Category Archive: Interviews

1. Party Unity and Renewal

   February 18, 2021 12:00 am Comments Off on Party Unity and Renewal

   Roger Martelli is a historian of the French Communist Party.

   

   Maya Adereth: What motivated you to join the Communist Party?

   Roger Martelli: I officially joined the Communist Party in November 1969, but I became a communist in May 1968. I was in a preparatory class at the Lycée Thiers in Marseilles, and I made friends with communist militants when we occupied our lycée that summer. By the time the Common Program was signed in June 1972, I had been a member for three years, and my political experience revolved around the Organization of Communist Students. I was in the communist students directorate and was appointed member of the national board of the student’s union, the Union Nationale des Étudiants de France (UNEF) in the spring of 1971. UNEF was split between the communists and the Trotskyists, so my appointment demonstrates the degree of democratic decision making we practiced at the time.

   MA: What was the split over?

   RM: At heart it was a question of who would control the organization. We hated the international communist organization—Youth Alliance for Socialism (which Jean-Luc Mélenchon participated in at the time). The Trotskyists had taken over UNEF so we set up another branch next door. At that time, I was mainly a militant in the youth organization of the Communist Party. When I joined I knew nothing at all, neither about the Communist Party, nor about Marxism. I came from a leftist family, my father had been an active militant in the CGT, and for me, the Communist Party was quite simply the most left-wing and the most serious of all political organizations.

   I had very few ideas about what a revolution could be, but at the university there was an atmosphere of revolution in the air. The party was proposing to build up majorities, both by taking to the streets and claiming voters. That combination—of the revolutionary idea with a drive towards getting a political majority—I found convincing. I identified with the description the Communist Party presented of French society, of the necessity of a radical transformation of that society and in the political construction that it proposed: the union of the left around a Common Program.

   MA: As a historian of the party, how do you assess party leader Maurice Thorez’s influence? How did things change after 1964?

   RM: In 1964 when Maurice Thorez died, the Communist Party began to accelerate the movement of inner transformation that had begun in 1962. Up to 1961 the Communist Party, under Maurice Thorez’s leadership, had denied Nikita Khrushchev’s analysis of the Stalin era. Thorez was aware of Khrushchev’s “secret speech,” but he was very disturbed by it. Thorez objected to de-Stalinization until 1961.

   In 1961, things changed. On the one hand, this was because Thorez became conscious that Nikita Khrushchev was strongly established at the head of the Communist Party of the Soviet Union, and on the other it was due to the Sino-Soviet split. Thorez agreed with Mao but he strongly believed that the Soviet Union was to be the only international center for the communist movement. From that moment Mao considered Thorez to have betrayed him. Thorez had, in fact, betrayed him, and put himself behind Khrushchev.

   At the same time, the Communist Party, which had initially been somewhat weakened by the coming to power of General de Gaulle during the Cold War, found itself in a favorable position. Between 1947 and 1958 political divisions were not so much between left and right, but rather between the East and the West. By 1958, however, the institutions of the Fifth Republic gave renewed salience to the left-right divide. A presidential candidate had to constitute a political majority in order to run in the second round and command a majority in Parliament. Particularly between 1958 and 1962, this generated a cleavage between the Gaullist right and the divided left. The socialists had originally sided with De Gaulle, which greatly weakened them by the 1960s and 1970s. Within the divided left, the Communist Party was therefore the most influential one.

   In 1958 it had been decided that the President of the Republic would be elected not by direct universal suffrage but by an electoral college of 80,000 people representing the municipal councils. And in 1962 De Gaulle decided two things: the President of the Republic would be elected by universal suffrage, and only the two candidates with the highest percentage would progress to the second round. The change in procedure made it necessary to make political alliances that produced a majority. In 1962, de Gaulle dissolved the Assembly, legislative elections took place, and the Communist Party strengthened its position: it recovered part of the votes it had lost in 1958. And on the left, it was the only one to do so. That is when Thorez encouraged the Communist Party to develop a new political strategy which would unite the left.

   Thus was initiated a revisiting of what had been at the heart of the economic thinking of the Communist Party from 1964–65 onwards, the notion of monopolistic capitalism buttressed by the state. The issue was how to engage with the welfare state—the compromise between capital owners and the working class. On the social level, there was an attempt at opening up to the middle classes, and particularly to new categories of wage-earners outside the working class: engineers, technicians and managers.

