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Costas Lapavitsas is a professor in economics at the University of London School of Oriental and African Studies. He teaches the political economy of finance, and hes a regular columnist for The Guardian.
TranscriptAUDIENCE MEMBER: We actually had that system in the 1980s when I moved here of the one-dollar house, where people paid a dollar for a house and they agreed to fix it up and then live in it, and then youre paying a property tax, so the citys actually making money. But thats not my question.
Two quick things. You talked about growth, so Im wondering what your thoughts are, if youre talking about growth for growths sake. And are we still in a capitalist system in your democratized economy? And you also talked about debt. Im wondering, are you talking about credit, like a mutual credit type of system? Or are you still talking about a debt-based system?
COSTAS LAPAVITSAS, PROF. ECONOMICS, UNIV. OF LONDON: These are very good questions.
Now, some growth, I believe, there must be. But that growth, in a logical and well-organized society, has to be agreed socially, targeted, and organized on a social basis. We see what happens when there is no growth. There are problems, because peoples needs expand. They need to meet them. Theres a new generation coming in at any time. Societies need growth to bring the poor out of where they are and to improve general social conditions. But growth for growths sake, no. Thats a capitalist logic that is you grow to accumulate and become bigger. Thats mindless. We need growth that is socially targeted and socially organized and socially valued, basically, which areas and how. And thats exactly what a non-capitalist, anticapitalist, socialist society would be about. Thats the content of it. Okay? So thats what I would say about this. And, obviously, there would be ecological and other dimensions that we need to bring to bear when it comes to deciding what kind of growth we want.
Debt, though, is the other thing that you brought up. Debt is a very powerful and very peculiar social relationship, and we need to start with that. There are many kinds of debt. Now, we call everything debt, and we are right to a certain extent, because its an obligation of one person to another or one person to an institution. But actually there is a variety of forms of debt.
Theres the debt of business-to-business. This debt is actually, in contemporary capitalist societies, treated as an instrument of policy. Businesses go bankrupt, the lender gets what they can out of the assets of the business, and everybody goes about their affairs after that. And thats accepted as a normal run of things.
There is also debt between states. Thats also a kind of debt. But there, bankruptcy is not possible, or if it is possible, its deeply problematic. Right? If one state goes bankrupt or threatens to go bankrupt, it looks as if the world would collapse, even if it cant pay its debts.
So already we see that debt differs from debt.
Debt for households is still different. Individuals dont borrow to accumulate, to produce, to run a business; they borrow typically because they want to buy a house, they want to send their children to school, or they want to go to school themselves, or they want to meet other needs. This is a different kind of debt. Again, its debt to meet everyday needs.
How that debt works in modern society is a very different interesting question, because it can free up activity, it can make life easier for you, it can smooth out your spending, and so on. And it is there that we need to think of public intervention. If were going to think of debt as a public utility and banking as a public utility, then we can approach debt that way. And there we can put in communal and associational ways and mutual ways of dealing with debt. Thats where you begin to get other approaches to debt which are actually anticapitalistic in many ways, although it still is debt, right, because it would be publicly based, because it would be communally based, because it would be based on trust that would be created by society and by people themselves rather than a big private institution lending to individuals and expecting them to pay back and actually exploiting them and making profits out of their income. It is these changes that we need to think about and that we need to propose, because thats what modern society needs and demands, I think.
I dont know if Im answering your question.
AUDIENCE MEMBER: [incompr.] youre moving in a positive direction, so yeah.
PAUL JAY, SENIOR EDITOR, TRNN: Yeah. Don.
AUDIENCE MEMBER: Yeah. First of all, thank you for your brilliant analysis. I learned a lot from it tonight.
I just wanted to explain a little further the relationship between the crisis of 2007-2008, basically the crisis of the paper economy and its relationship to the real economy. In other words, how has that dynamic played out, right, on the one hand? Thats one question.
You also talked about the class nature of the crisis. You talked about that it is clear. If you could, expand upon that just a little bit for us.
And for those of us activists who are political activists who were brought up in the old-school political economy analysis of sort of classical Marxism, where we were taught that a crisis of capital was basically a crisis of overproduction, in this case this was not a crisis of overproduction, in 2007-2008. Am I right or am I wrong? So, I mean, thats not industrial overproduction. This is not–
LAPAVITSAS: Some people think it is.
AUDIENCE MEMBER: –what led to the crisis in 2007, but rather speculation of finance capital. So if you could, just kind of clarify some of that for me.
LAPAVITSAS: Obviously, this is a very big issue, and we could spend hours discussing it. In fact, there are many people who do spent hours discussing it. Ive got a few things to say which might be helpful.
Now, the idea of crises coming out of production, the real economies, was a very powerful idea. And what I told you doesnt really go against it, in the sense that I said that the nonfinancial enterprises are actually financializing it, financializing. So finance here isnt simply seen as a separate sector. Actually, productive enterprises, commercial enterprises, have become involved in finance themselves. Its not as if this is some kind of imposition from the outside on them, right? So the idea that crises come from the real world, as it were, the economy, is a very powerful idea, and we need to maintain it and rescue it and use it. But, obviously, we need to apply it in a way that makes sense and fits and matches what we observe.
