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Global Economic Crisis: Which Economy and What Crisis?
An exploration of alternative frameworksResponse prepared for a workshop at the University of Birmingham 2 April 2014
Sandy Brian Hager
Fellow in International Political Economy Department of International Relations London School of Economics and Political Science
sanha926@gmail.com sbhager.tumblr.com
1. What is the dominant theoretical approach that you adopt in understanding or explaining the occurrence of the global economic crisis?
The theoretical approach that I develop to explain the global crisis – and political economy more generally – isn’t a ‘dominant’ one. In fact, it is relatively new and marginalized, though there are some signs that the approach is starting to gain traction (see Di Muzio 2013). This power-centered approach to political economy, often subsumed under the label of ‘capital as power’, has what I consider to be three distinguishing features.
First, the approach places the process of capitalization, the discounting of risk-adjusted future earnings into present value, at the center of analysis. For existing theories of value, both neoclassical and Marxist, this forward-looking process is treated as a mere fiction that stands apart from what really matters in the so-called ‘real’ economy. Capitalization is also the starting point for all finance textbooks, where it’s drilled into armies of business students
en masse. But for ‘capital as power’, this process isn’t just a fiction and it’s not just a benign technical exercise. Instead, it is the central logic through which the price system is generated and the entire capitalist order is governed. The very logic of the system compels capitalists to accumulate differentially, and those that outperform the average end up redistributing income and assets in their favour (Bichler and Nitzan 2014: 66). This dynamic quest for differential capitalization, as the name of the theory suggests, is solely and only a matter of power.
Second, the analytical focus of the approach is not on ‘capital in general’, but on dominant capital – the cluster of large corporations and wealthy individuals – at the heart of accumulation. This top-down approach is best viewed not as a general theory of society, but as a theory of the worldview of dominant capital groups, and the symbols, language and logic of capitalization through which they attempt to impose their will on society (Nitzan and Bichler 2006: 28).
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conflicts and struggles that underlie the drive for differential capitalization. The linkages between quantity and quality are partly speculative. And the validity of these linkages depends on our abilities to tell a ‘scientific story’ that systematically ties together the quantities and qualities of capitalist power (Nitzan and Bichler 2009: 313; Cochrane 2011). One of the main advantages of this quality-quantity theory is that it offers research strategies for empirically exploring capital accumulation; something that liberal and Marxist dual quantity theories of value, anchored respectively in problematic units of ‘utility’ and ‘abstract labour’, have had difficulty providing.
So how can this new power-centered approach help us to explain the current global financial crisis? This is not a question that I have tried to tackle directly with my research, but it is something that Bichler and Nitzan (2013, 2014) have tackled with reference to the US experience. Their main argument is that this is a crisis of forward-looking capitalization. In short, dominant capital (i.e. the ruling class) has lost confidence in the very process that governs its worldview. Confidence in this case depends on the future abilities of dominant capital groups to redistribute capitalized income streams in their favour. And in order to redistribute income upward, dominant capital has to inflict more and more damage, or strategic sabotage on the underlying population. But unprecedented concentration in wealth and income, and the specter of ecological collapse, means that the system itself might be pushing up against its asymptote. In other words, it is becoming increasingly difficult for dominant capital to redistribute income upward without de-stabilizing the entire system.
Thus, paradoxically, the crisis is borne out of the unprecedented strength of dominant capital. The power of dominant capital is becoming more difficult to augment further. Yet at the same time, any attempt to reverse this power would require progressive redistribution and the loosening of dominant capital’s grip over society, something that goes against the very logic of accumulation. And given that, historically, there is a very tight counter-cyclical
relationship between the rate of unemployment and the capitalist share of national income, what incentive does dominant capital now have to support a broad-based recovery (Bichler and Nitzan 2014: 68)?
2. What actors are central to understanding the global economic crisis, what contribution did they play in producing the crisis, and in what way?
This is a big question. And I want to avoid the temptation to merely reproduce general arguments that explain the crisis. Instead, I will outline specifically how my own research on the role of banks and other financial intermediaries in the US political economy might, in some small way, help us to identify some of the key actors involved in the crisis (see Hager 2012).