   The new line was based on the idea that a revolution was necessary, but that it could not happen all at once. Before the “dictatorship of the proletariat,” we would have to undergo an intermediate period of social change without a socialist state, allowing the French public to get used to a more socially oriented government. From this stage we would be able to shift from simple social democracy to socialist democracy, i.e. a develop a new type of power.

   Between 1962 and 1972, the Socialist Party refused a Common Program. The program had been criticized both by the Socialist Party, who did not want it, and by the extreme left, which thought it was a betrayal. In the 1969 presidential election, the Socialist Party got 5 percent of the vote while the communists got 22 percent, and the socialists realized they had little choice. In 1972 they agreed to sign the Common Program; but only after they had undergone their own restructuring at the Congrès d’Épinay with François Mitterrand. The signing of the Program marked the end of the Communist Party’s dominance in the French Left, but at the time we didn’t know it. Things became more complicated in the elections of March 1973: the Communist Party did better than it had 1968, but it still hadn’t recovered the level it had between 1962 and 1967. And worse, the Socialist Party was catching up.

   MA: What contributed to the decline of the PCF ?

   RM: Nothing was predetermined. The Communist Party was a political force and the question is whether it could adapt to reality. We should look at structural explanations, but we also have to look at contingent decisions which accelerated those structural changes. Among the elements which favored, for example, the PCF in the 1960s, was the fact that until 1975, France had experienced industrial growth, which went hand in hand with a growing working class. In these industries, workers were able to establish very strong organizations to advance their interests. The PCF also benefited from increased voting participation. The Common Program was in fact a Keynesian program. It accepted integration into the logic of the capitalist system. But Keynesian state intervention also has the capacity to change the structure of the economy. And the logic of the Common Program, being a radical variant of Keynesianism, was undeniably realistic. So, throughout the 1960s, the party benefited from both the growth of the working class, the realism of a radical Keynesian perspective and a growing electoral base.

   Things change precisely from the moment the Common Program was signed because from 1973 onwards, we moved from the period of great growth to a more complex period of crisis. This period is characterized by the rise in financial capitalism and the decline in industrial capitalism. From 1975 onwards, industrial employment declined and the traditional working class began to fall. But while the number of workers decreased, the number of employees increased. The shift to services broke the sort of alliances which formed the foundation of leftwing politics up to that point. So, the social base which was the basis of the expansion of the CP was retracting and splitting up.

   From that point on, the logic of capitalism became financial. Up until the 1970s, industrial state investment translated into job growth. In the 1980s, it was reflected in the growth of financial assets and the pursuit of decentralization. Additionally, the Communist Party of the 1970s was dealing with a new Socialist Party which had a double face. In 1971, François Mitterrand declared that “He who is not anti-capitalist has no place in the Socialist Party.” The socialists also welcomed social movements like feminism, self-management, political ecology, which the communists viewed with distrust. This presented a form of competition internal to the left which the Communist Party was not able to overcome.

   MA: I was surprised when we spoke to Anicet le Pors that he suggested the Party didn’t have much of an alternative to protest the shift of 1983.

   RM: The problem was the party’s organizational culture. The Communist Party has been able to renew elements of its discourse on several occasions: it gave up the dictatorship of the proletariat, it gave up Marxism-Leninism, it gave up its attachment to the Soviet Union. But what has never been questioned is the conception of the party, that is to say a party which must be totally unified. While there could be discussions, at any given moment the party needed a line, and the line had to be followed. There is also a tradition in the PCF, which is distinctly Stalinist, in which whoever disagrees is seen to be moving away from communist purity. This made it very difficult for the party to adapt to a changing reality, and it also made it difficult to stage a stable opposition to the 1983–1984 reforms. By the time dissenters were able to be heard, the previous group of dissenters had already been expelled.

   MA: What could Mitterrand have done differently in the 1980s?

