Anti-Capitalist Chronicles: US Indebtedness & Capitalism's Internal Contradictions

this is David Harvey and you're listening to the anti-capitalist Chronicles a podcast that looks at capitalism through a Marxist lens this podcast is made possible by democracy at work welcome to this week's edition of The anti-capitalist Chronicles as usual I'm deeply indebted to democracy at work for putting this on the air and doing all the work that's involved with its and production uh this week I I thought I'd reflect on the question I got in an interview I did earlier this week and the question was how come the United States ran such a huge for foreign indebtedness position and what benefits came to the United States by virtue of that my instantaneous answer without really thinking about it too much was that I didn't think the United States really did benefit from it very much I then reflected a little bit and said afterwards that well maybe some people in the United States uh benefited from it but the population as a whole in the United States certainly did not uh and uh then the question of followed up was well uh if that's the case why does the United States with all of its power actually tolerate this situation and my answer was a uh well I think it was a a great policy mistake uh a miscalculation uh and that there was no intention of ending up in this situation but the fact that in 2008 for example the main holders of U.S treasuries were countries like China Russia uh Japan and so on uh that was a situation which was not beneficial at all and there's a reason for a very simple reason and I think the reason the main reason was was this but uh back in the 1960s uh American corporations were protected against foreign competition by the structure of the Bretton Woods agreement which uh inhibited uh Capital controls that uh the relaxation of those Capital controls with the abandonment of the Bretton Woods agreement and uh uh I think it was August 15 1971 but that that moment uh meant that uh the U.S would have to stand up to a foreign competition that uh the free flow of foreign Capital coming into the United States or U.S capital flowing abroad uh all of that changed the name of the game uh during the 1970s and so we had a different world order which emerged during during those years and has been perpetuated in effect to the present time so this is so this then was the situation but this allows these two questions first why did the United States abandon the Bretton Woods agreement and the answer had to be in part because it was inoperative and untenable because over the years uh dollars which was essentially controlled by the US uh treasury in the U.S Central Bank uh were getting out of control and there emerged something called the euro dollar market which were dollars which were held by European Banks or by branches of U.S banks uh in in Britain and Europe uh-huh and the the euro dollar market meant that a large segment of dollar trade was now outside of uh the regulatory apparatus that existed in the United States so that was one aspect of it the second aspect of it was that uh the the bankers in the United States the financial interest in the United States were very very interested in trying to open up global trade because they saw many opportunities uh to facilitate foreign investment and to them then this was a very very profitable and the biggest windfall for them came after 1971 it came in 1973 to five uh during the gulf crisis and uh at a time when U.S capital was having a hard time a large amount of dollars was going to the Gulf States and the United States used its military power and this diplomatic might to insist that the Gulf States uh actually invest all that money in the global economy via the New York New York investment Banks so suddenly the New York investment Banks came flustered a great deal of money and uh this all of this kind of trade would have been impossible under the Breton Woods agreement and therefore what 1971 did was to open up the possibility for a much greater influence over public policy of the bankers and so on which which which then happened but where did the miscalculation arise the miscalculation came I think because the idea was that the United U.S corporations and Manufacturing Industries and so on were so good so superb and so powerful that there was no way that they could be bested by Foreign competition now we can go sector by sectors to see have but if that was really the case but I think the automobile sector is the one which is most telling in the 1960s in the United States there were three auto companies that held to an oligopoly position they engaged in price leadership they had they struck the same kind of Union contracts and so on so that there was a working class element involved in in how those corporations operated so you had Ford General Motors and Chrysler uh who were essentially the the kings of the of the castle uh in terms of uh the U.S automobile and of course the automobile in the United States was sacrosanct and so everybody assumed that this whole kind of opening up to foreign trade and all the rest of it uh would simply enhance the position of Detroit and and actually open up all kinds of possibilities in foreign markets well some of that did happen but well the reverse happened and by the time you got to 1980s suddenly you find that the automobile industry in Detroit is under serious competitive pressure coming from the then West German automobile industry particularly uh BMW and Volkswagen and and a great deal was also competition was also coming from the Japanese Auto industry uh and and Toyota and so on so by the time you