But the breaking off of this basis is now almost complete with the beginning of the monetary revolution. This allows for creation of seemingly limitless money, as with the dollar. But the absence of boundaries is a fantasy. This is one of the reasons for the enormity of the wild speculation that has led to the current financial crisis.
Speculation implies three things : a money supply, a requirement of a very high rate of profit, and a product with strong demand on which to speculate. Meanwhile, the start of the monetary revolution has over-enlarged the available monetary supply. Productivity of the information revolution and global competition of workers have strongly increased the rate of profit (15% and more), and speculation wants to increase it. Housing demand has become considerable.
The very low interest rates charged on the dollar allowed banks and speculative capital to borrow very cheaply, to then lend massive amounts (far beyond their capital) to individuals who went into debt to buy housing. These financial institutions have lent at increasingly high interest rates, drawing a profit from this rate difference, until such point as the buyers could not repay loans. Consequently, the repayment of debt, massively purchased by the banks in the United States and Europe, dropped sharply. Hence the bank losses.
This speculation relates to the inherent contradiction of capitalism : the system uses money to get money at the expense of exploited workers’ wages. Yet it is impossible to make money without consumers. In this instance, popular demand. resulting in enormous debts, has run up against downward pressure on wages, which has prevented the repayment of the debts.
And the ecological crisis ?
Paul Boccara. The ecological revolution is not only the threat of pollution increased to the point of a threat on the climate. It is also the development of biotechnology, the conquest of space, etc… The stupidity of pollution relates to the same system at work in the financial markets, with the waste of material resources, in production as well as in consumption.
Simple taxation cannot be the solution without compromising business management geared to this financial profitability, without getting help from new public service for new ways to produce and consume. Aiming for ‘sustainable development’ as we commonly say, from both the left and the right, is totally insufficient without other forces and funding that are incompatible with the requirements of capital.
Returning to the financial crisis, are the responses to this crisis implying the ‘return of the State’, entailing ‘new regulations’ ?
Paul Boccara. These calls for the state and market regulation reveal a new climate in favour of proposals to control markets and a capitalism gone mad. It is a shift from previous periods. But a greater involvement of the State in the market regulation will not suffice at all if the fundamental rules of the system are maintained. The left must break the traditional alternative : Market or State. On the State side, new powers are needed, powers of control, and of decisions made by workers and citizens, in businesses as in public services. On the Market side, markets need to be controlled by the distribution of equity and by innovative public services. Regarding the market for labour, there needs to be an emphasis on job and training security ; regarding the marketing of products, in favour of new management criteria ; and finally, regarding the financial market, in favour of public institutions and a new credit system.
Facing the serial collapse of banks, what can we do?
Paul Boccara. We cannot limit intervention to last-minute plugging holes that are multiplying without reforming the entire banking system. Of course, we could start taking some immediate steps, while at the same time developing overall plans based on a dialogue among workers, citizens and their organizations at the national, European and world levels. State control or participation in the banks has become inevitable, in the United States and in Europe. But they are ad hoc in emergency and seen as provisional. That is not enough at all. This is not a matter of eliminating state speculation at the expense of taxpayers, and then starting all over again with the same credit criteria. Choosing prevention ? But a European public fund to buy rotten assets, imitating the American Paulson plan, does not meet the need. Nor would simple guarantees on deposits, nor a public institution taking temporary participation in banks with no other criteria. An overhaul of the system is needed, with public involvement and nationalization, public and national centres of finance, a new bank credit, new public services for credit, and a cooperation among themselves for a local, European and global reconstruction.
What forms could take place in France, this financial public centre and the new public service of credit?
Paul Boccara. It involves setting up a new bank system of credit and building new institutions, such as the national public sector. The idea of a public financial centre, that we have proposed with the PCF, is now better understood and supported by others. It would connect in one whole the Caisse des Dépôts et Consignations, savings banks, mutualist banks, Oséo, the Post Office bank, etc… This proposal is extended now, as already in my book, to integrate the private sector banks, whether they face difficulties or not, but which are strategic and should be re-nationalized. This centre would regulate the remaining private institutions. But the root of the problem relates to a different credit. There has been enough of vague proposals, such as calls to for ‘real’ change instead of just ‘financial’ change, which echo the statements of Nicolas Sarkozy opposing creative capitalism to financial capitalism.
Asking for credit for ‘worthwhile investment’ or for ‘social needs’ is vague and does not define any criteria applicable to banking operations. Credit, implies strict technical criteria, and these must be made understood by everyone of course. It is selective and long term credit that we propose, with very low, to zero, (and even negative) interest rates, (i.e. with a decrease in reimbursements) for real, tangible investments, as well as intangible investments — like those for research and development. But above all, interest rates would be lowered even where planned new jobs proved to be sustainable, of quality and well paid, as well as effective training. It is also a question of giving an incentive to corporations and of developing management criteria that include social efficiency, saving resources by training workers.
We can design indicators, assessment tools, monitoring systems that are open to workers and their organizations’ participation, to supervise compliance with the new criteria for this credit. On the institutions behalf, the financial public sector can make possible this new credit. But to extend it to all banks, regional public funds, created locally, are needed. These would cover all or part of the interests of bank loans to companies (especially small and middle-size ones), for their real investments, with even lower interest rates when good jobs and training are planned. These funds would be claimed by the workers and their organizations in support of their counter-proposals to develop employment in their companies.