   RM: The recurrent problem with the left when it comes to power is a time lag. In 1981, most of the countries of the Western world were already experiencing the neoliberal counterrevolution. So, at the very moment that the left gained power in France, the left was defeated everywhere else. This makes the French experience a relatively isolated one in the European and global context. Mitterrand comes to power at a time when the left is dynamic but severely weakened. The CP, which is also taking up responsibilities, does so in a minority position. As early as 1982 a debate had started within socialist circles and the government: should we follow what some people at the time—such as Jean-Pierre Chevènement or, at the very beginning, Laurent Fabius—proposed and exit the European monetary snake? That would demonstrate a commitment to a policy that would be more nationally centered on the state taking control of the economic dynamics. Or, as Jacques Delors thought, should we adapt to the new position by curbing state influence, reducing industrial employment and constraining the budget. Mitterrand, who was first and foremost a politician, hesitated. In 1982–1983 he still left some room for debate within the government and he did not make a clear choice, but in 1983 he had made his decision: the deficit should not increase. France was in no position to keep the whole of its industries afloat, because a large part of the industrial apparatus was not competitive in a global context. Therefore, he advocated “industrial downsizing” Having started as an initially Keynesian logic, with nationalizations, social acts, and so on in view, the program became increasingly oriented towards limiting public expenditure and increasing market “flexibility.” That choice was made between 1982 and 1983, and in 1983 the communists were eventually entirely marginalized when it came to defining political options. For another year, between 1983 and 1984, they played a sort of balance game, that is, they remained in the government, they condoned major orientations and notably the National Budget, all the while distancing themselves more and more from the industrial choices that were being made, especially with regard to the steel industry.

   In 1984, that balance game became impossible to carry on. This is when Mitterand put an end to the idea that the austerity policy was going to be temporary. And so, the CP found itself more and more out of its depth and out of a position to influence the government, especially if we consider the galaxy of organizations, including the trades unions, which were affiliated with the party.

   And so, at the moment when the neoliberal inflection of French capitalism was taking place, the workers’ movement was weakened in comparison with the previous period. The network of popular associations that had hitherto been the stronghold of communism had gradually disappeared. In spite of having been associated for decades with improving workers’ lives and wages, the the CP was unable to have an effect on the changes that were taking place.

2. Confronting Globalization

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   An interview with François Morin

   François Morin was technical adviser to Jean le Garrec at the State Secretary for Public Sector Expansion from 1981–1982 and an adviser to Prime Minister Pierre Mauroy.

   

   Maya Adereth: What kind of society did you envision when you first became politically active?

   François Morin: When I was finishing my PhD thesis in Algeria, I spent two years reading Capital. And to this day, I think Marx has many insights into the nature of power relations in contemporary society. But when I returned to France, my supervisor, Henri Bartoli, encouraged me to situate Marx’s insights within a practical framework. I went to the Chambre Syndicale des Agents de Change, where I began studying the shareholder structure of large banking and financial enterprises. To my surprise, I understood nothing of what was in the files. So I spent years learning to penetrate this world of accounting and finance. In 1974, I published my first book, The Financial Structure of French Capitalism, which allowed me to participate in ideological debates surrounding the left’s Common Program. When the left gained power in 1981, I was asked to advise Pierre Mauroy on bank nationalizations, and from 1985 to 1994, I served as an adviser and member of the Council of the Banque de France. In my new book, I recount the unique period between May and September of 1981 and the internal government debates which took place. On the one side were hardliners who advocated a strong break with liberal globalization and a nationalized French economy. On the other hand were reformists who argued that it was necessary to account for the changing global context in which policies were being made. The reformists were more cautious about expanding the public sector through nationalizations.

   MA: What were the characteristics of the French economy that you outlined, and how did they shape the contours of this early debate?

   FM: The debate within the left was hardly rooted in the realities of the French economy. Structurally, the French economy had undergone significant transformations in the 1960s and 70s, primarily through the consolidation of large corporations. For some, this corporate consolidation represented an alliance of domestic capital that was necessary to prevent the advance of foreign capital, particularly from the United States. The employers alliance consisted of Paris-Bas and its allies in banking, industry, and nationalized insurance companies. On the other side was the Suez Group, also composed of banking and industry, which saw the prospect of an alliance with American capital as an enormous opportunity. This was the position of Giscard d’Estaing, then President of the Republic. The conflict between the Gaulish RPR and Giscard Republicans represented the divisions between the banking and financial elites in the country.

   On the left, the issue was less about globalization, and more about increasing state influence over these consolidated corporations. These companies significantly shaped public life, and yet the public had no influence on them. This was the motivation behind nationalizations.

   MA: Given that this was the view of the left, how do you explain the transformation of French industrial and financial policy between 1981 and 1983?