get to the 1980s Detroit is in serious serious trouble because the foreign auto companies are essentially dominating the US market uh and that domination was for a particular reason that during the 1960s the automobile industry started to reorganize themselves and their leadership changed in the 1950s 1960s the leadership in the automobile Industries tended to be drawn from Deep knowledge of engineering so Innovations in in in in automobile design you know and so on and it was a very dear to the heart of the engineers and so the engineering or uh basis if you like of the Detroit industry was very strong in the 1960s but by the time we get towards the end of the 1960s that leadership has changed it's more and more led by financiers and by accountants and uh and so on and so the interest of Detroit was less and less about engineering of cars and more and more about making money and so the monetary aspects of things became very significant so that monetary operations started to be incorporated Within the Detroit auto companies for for example the opening up of uh foreign trade meant that uh and and the change of in currency markets meant that uh you could speculate a great deal in foreign exchange relations and uh you could uh and and given that you know the automobile companies had interest in Latin America and Europe and so on uh commodity Futures and trading uh in in in Foreign Exchange futures and so on started to become part and parcel integrated within within the company and in some respects uh the that became even more profitable than making cars and it became more of therefore a greater and greater interest in the Detroit people but the result was that American cars turned out not to be anywhere near as good as the Japanese and and and and the West Durban cars so that for example uh when I bought a car in 1987 I didn't even think about buying a us-made car you you automatically thought you know Toyota or Volkswagen or or even even a Saab or a vulva or something of that kind so so in effect what the the policy presumption which had existed in the 1970s that the the U.S industrial structure would become all conquering uh turned out to be false it was the other way around actually they're all conquering all automobile Industries in the 1980s were were Japanese primarily Japanese and and to some extent uh worst German so this is and what that led to of course was a bigger impact upon uh the the trade balance this is the sort of thing that led further and further and further and into sort of the United States becoming a debt a country in terms of its foreign trade trade balance now this then leads us immediately into the kind of question have uh the kinds of uh things that go on in terms of corporate governance and I think in this regard I go back to a book that a colleague of mine at uh Johns Hopkins University wrote uh sometime about now called the cultural crisis of the firm and one of the things she pointed out was that actually firms are not simply run by economists and automatons who are kind of uh play in the game of economic uh with perfect economic calculator there is a culture to the firm and the culture is sometimes misplaced in relationship to economics and as a result of that bad economic decisions are made for cultural reasons and the bad economic decisions lead into crises in particular firms so for example she was she wrote a great deal on the case of McDonald Douglas where there were some obvious things that needed to be done in the face of changing defense requirements but McDonald Douglas failed to do them because because the culture of of management and so on was was kind of set in stone and and they really couldn't do it for cultural reasons and the result is that the clear company started to to fail seriously for for economic reasons and we've seen this sort of thing going on at Detroit as well so this cultural crisis of the firm leads into the kind of question as to why is it that Capital produces corporations and and practices which are actually deleterious in the long run both to the macro economy in the sense of a trade balance and but also in terms of employment and investment uh structures internally but also deleterious even from the standpoint of the company itself a more recent example of exactly this problem comes up in the semiconductor industry where uh you know 20 years ago a firm like intel was very much in the lead but there were certain kind of Innovations coming online and intel was comfortable in what it was doing and looked at these Innovations and said it wasn't going to really pursue them because it was going to take a lot of extra money and re-engineering and re-configuration of what was going on in the in the company so Intel sat there with uh with its uh with with a very good uh situation at that time but had that time another company which was the Taiwanese company which is uh the Taiwan a semiconductor Manufacturing Corporation tsmc took up these Innovations and started to run with them and uh by the time you get to about 10 years ago tsmc is way way ahead of Intel in terms of uh it's it's a market share and its profitability and its size and all the rest of it so tsmc now is the is the the chip maker which uh is responsible for about 80 percent of the most advanced chips which were created with the new technology an Intel is way behind and is now actually trying to catch up by spending a lot of money uh billions of dollars to try to to catch up with the Taiwanese company is way way ahead and here too it was a company decision that actually led into this and it raises this kind of question of uh you know are we are we are we going