A regional budget of 8 million Euro would, with an interest rate of 4%, be able to lend 200 million Euro at zero interest rate. As of now, this is possible, considering the leftist majorities in most regions. At the national level, a fund of the same type, involved in the public sector, could be created. It would be financed by public funds that are now devoted to employer payroll tax rebates, which represent some 27 billion Euro out of a total of 33 billion in tax relief.
These tax rebates, unlike what Nicolas Sarkozy stated in Toulon, are indeed gifts to employers. These gifts are dangerous gifts, as they reduce labour costs, putting pressure on all wages, hence on the demand and, eventually, on employment. Whereas for small and middle size companies, it is better to reduce to zero the financial burden of credit, subject to recruiting. That is what would be conducive to a rise in employment.
From public funds dedicated to exemptions from employer contributions, let us take only 20 billion Euro. With these five times 4 billion and an interest rate of 4%, we would actually call for 500 billion Euro credit, with zero interest rate. This represents about twice the material capital investment, said to be fixed, of non-financial businesses ! Beyond this point, we are dealing with European institutions. We must organize the cooperation of new public services and national and public centres of credit. We can set up funds utilising public loans for guarantees, nationalizations with consultations, and that defines another role for the ECB. This new European construction can lead to other world-wide institutions.
In the United States, the Federal Reserve (Fed) policy of low rates since the Greenspan era, which contributed to speculation, is incriminated. Should the European Central Bank lower its rates ?
Paul Boccara. The Central Bank ‘refinances’ all banks by creating money. But the primary mission of the ECB against inflation, for a strong Euro, promotes assets exportation against industrial employment. This is one of the reasons why unemployment rate is higher in the Euro zone than in the United States, where employment is an essential task for the Fed. The ECB had to fly to the rescue of banks, and so did the Fed, in providing liquidity. But it can only do so in exchange for securities deposited by the banks. When these securities are rotten and bank shares are falling, banks are pushed into bankruptcy or have to be recapitalized by the states.
A simple drop in interest rates of the ECB, demanded by the right and the left, is not the solution. Yet the recent and simultaneous drop of the rates of six central banks around the world, including the ECB and the Fed, demonstrates the severity and novelty of the situation.
Low rates of the the Fed have fueled speculation. The issue is therefore to reduce the rates in a conditional or selective way : increase interest rates for loans to financial investments, and reduce to zero when for real investments, provided they are accompanied with more jobs and training . Also, the Stability Pact, directed against government spending, must be removed.
But, as I demonstrate in my book, behind the banking crisis is looming a serious economic crisis on a global scale, with a shaken dollar. This crisis will also reach emerging countries. Already, the fall of the stock exchanges are strong and are reaching Asia, as is the case with Japan. By laying the cost of their hegemony on the importation of capital from all around the world, the United States has contracted a colossal debt. This debt corresponds to the withdrawal of great masses of Treasury bills in dollars by central banks, European and even more by Asian banks. This leads to a dollar inflation that could ultimately lead to its rejection and would seriously weaken the international monetary and financial system. Besides, sovereign funds have started to use their dollars for partial acquisitions of U.S. firms.
A new Bretton Woods is invoked to reform the international monetary system. You develop a proposal for a common global currency. How to implement it?
Paul Boccara. The IMF is going through a very deep crisis. The voting rights of developing countries and emerging markets are extremely small. Dominique Strauss-Kahn wants to increase them a little. This would not solve at all the issue of the United States blocking power, which must be removed. The IMF discredited itself by playing the role of policeman against the developing countries. It has caused disasters by putting pressure on public and social spending, to the advantage of their creditors. It has given up its role, set up after the war, which was to support the whole world’s growth. This is leading some countries to want to free themselves from it. This is what the establishment of the South Bank by Latin American countries means. Such initiatives are positive. But beyond that, we need a radically new IMF, and we need to rebuild the world-wide economical organization with other criteria.
On a global scale, how to create a common currency?
Paul Boccara. To create a common world currency, emancipated from the dollar, we can rely on an already existing embryo : the ‘special drawing rights’ of the IMF (SDR). The IMF, a sort of central bank of central banks, manages a common pool of currencies and gold, set up by the Bretton Woods agreements in 1944. Each country was able to draw foreign currencies from other countries, in proportion to its gold deposit. The Special Drawing Rights, established in the early 1970s, are drawing rights without gold counter-part. It is a pure monetary creation of the IMF. But the United States opposes their use because they threaten the hegemony of the dollar. But we can already generate more SDRs, immediately, and then create from them a common global currency. This would refinance credits for employment or training, and public services. The common currency would help promote services and public property belonging to humanity (food, water, energy, transport, environment, culture, health, peace, etc..), and would thereby challenge the domination of multinational companies.
Finally, I mention in my book, ‘a new global civilization’ since transformation cannot be purely economic. Powers, culture, values are critical for a ‘civilization for the whole of mankind’. Instead of competition, rivalry, monopoly at the expense of the people, and instead of the hegemony of the United States, it is about a civilization of cooperation and sharing.