   FM: In 1981 and 1982, we nationalized a large number of banking, financial, and industrial companies. Globally, this coincided with the rise of neoliberalism and globalization. We were operating against the current. In June of 1982, and especially beginning in March of 1983, there were a series of speculative attacks on the franc which destabilized the left from the moment we took power. Very soon these had repercussions on wages, and by March of 1983 the continued speculative attacks led the party to take budgetary measures to reign in public finances and regain monetary credibility in the eyes of the global economy.

   Financial liberalization began in the 1970s, and the strength of international monetary speculation continued to increase throughout the 80s. As long as global markets were able to attack the currency, we would not be able to carry out the reforms. Something similar happened in 1993 during the Maastricht Treaty negotiations. American speculators, fearing their interests were at stake, initiated a financial crisis of incredible magnitude. Since the 1970s, we’ve been living in a global regime entirely beholden to financial interests.

   MA: Do you think the left had a viable alternative in 1983? Is there any way that these threats—capital strike, speculative attacks—could have been overcome?

   FM: What is striking in the case of France is that both strategies, the hardline and reformist ones, were defeated. Those who advocated a hard rupture won initially: we nationalized 100 percent of parent companies in 1981, and strengthened workers rights with the Aurux laws in 1982. We passed a law democratizing public institutions through a tri-partite board of directors and employee representation. And, between 1981-1986, there were union-led social movements which sought to expand these efforts. But the privatizations that were undertaken from 1986 onwards went well beyond the nationalized industries. So the hard rupture was defeated. But the reformists were also defeated, since even social democracy today is in a pitiful state. Both were defeated for the same reason: globalization, which gives finance a disproportionate role in determining social and political life. States have become largely powerless in the face of these international forces.

   To some degree, the problem with nationalizations was that they were expected to resolve too many problems. The nationalization program muted and numbed social movements; in this period (and I would argue the same is true today) the unions ceased to be agents of political change. They defend the interests of employees, and they try to avoid political confrontation. But they have not fought for structural transformations. The latter is, I think, what political parties have been for. So in our case there was an attempt at an alternative between 1981 and 1985. But the unions did not push the boundaries of what was being proposed after 1983. From then until now we’ve seen a division between the protection of employees’ interests and a more ambitious and far reaching political project. Codetermination—equal representation between financial stakeholders and employees—is the only issue that has crossed between the political and trade union world, and today it is advocated by the CFDT as well as the left. For France, I think this idea could be crucial.

   MA: What do you see as the main lessons we can draw today from the experience of the Mitterrand government from 1981–1985?

   FM: As I’ve mentioned, my theoretical roots are in both Marx and in Keynes. From a Keynesian approach, I think monetary questions are absolutely imperative. Neoliberalism presents currencies as nonpartisan, and places monetary policy in the hands of “independent” central banks. This means that nothing related to the issue of currencies, and therefore nothing related to the issue of credit, can be a matter of political power. But Keynes thought otherwise. Currency is created through loan allocation. When a central bank makes a loan, it creates currency. Loans are distributed based on the prioritization of needs. In this way private banks, and independent central banks, are deter- mining which needs get addressed and which are left behind. If we understand currencies endogenously, as emerging out of our social needs, then we see that the allocation of credit is a very political act.

   Neoliberals think that currency creation is too serious to leave to the whims of politicians. But at a moment in which we desperately need to finance the transition to a green economy, we have to powerfully oppose this notion. The European Central Bank, or even the Federal Reserve, must be able to free up resources for the financing of renewable energy. In the name of neutrality, we have given up the ability of central banks to make these crucial monetary interventions. For this reason, active monetary policy is essential.

   How should we understand the role of currencies today? They must be guided by some form of popular sovereignty. In Europe, the European Parliament should actively guide the policies of the ECB. At the moment, the ECB is not meant to intervene on behalf of any particular state. But let’s imagine that tomorrow, in the face of a public health crisis, Italy develops an interest rate problem. The ECB and the European Commission would form a troika, not to help Italy by buying public debt (that would go against the notion of neutrality). But Italy is far bigger than Greece, and if we don’t help Italy we are headed for massive and repeated crises. So this notion of neutrality is going to be hugely destructive in the long run. As far as ecological and welfare issues are concerned, it’s clear that credit should be allocated in the service of public goods provision, like hospitals, schools, and green infrastructure. If we increase public investment without changing our monetary institutions, we will accumulate public debts and see sky- rocketing interest rates. States will no longer be able to finance them- selves through financial markets. We have to look towards a Keynesian monetary policy in order to resolve this contradiction.