And the thought, the notion that what happened in the United States in the 2000s was overproduction, over accumulation, and a fall in the rate of profits, which then led to a crisis, it just doesnt persuade me at all. I dont see it. I see continued problems of production. I see continued problems of profitability. Profitability of US business collapsed in the 1970s, then rose in the 80s, and remained fairly high in the 90s, never went back to the heights of the 60s and early 70s. But when we look at the 2000s, we dont see a collapse of profitability which led to the crisis of 2007-2009. If we see a decline, its not really a decline thats commensurate with the gigantic disaster that happened in 2007-2009. So profitability is very important cause it remains problematic. But we need more complex and more sophisticated explanations of what happened, because the crisis of 2007 and 2008s extraordinary. Finance played a key role in it, and we need financialization arguments in order to understand it. Thats what I would say.
The class aspect of it, to my mind theres no doubt at all about this, first in terms of how it was dealt with, which Ive discussed briefly. Everything that was done in this country–I mean, when the crisis broke out, there was a brief discussion and a brief mention of a Minsky moment. I dont know if you remember that. It was a moment, because it lasted five minutes, this discussion, the idea that theres something structurally wrong about finance in the system, and therefore we need to intervene in it. Even the US elite discussed this. And then they forgot about it.
JAY: Yeah, there was a cover of Time magazine [crosstalk]
LAPAVITSAS: Thats right.
JAY: –were all socialists now,–
LAPAVITSAS: That kind of thing.
JAY: –which lasted about two weeks.
LAPAVITSAS: Well, yeah, and then we went back to business as normal, which meant what? Everything that was done aimed at protecting and restoring the profitability of the financial sector. I actually got a graph in this book of mine, cause I calculated financial profit as a proportion of total profit in the United States. Its the only country for which you can do it with good accuracy because of the figures. So what you see is an incredible increase in financial profit as proportion of total profit in the 1980s and the 1990s and in the 2000s. Actually, in 2003, financial profit as proportion of total profit is more than 40 percent. Its unbelievable, right?
JAY: Does everybody get that stat?
LAPAVITSAS: Forty percent of total profits in the United States in the year 2003 came out of finance, came out of banks, basically, cause thats the profit that you can add. Actually, there is financial profit which you cannot add to this because you cannot measure it. It doesnt appear, for instance the profit that big financiers pay themselves as bonuses and so on, which appear as salaries and wages. But that aside, total financial profit in the US economy as proportion of total profit in 2003 was 40 percent, about 40 percent. Extraordinary.
Then that collapses, begins to fall, and it collapses in the crisis, it goes right down, because bank after bank failed. What happens after 2009 and 2010? It bounces right back. It doesnt reach the level of 40 percent, but bounces right back. Why? Because of the state. All the measures taken by the state aimed at doing precisely this, to restore and protect bank profitability, financial–. And they did, they did it, in the ways that Ive outlined–zero interest rates and so on.
Whats the other thing they did? They took extraordinary care not to change the structure of financial regulation in the financial system–extraordinary care. All that discussion about regulating the banks, thats hot air, basically. Effectively, nothing has changed. Nothing has changed. Why? The social layers, the class layers that make profits out of this system have dictated the way in which the crisis was dealt with, and they have protected their interests first and foremost. Thats what they did. And they [shifted] their losses and the costs onto working people. Its very, very clear, crystal clear–class nature, the class character and the class nature of modern societies–crystal-clear.
And you might ask, whats going to happen, and is this sustainable? In the short term it might be sustainable. In the short term. In the longer-term, there is no society in which class interests can express itself so brazenly that can survive for long. Theres no such–these societies that do that are basically doomed.
AUDIENCE MEMBER: Even with the protection of the state?
LAPAVITSAS: Even with the production of the states. You cannot keep real wages flat as they have been in this country for so long, you cannot create poverty on a mass scale, you cannot exploit people in 1,000 different ways, including finance, and you cannot shift all the benefits and the profits to the top small layer of the population associated with finance, and do it time and time and time again, even in the midst of a gigantic crisis, and hope to maintain that system for long. Yeah, you can do it for a period, you can, as they have.
JAY: But not maintaining the system doesnt necessarily mean the alternative is going to be a positive one. I mean, you can have a Hitlerite response to the crisis, too.
LAPAVITSAS: I did not–I mean–.
JAY: I know youre not saying that. In Greece, you could go either way in Greece.
LAPAVITSAS: Yeah, all Im saying is that this financialized capitalism has become so shameless in extracting profits and maintaining exploitation and naked class privilege that, historically speaking, we know that its very difficult to maintain that without serious ructions, serious unrest. Which way that will go I dont know. I cannot tell. But to me this looks very unstable.
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