to spend a lot of time sort of praising how how brilliant the market system is and how brilliant American corporations are in terms of their management structure when we have plenty of examples of this kind uh which show uh that uh in fact the the drive which is supposed to be there is not there for cultural reasons but then there are other answers to to this question as to why is it that uh Capital ends up doing things which are actually negative in relationship to its own reproduction and this of course is where where Marx comes in very very strongly so whereas contemporary economics generally speaking feels that the market will at some point or rather lead everything to converge into some equilibrium what Marx does is to identify the contradictions that lead uh lead into crises of capitalism and and and what those crises do uh in relationship to output and employment and all the rest of it now there are three ways you can look at this the first way is to say but look at it from the standpoint of the individual firm now the individual firm will adopt Technologies which further its own particular interests and you know adopting those Technologies it creates a technological World which may actually play a negative role in relationship to the future of capital accumulation in other words individual capitalists operating in their own self-interest do things which in aggregate create a negative situation for the reproduction of capital the most obvious example of this comes in the case of technological change and Marx's theory of relative Surplus value now I've encountered this in a sort of discussion I had in a new left review about rights and masses where somebody said to me or one of the critics wrote and said well why would why would an individual capitalist engage in technological change when that technological change that technological change raises the productivity of Labor and that increasing productivity of Labor knee means that you employ fewer laborers and if you employ fewer laborers if you take the labor theory in value then you're going to have less Surplus value which means that there's going to be a foreign rate of profit so you get the thesis of a falling rate of profit arising out of rising productivity of Labor and that Rising productivity is powered by individual capitalists adopting the Innovations why would somebody do that you know why would somebody adopt that technology when the output means a foreign rate of profit it doesn't make sense well it makes sense when you introduce the idea that individual capitalists operate in the context of a uh of the mouse calls the coercive laws of competition and the coercive laws of competition are such that if I have a better technology than you uh I'm going to get a bit of surplus value more than you so I'm going to get higher profit rates and over time I'm likely to drive you out of business because I have more Surplus value than you have the result of that is that in response to the coercive laws of the competition is that I make an innovation you're going to follow my Innovation and catch up with me and and even go beyond me so it is the cursive laws of competition which force people to adopt Technologies which are labor-saving and which therefore reduce the labor important which therefore have an effect to the foreign rate of profit so the in other words there is a rational reason why why somebody who has no interest in the falling rate of profit will engage in practices which actually lead the profit rate to fall so this is this is Mark's argument so in this case we would say it's it's it's the the the the the way in which individual actors are supposed to come up with Technologies and so on which improve their own position but do it in such a way as to actually reduce uh the capacity for the reproduction of capital in general so that's the first part of the story the second part of the story really comes out from Individual sectors in the sense that uh it's hardly as if the energy companies feel that they are actually Duty bound to behave in such a way as to uh support the reproduction of capital accumulation now they're out there to make a profit and so if I find a whole sector like fossil fuel sector which is going to engage in practices and so on which are going to be down to its own benefit which will be negative from the standpoint of the economy as a whole and certainly negative from the standpoint of environmental conditions and all the rest of it so individual capitalists operating in their own self-interest are part of the problem sectors are of large corporations and Monopoly groups are are another reason why why the economy is likely to drift off in a negative Direction because each individual sector will pursue its own interests and in pursuing its own interests will actually in some instances support if we further accumulation of capital in other instances subtract from it so that for example if we look at what is happening in terms of land markets or something of that kind land Lord interest can enter in uh property owning factions can enter in uh all kinds of things like this can can happen which actually therefore set up rational reasons why a capitalist economy can never advance cleanly and and purely into the into the future so there are those those sorts of issues that which which which crop up and I think that actually when you start to look at it in the in history of uh of capitalist corporations in the United States we see many instances in which corporations get themselves into a mess and go even further so we have things like the Enron debacle at the end of 1998 to have uh investment