   The second institutional reform I propose is codetermination, to a greater extent than we’ve instituted in Germany or Scandinavia. I propose full parity codetermination—that is to say that not only a firm’s deliberative bodies, but also its management should be decided equally by worker and employer representatives. That is how we can alter the structure of power relations within businesses. This applies both to companies and to banks. I anticipate that we will see a new approach to finance, production, and industrial relations if we institute policies of codetermination across the board. The two proposals go hand in hand: it’s about changing the form of consumption and production to meet public ends.

3. Objective Constraints

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   Anicet le Pors is a French communist party politician who served as a member of the French Senate from 1977 to 1981, and Minister of Civil Service and Reforms from 1981 to 1984.

   Maya Adereth: Tell us about your early political development.

   Anicet le Pors: I was born into a family from the north of Finistère, known as “the land of the priests.” It’s a region that has lived under the influence of Catholic Church for centuries. My parents emigrated to Paris in 1929, and I was born in 1931 in the thirteenth arrondissement. My early political involvements were deeply influenced by Catholicism; my first trade-union membership was at the CFTC (French Confederation of Christian Workers), and I subscribed to several magazines in the tradition of liberation theology. I joined the CGT, which in 1955 was the largest trade union in the country. In 1958 I joined the Communist Party, the day after Parliament endorsed the Gaullist Constitution of 1958. I did so in defiance, against the Constitution of the Fifth Republic.

   I changed my profession precisely as the left was ascending to power. At that time the Communist Party came up with an ideological innovation headed by Professor Paul Boccara called State Monopoly Capitalism (Capitalisme Monopoliste d’État “CME”), which was a revival of Lenin’s idea of the integration of the state with monopolized capital. According to this theory, this integration is what enables capitalism to stave off the falling rate of profit. It was described at the time as over-accumulation-devaluation of capital.

   This was an important ideological breakthrough in the mid-1960s which found its full expression in the 1970s. I was a well regarded economist in the Ministry of Finance and active in the Economic Section of the Central Committee of the French Communist Party. But these qualities made me “unusable” until the Communist Party had me elected Senator in 1977 in Hauts-de-Seine. Thereafter Georges Marchais asked me to work on his speeches directly with a view toward the 1981 presidential election. I sat on the Central Committee from 1979 to 1981, working with Georges Marchais and Charles Fiterman. The left won the elections of 1981 at the price of an internal rebalancing of the comparative political weights of the Communist Party and the Socialist Party. That is how François Mitterrand finally got elected— by weakening the Communist Party. Despite the unfavorable circumstances we carried on. We worked a lot on the Common Program of 1972, but there were tensions between the parties that were not easily resolved. The results of the 1981 presidential election were very contradictory: we were weakened at the very time when we were called to power. Those were the circumstances of the time.

   With François Mitterrand in office, we had a smaller presence in the government than we were entitled to. We should have had six ministers, but we only got four: Charles Fiterman, myself, Jack Ralite for health and Marcel Rigout for vocational training. The euphoria lasted less than a year because Thatcher was elected in 1979, Reagan in 1980 and Helmut Kohl in 1982, meaning that the major developed capitalist countries had elected people with unquestionably liberal policies that cut across all the social democratic ambiguities that had existed before.

   MA: What were the political divisions like within the Communist Party?

   AP: The tensions within the party were between a small orthodox group linked to the Soviet Union who strongly opposed the Union of the Left. The main issue in the 1970s was nationalizations. I was in charge of the “Nationalizations and Industrial Policy” department and it’s true that we overplayed the issue of nationalizations. We argued that nationalizations, provided they reached a significant threshold, would allow us to structurally change our economic system. The socialists, opportunists that they often are, adopted our views. I had a friend who was having marital difficulties who was convinced that if the left came to power, her marriage would be fixed. This was the degree of people’s belief in politics.