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hegemony. During this period, powerful groups within the FIRE sector were starkly divided on the chipping away of the depression-era Glass-Steagall banking regulation. And I argue that the power struggles and distributive conflicts that ensued between the dominant commercial and investment banks over banking regulation shaped the development and contours of the neoliberal project in its embryonic phase. I think that financial deregulation, and especially the repeal of the Glass-Steagall Act, has an important role to play in explaining the broader transformation of US capitalism over the past three decades. For example, without this deregulatory wave, we wouldn’t have had the creation of the giant and complex financial conglomerates that brought the global financial system to the brink of collapse in 2007-8. My research on the political economy of banking deregulation suggests that the emergence of neoliberalism, which is so often blamed for producing the crisis, is more a result of conflict within the financial sector than a reflection of the broader interests of the financial sector.
3. Which actors benefited and which suffered as a result of the crisis, and why?
Again, it will be most productive to avoid generalities and try to comment specifically on the relevance of my own research to this question. In particular, I think that my research on the political economy of US public debt might help to shed some light on the on winners and losers of the current crisis (see Hager 2013; Tett 2013).
Since the onset of the crisis, the portion of the US federal debt ‘held by the public’ has doubled from 36 percent of GDP in 2007 to 72 percent in 2013. This explosive increase in the federal debt raises an important question: who is exactly is buying this huge and growing mountain of US Treasury securities? For the most part, policy makers and pundits alike have fixated on the rising share of the federal debt owned by the ‘rest of the world’. Foreign central banks and private investors now own around half of the federal debt, provoking fears about the influence that foreign creditors, especially China, might have on US policy as a result of their Treasury holdings.
But there is another aspect that has been completely overlooked in the current debates. And that is the pattern of ownership by domestic private stakeholders within the US: the American households and businesses who together still own roughly one-third, or US$3.8 trillion, of the outstanding federal debt.
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Does anyone then ‘suffer’ from this rapid concentration in the ownership of the US public debt? Perhaps not, but it does indicate that large corporations and wealthy households at the top of the hierarchy of capitalist power have been the primary beneficiaries of the ‘safe haven’ that the US Treasury market offers to investors in times of crisis. This differential advantage that dominant capital enjoys through its ownership of the public debt should make us wonder whose interests are served by government macroeconomic policies.
References
Bellamy Foster, John and Fred Magdoff. 2009. The Great Financial Crisis: Causes and Consequences, New York: Monthly Review Press.
Bichler, Shimshon and Jonathan Nitzan. 2013. Can Capitalists Afford Recovery? Economic Policy When Capital is Power, Working Papers on Capital as Power, No. 2013/01: 1–36.
——— . 2014. How Capitalists Learned to Stop Worrying and Love the Crisis, Real-World Economics Review, No. 66: 65–73.
Cochrane, D.T. 2011. Castoriadis, Veblen and the ‘Power Theory of Capital’, in I.S. Straume and J.F. Humphreys (eds), Depoliticization: The Political Imaginary of Global Capitalism, Aarhus: Aarhus University Press, pp. 89–123.
Di Muzio, Tim (ed). 2013. The Capitalist Mode of Power: Critical Engagements with the Power Theory of Value, RIPE Series in Global Political Economy, London: Routledge.
Duménil, Gérard and Dominique Lévy. 2004. Capital Resurgent: Roots of the Neoliberal Revolution, Cambridge MA: Harvard University Press.
Hager, Sandy Brian. 2012. Investment Bank Power and Neoliberal Regulation: From the Volcker Shock to the Volcker Rule’ in H. Overbeek and B. van Apeldoorn (eds),
Neoliberalism in Crisis, International Political Economy Series, Basingstoke UK: Palgrave Macmillan, pp. 68-92.
——— . 2013. What Happened to the Bondholding Class? Public Debt, Power and the Top One Per Cent, New Political Economy, April: 1–28.
Nitzan, Jonathan and Shimshon Bichler. 2006. New Imperialism or New Capitalism?, Review, 29(1): 1–86.
Nitzan, Jonathan and Shimshon Bichler. 2009. Capital as Power: A Study of Order and Creorder, RIPE Series in Global Political Economy, London: Routledge.