speculative crashes uh from like long-term Capital Management in 1998 so the point here is that the United States became a debtor country not because there was some policy decision made that that's a good idea but the Senate policy decisions were made and a set of individual initiatives occurred uh which actually then forced the the economy as a whole to to move down a channel in which the US ends up being a debtor country and big time and now we're sort of stuck with that as the fact now being a data country is that good for the United States well uh certain people it's it's very good one of the things I think that that renders you're the some other countries nervous about about holding American debt is of course if as in the case of Russia uh right now suddenly something goes negative the United States is always in a position to sort of sequester all the funds the the the the Russians have in in U.S debt and prevent their Russians using that debt in any way to support their economy so are you coming a bit vulnerable if you hold U.S debt in this and then the US starts to play in games with it but it's very dangerous for the us to start playing games with it because then nobody's going to buy uh U.S debts and take up U.S debt so you have to be very careful about how this works out but generally speaking Wall Street is quite happy to have U.S hugely indebted because of Wall Street deals with with the buyer and selling of U.S debt and and of course so that means they get all the commissions and all the rest of it so that their Wall Street assistant is is not really too perturbed about the the US debt on the other hand Main Street and and and the population in general uh may find the problem of the U.S debt uh problematic in in the sense that it has an effect upon interest rates and and all the rest of it so you can start to trace back lots of good and bad effects of being indebted throughout the whole of the US economy now this this habit however uh of imagining that somehow or other uh U.S capitalism and U.S uh capitalist corporations are somehow are rather uh excel in their capacities and Powers turns out to be absolutely not the case and we have all of these examples of companies which steer themselves into if not bankruptcy but into second rate status I mean Intel is now a second rate company compared to tsmc and uh there's now this kind of uh problem of of exactly how uh to to deal with this situation given the fact that tsmc is a company in Taiwan and Taiwan is a problem uh in the sense that it is a considered by the Chinese to be a province of China and considered by everybody else to be an old autonomous State and and the physical other kinds of issues that crop up with with that which uh I think I will talk about next time but here is if you like the main thing never assume that economic rationality leads to at one level it conforms to economic rationality at another level when Marx talks about the falling rate of profit he's talking about economic rationality at the individual firm level which leads to behaviors which create economic irrationality in the macro economy and that is going on all of the time and when we introduce sectors into it and so on you can see immediately that this idea that the market is going to lead or economic rationality is going to lead to a rational kind of uh result in the form of uh of an equilibrium economy where everything is kind of worked out kind of nice and and closely that is unlikely to be the case and we're therefore I'm certainly going to have signs of economic irrationality all over the place which are powered by economic rationality at a different level and that is one of the major findings that Marx has which says that is the internal contradictions of capital which lead into crises of various kinds of the macro economy goes goes down the Chute because individual capitalists are behaving rationally and and it is therefore I mean Marx's argument where there's nothing essentially leading to a rational outcome leading to the major irrationality of a crisis the sign of which is that you have surpluses of Labor surpluses of capital side by side and seemingly no way to put them back together to meet up with real chronic social need this is the situation as it existed in the 1930s there were massive amounts of unemployed population massive amounts of unemployed Capital not knowing where to go there was a crying social need for to to build things and and and nobody was able to do it because of the irrationality in the the the resulted from all of the individual Behavior Uh the result of course was that Keynesian thinking came in in which the state stepped in and and said they were going to behave as a super rationalizer for the macro economy by actually overcoming many of the irrationalities which were arising out of the individualistic form of the economy and that seems to me to be the one of the primary lessons that we would draw from uh this situation so do not assume that a capitalist economy is rational assume individual moments of it could be rational but but produce irrational results and that's the situation that goes on and on and on and we will talk further about some of these irrational calculations in the next uh podcast thank you for joining me today you've been listening to David Harvey's anti-capitalist Chronicles a democracy at work production

Channel: Democracy At Work

Views: 9,266

Keywords: Richard Wolff, democracy, work, labor, economy, economics, inequality, justice, capitalism, capital, socialism, wealth, income, wages, poverty, yt:cc=on

Id: exxMuQ-vELo

Length: 27min 23sec (1643 seconds)

Published: Mon May 08 2023