   My slogan was, “Where there is property, there is power.” And that is the primary idea which motivates me to this day. But at the time, we thought public property had a mythical capacity to change everything. The socialists only agreed to nationalize because they saw it as a condition of preserving the Union of the Left. They were ideologically overpowered. Internally, the debate was around the scale and the industries. The socialists were against, for example, nationalizing the banks and financial sector completely. They thought it was enough to nationalize 51 percent—just enough to give us the majority. But we insisted on 100 percent. And given the internal discussions, I was surprised with how far Mitterrand ultimately went.

   Why didn’t it work out? Two reasons. By the spring of 1983, the goal of a voluntarist industrial policy had become irrelevant. We were inevitably dependent on the market. Secondly, workers were not actively fighting for these issues. The Auroux laws were passed in 1982, but it was only four years later that they were enforced. By that time the economy was already liberalized, and there was little room for them to act. This was also the case with the Public Sector Democratization Act, which was only enforced in 1983. By the time the leverage and tools for mobilization became available, it was too late. At no time were workers called upon to mobilize in support of social transformation.

   The conflict between the communist and socialist parties intensified after 1983. That year I spoke to a leader of the CGT at a funeral at Père-Lachaise and warned him that if Delors stops indexing wages to prices, as Brussels had instructed him to do, we would no longer be able to negotiate salaries in the public service. He told me, “Right now, we cannot choose you and discard Delors.”

   This only worsened in June 1984. I invited Georges Marchais and his wife for lunch, and we agreed that we couldn’t stay in a government that was increasingly shifting right. We resolved to leave in the fall, when the budget was being discussed. We didn’t foresee that Alain Savary, the Minister of Education, would resign on July 12th. The next day, I was on an airplane with Pierre Mauroy flying to Lille. Since Savary left, he told me, he would leave too in order to “fall to the left.” Mauroy resigned on the 17th, and Marchais and I were forced to leave the government on the 19th. But even within the party, things were getting complicated. As I mentioned, there was a small group who were very loyal to the Soviet Union. Most people within the party weren’t sure whether they should stay or leave. Once we left, many people were extremely disappointed with the fracturing of the left. There was growing discontent in workplaces over wage de-indexation, but at the same time there was a feeling of defeat around the failure of the Union of the Left.

   MA: It sounds like you feel that the left was objectively constrained; in other words, that there wasn’t really a way out.

   AP: Yes. We were faced with a capitalism that was so financially internationalized that we had no leverage to change the course of things. If you combine the influence of the US, UK, and Germany, there is not much France could do. Ignoring these very real constraints is not doing politics.

   MA: Maybe we can go back to the history of the party, particularly in 1968. What was the relationship like between the student movement and the labor movement? And how did those conflicts play out in the party’s policy positions?

   AP: Until 1968, the Communist Party was influential in the labor movement and among intellectuals. For the latter, the theory of state monopoly capitalism gave us a lot of intellectual capital. I remember getting a drink with Georges Séguy and Georges Marchais right before the adoption of the Common Program, and Marchais informing us that the CGT had just recruited its three-millionth member. Today there are fewer than 300,000. So we had a lot of hope, but we were also distrustful of the socialists (due to their position on the Algerian War and the Suez Affair, among other things) at the same time as we sought a union with them. The events of 1968 bear the mark of these contradictions. We participated in the events at the same time as we witnessed meetings between Mitterrand and Mendès-France and understood that the situation was hopeless. I remember once going to a meeting at the Place du Colonel Fabien and seeing the head of the Economic Section tearing up piles of paper, so as not to leave a trace in case the Gaullists retaliated.

   There was also a cultural shift with the emergence of the so-called bohemian bourgeoisie, who pushed the boundaries of morality, sexuality, and so on. The communists didn’t identify with that. Culturally, we were rigid: when you got married, you got married. You never bought your house, you always rented. If you bought a car, it was from Renault, because it was the national company.

   When the Algerian war ended in 1962, there was room to move past some of the tensions. We published a book called Changing Course, in which we argued that we were not headed towards a revolution, but we should strongly break with the current system. That is where we first proposed the Common Program. In the beginning, it worked very well. We agreed with the socialists on the basis of the Program. But as things developed it became clear that the socialists were the main beneficiaries of the union and we were weakened electorally.

   MA: What was the relationship like between the CGT and the Communist Party, and how did it change?

