Crises of capitalism and social democracy.

Author:Blackwater, Bill

John Bellamy Foster is best-known as author of Marx's Ecology (2000; in which he corrects the popular misapprehension that Marx did not 'get' environmental limits), and as editor of Monthly Review (, the journal founded by Marxist economist Paul Sweezy in the late 1940s. In his latest book, The Endless Crisis (2012; written with Robert McChesney), Foster analyses what he calls the 'stagnation-financialisation trap'. This is the economic predicament countries such as the US and UK find themselves in today: dependent for growth on a system of financial bubbles which have now burst, they remain mired for the foreseeable future in a condition of chronic stagnation.

Just as it used to be said of some people that they'd 'had a good war', so Foster and Monthly Review have had a good financial crisis. Monthly Review had been predicting the crash, and the subsequent stagnation, for a long time. In the UK, Monthly Review's analysis has drawn favourable remarks from Larry Elliott of The Guardian, and its influence is on the rise.

In this interview, John Bellamy Foster talks not just about the crisis mature capitalism finds itself in today, but the crisis this has wrought in social democracy. In many ways, for him this is the end of the line for social democracy: it can no longer hope to boost growth, and redistribute its spoils. Stagnation, not growth, is the order of the day. In these conditions, he argues, it is imperative that social democratic parties reinvent themselves, rebuilding links with their traditional sources of support, and crucial that they reinvigorate the political consciousness of the majority of the population who are being actively disadvantaged by the financial elites.

The stagnation-financialisation trap

In your new book, The Endless Crisis, you and Robert McChesney talk about the 'stagnation-financialisation trap'. What do you mean by this?

People commonly see what happened in 2007 and 2008 when the bubble burst as a financial crisis and nothing more. But the real problem is a tendency towards economic stagnation in the mature economies, and the long-term slowdown in the rate of growth.

Our argument is that financialisation, the series of financial bubbles that we've had over a period of decades, has been the main thing lifting the economy. I think this is fairly well understood now, but it wasn't understood so well five or six years ago. And while financial expansion has been lifting the economy, financial bubbles always have their limits. As the bubbles burst the government of course tries to act as the lender of last resort, pouring in liquidity and loans, to get the financial system going again. But it's not able to deal with the underlying problem which is stagnation, and this time we're stuck, they can't get the financial system really going again, and we're faced with a problem of economic stagnation that's surfaced as a result.

We call this the 'stagnation-financialisation trap' because the financialisation is the answer to stagnation but it creates bigger, more complex problems, and eventually the two problems together get us into a condition where we really can't move forward.

What are the roots of this condition of stagnation you're describing?

Basically, to understand the problem of stagnation, and also financialisation, you have to go back in time. We can go back as far as the Great Depression, which was a period of severe economic stagnation. And of course, we got out of the Great Depression mainly as a result of the Second World War, and after the War there was the period which we sometimes call 'the golden age' (although it had all sorts of problems itself), where the economy was going fairly well for all sorts of reasons. This had to do with the rebuilding of the European and Japanese economies after the War; basically the economy was very liquid because consumers hadn't been able to spend during the War, so there was a lot of purchasing power; there was the second wave of automobilisation; there was the Cold War which led to further military expansions. And all these things propelled the economy forward for a time.

But eventually, in the 1970s we ended up with a crisis and the economy started to slow down. In the 1970s the rate of growth was slower than in the 60s, it was slower in the 80s and 90s than the 70s, and it was slower in the first decade of this century than in the 1990s, and it looks like the economy is now slowing further. This was true of the United States; it's also true of Europe and Japan. So this is a problem of stagnation that's quite acute at this point.

Beginning in the late 1970s, for a few decades the economy was lifted by financial expansion, one financial bubble after another; the whole financial system grew relative to the underlying economy. Business elites couldn't find outlets for investment within what's called the real economy, or production, so they poured the economic surplus or savings at their disposal increasingly into financial speculation. That had the effect of lifting the economy in a secondary way, but then it eventually created bigger and bigger bubbles, bigger and bigger financial crises, and finally we come to one that the state as lender of last resort can barely handle at all, and we've got this interminable crisis. It's put us back into stagnation in a big way because we can't use financialisation effectively to expand the system, and there's no other way that anybody knows of, of how to expand the system on a long-term basis given the current conditions.

The limits of Minskyism

You mentioned earlier how the key role of financialisation in keeping the growth of the economy going has become only latterly more widely understood. Now, one of the key names in relation to that wider understanding more recently is Hyman Minsky. But I know that you part company with him, and I wonder if you could just spell out exactly where that is?

Starting in the 1960s, Hyman Minsky developed a theory of financial crisis. He came out of Keynes, and he was a socialist, but he focused on financial crises largely independent of what was going on in production--so he didn't look at the stagnation problem, or the underlying class dynamics much. He simply had a pure theory of financial crisis, where a financial system over time gets more and more unstable, because the more debt that's created, the quality of it diminishes, it becomes more speculative, and essentially you have a Ponzi system, and the whole financial structure threatens to come down, and the government has to come in as lender of last resort.

He didn't really deal with the relationship of this with the real economy, and he didn't deal with what we call financialisation, that is, the long-term trend in the growth of finance relative to production; instead he just focused on financial crises, one after the other, without looking so much at the long-term trend, the build-up of debt over decades. Only after the 1987 stock market crash, he wrote a piece for a book that I contributed to as well [Gottdiener and Komninos,1989], and he introduced a new notion of money-manager capitalism. He said, look, this is systemic now, we have an entire economic system that's dominated by money managers, who are basically running the show, and capitalism is fatally flawed. He was trying to work this out, but he didn't get very far.

Harry Magdoff and Paul Sweezy, meanwhile, in the 70s, 80s, and 90s, had written about the growth of financialisation as a response to stagnation in the underlying economy, and that's where I come out of.

Those who subscribe to the Minskyist view seem to argue that what we need to do is limit the role of the financial sector and then we can get back to 'good growth', and restore the primacy of the real economy. Now you're suggesting basically that...

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