Provided by Ernesto Screpanti

Ernesto Screpanti giving a speech

 

Economic globalization has now reached nearly every corner of the world economy, but capitalism, as it is contemporarily practiced, has lead to vicious circles of economic crises. In May, CSST’s reporters interviewed Ernesto Screpanti to share his views on the solution that Marxist political economy can provide to the econom­ic crises of contemporary capitalism.

 

CSST: Over the 150-year course of the capitalist evolution since first industrial revolution, a set of insti­tutional arrangements to regulate the functioning and evolution of economies emerged as new capital­ist forms. How do these differ from the types of capitalism developed by Marx?

 

Screpanti: Marx’s classical model of capitalism was based on the mid-eighteenth century British system: personally owned companies oper­ating in a fairly competitive market. In the book The Fundamental In­stitutions of Capitalism, I proposed a classification of different forms of capitalism by combining three kinds of property rights regimes (con­centrated private property, diffused private property, state property) with four kinds of accumulation gov­ernance structures (goods markets, markets for corporate control, exter­nal hierarchies, internal hierarchies). The resulting classification brings out four different forms of capitalism that seem to highlight the real historical evolution of capitalism: classical capi­talism, market-oriented corporate capitalism, bank-oriented corporate capitalism, decentralized state capi­talism, centralized state capitalism. The prevailing form in contemporary advanced countries is the one devel­oped in the Anglo-Saxon world.

 

CSST: In your view, Germany’s and Japan’s bank-oriented corpo­rate capitalism has many advantag­es over the U.K. and U.S.’s market-oriented corporate capitalism. You say it can mitigate or eliminate myopic speculative activities and short-termism.

 

Screpanti: The bank-oriented form of corporate capitalism was devel­oped after World War II in Germany and Japan, and a little later in South Korea. In this system there were a few big national banks (in Germa­ny), keiretsu (in Japan) or chaebol (in South Korea) that took control in many industrial companies, not for short-term speculation of their value, but to keep shares for a long time and exert some sort of central plan­ning. As they were interested in long-run profitability, they appointed in­dustrial managers, scrutinized their ability and monitored investment projects, while providing finance for growth. Moreover, trade unions were partially involved in the company administration (Mitbestimmung, i.e. codetermination), and workers in the achievement of the company’s “mission”. This ensured a certain de­gree of social peace and a check on labor costs. Twenty years ago many observers, including myself, had a mild expectation that, in the very long term, if anything, the German-Japanese model would win over the Anglo-Saxon one because it ensured a more stable growth, lower income inequalities and a fairly stable social peace. We did not take account of the coming effects of the conservative neoliberal revolution of the 1980s and 90s. In particular, the closing of the Uruguay Round and the birth of the World Trade Organization paved the way for the outright liberaliza­tion of capital movements, financial market deregulation, the triumph of universal banks and the growth of shadow banking. Eventually the Anglo-Saxon model was the winner, with the result that global financial instability and social inequalities have increased.

 

CSST: Prior to the subprime mortgage crisis in the U.S., you wrote that American capitalism is characterized by high speculation, which may result in market volatil­ity, an observation that proved pre­scient. Looking back now, how do you think this will affect the future of American capitalism?

 

Screpanti: Globalization is help­ing to trim down U.S. hegemony. The trade competition of emerging and developing countries and the tendency of U.S. companies to react by relocating investments abroad have driven down wages. If mass consumption and investment do not grow enough, effective demand will shrink, GDP growth will slow down, the public budget deficit will rise, and the government will be increas­ingly unable to finance its huge mili­tary expenses. Starting in the 1990s, this problem was taken care of through a convergence of interests of big finance and big government. The latter complied with the former’s demand for an extensive deregula­tion of financial markets and an ex­pansive monetary policy. The former swelled their credit supply, especially in the real estate market. In this way a housing bubble was inflated that helped sustain consumption and GDP growth. However, the debt of households and firms increased, whilst leverage and bankruptcy risks mounted. Banks reacted by bloating shadow banking and redistributing risks with the securitization of their credits. A subprime bubble inflated together with the housing bubble. Moreover, since U.S. industry was losing competitiveness, the current account exhibited a huge and in­creasing deficit. This was affordable because the dollar seigniorage ena­bled Americans to consume more than they produce, but the result was a strong increase in foreign debt. This is another way of saying that, through a global bubble, American big finance and government induced the rest of the world to partly fund the expansion of home consumption and military expenses. The burst of the bubble came when the Federal Reserve raised the federal fund’s rate. This was 1% in 2004. When it reached 6.5% in 2007, the bubble started to deflate. At the present time the American GDP has made a recovery, but a rather modest one. It is propped up partly by Obama’s expansive fiscal policy and partly by the Fed’s expansive monetary policy. However, the former policy inflated public debt, whilst the latter inflated another financial global bubble. When the Fed implements the pro­jected tapering of accommodating monetary policies there might be another bubble outburst. As a mat­ter of fact, the simple announcement of tapering last year precipitated serious currency crises in various emerging countries.

 

CSST: How do you view the econom­ic situation of Italy and the Eurozone?

 

Screpanti: The Euro is an un­dervalued Deutsch Mark and an overvalued Lira, Peseta, Franc etc. Therefore German firms are advan­taged in international trade whilst Italian, Spanish and French ones are disadvantaged. Moreover, German firms invest a lot in research and de­velopment and their productivity is increasing remarkably. On the other hand, the German government tends to implement restrictive fiscal poli­cies by which wages are kept down. So, although German wages are about 30% higher than Italian, labor costs are lower in Germany. For all these reasons, the German current account surplus has been increasing since the creation of the European Union. This mechanism worked quite well (for German industry) until the breakout of the great crisis.

 

Consider that, as a consequence of the increasing German surpluses, Italy suffered an increasing current account deficit until 2012. And a current account deficit produces foreign indebtedness. Now, add the fact that the European Central Bank is prohibited from directly financ­ing governments by buying public bonds in primary markets, and bear in mind that the Italian public debt was rather high (about 119% of GDP) in 2011. Then you can under­stand why speculators, estimating a high default risk, strongly attacked the Italian sovereign debt. This made interest rates rise and the public debt swell. The government, under rec­ommendation from the BCE, the IMF and the German government, raised taxes and reduced expenditures in 2012 and 2013. The declared inten­tion was to cut the public budget deficit and soothe speculators’ anxi­eties. But the consequence was a recession with reduced GDP (-2.5% and -1.8% in 2012 and 2013), and a further rise in the Debt to GDP ratio (133.4% in 2013).

 

A vicious circle has been triggered that might keep the Italian economy (and the Spanish, French, Greek etc.) in a long depression. Then there was the rebound effect: since many Ger­man goods are exported in Europe, depression involves the German economy too, with negative or very low GDP growth rates. Some observ­ers cast doubts on the acumen of Euro­pean politicians: are they too stupid to understand that austerity policies are self-defeating? But others surmise that they are not, and that there is a precise capitalist logic in those policies.

 

The Chinese version appeared in Chinese Social Sciences Today, No. 597, May 19, 2014

                                 Edited by Zhang Mengying

                                 Revised by Charles Horne

The Chinese link:

http://www.csstoday.net/xueshuzixun/guoneixinwen/89613.html