   AP: When CGT members first saw Mitterrand arrive, they trusted him. But the number of CGT militants was declining, and we were declining electorally. There was a Professor of Law at Sciences-Po, named Georges Lavaud, who argued that the Communist Party had two functions: publicly as a tribune for the people, and behind closed doors as an occupant in places of power. In an article titled “What’s the use of the Communist Party?” I argued that there was also a theoretical function. I also demonstrated a very clear decline in the Party’s three functions. The first time we were in government, between 1944 and 1947, we controlled 30 percent of cities larger than 9,000 inhabitants, CGT was practically the only trade union, and we had all of the greatest intellectuals. The second time we were in government was 1981–1984, the period we are concerned with. By this point we were largely a failure; electorally we fell from 26 percent in 1946 to 15 percent in 1981, nearly all the intellectuals were gone, but we remained a stronger tribune than the socialists. Our three functions were undoubtedly degraded, but they persisted. By 1997–2002, the plural left had totally collapsed in terms of numbers. We lost positions of power, and intellectually we ceased to play any kind of role. Things haven’t improved since then. The question used to be: What is the use of the Communist Party? Now the question is: Does it even exist?

   MA: What role did the collapse of the Soviet Union play in the decline of the Communist Party?

   AP: I always say that the twentieth century was a Promethean century: we believed that with Marxism, we could become the masters of our destiny. But what was the result? Common ownership was reduced to statism and bureaucracy. This doesn’t detract from the initial desire for emancipation. Prometheus takes the light and fire of the sun and gives them to men, encouraging them to live differently. But Prometheus dies chained to a rock, eaten away by the eagles. Prometheus failed, but he remained our reference. That’s why I don’t mourn the twentieth century. In 2010 I wrote a book titled “In Defense of Failure.” We undertook a great experiment, and now is the time to ask “what has happened” and “what can we do about it?” That is how I see my role today.

   MA: What hope do we have of rebuilding an alternative economic vision today?

   AP: It is only through major upheavals that we can generate new situations. Not through continuity, but through rupture. We must not make concessions on our principles in order to win. We need to put forward a coherent approach that represents our values. In the words of Goethe, the goal is the path.

4. Party of the Future?

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   An interview with Giuliano Amato

   Giuliano Amato was a member of the Italian Socialist Party and Italian Prime Minister from 1992–93 and 2000–2001, Treasury Minister in 1999–2000, and Minister of the Interior, 2006–2008.

   Maya Adereth: How would you characterize your ideology when you first joined the Socialist Party?

   Giuliano Amato: I joined when it broke with the communists in 1956, after the invasion of Hungary by the Soviet Union. The political culture when I entered was one which stressed the protection and expansion of social rights—my early experiences were in a mountainous region of Tuscany where marble was drawn for Michelangelo and other sculptors. My constituency was formed by miners extracting this marble, and in 1963, when the Socialist Party first considered a coalition with the Christian Democrats, the miners were absolutely horrified. They couldn’t believe that the party would stand with their employer in government. When the coalition took place, I left the party and joined a leftist formation named PSIUP, the Socialist Party of Proletarian Unity. This gives you an idea of the importance of class politics and social rights for myself and for those around me.

   The moment in which I found myself actively shaping public policy was also the moment in which the cost of social rights, and the ballooning of the public debt, was threatening their future. There was a shift in the cultural paradigm, not in terms of goals, but in terms of enforcement. This took place primarily due to the transition of the PCI away from being the party of the future; I still remember this very powerful idea that the butter in Russia was much better than we could imagine. There were propaganda posters in the fifties that promised that one day we would have that Russian butter. This did not remain effective for very long; at a certain point the party ran purely on the promise of building a socialist society. In my view, this promise was much more effective at pacifying the Italian labor movement than the strategy of the Christian Democrats. So, paradoxically, the Communist Party served a conservative function in Italian society.

   The big transformation took place in 1968, when popular demands shifted to the present and away from the future. The Communist Party did not want to alienate this new movement, “pas d’ennemis à gauche,” as René Renoult said. But if it wanted to remain relevant in this moment, it had to begin to develop a program for today. And as the left shifted from the future to the present, the scale of demands for the present grew. When I was in government, I remember proposing to increase pensions. Immediately there was a communist proposal to increase them four times more. The belief among the left was that social benefits were a fundamental right enshrined in the constitution, and money was only a means to be found. Given that Italy had the most popular communist party in Europe, they had absolute cultural hegemony.

   My party was schizophrenic. It had in it the legacy of the anarchist movement, this idea of unrestrained freedom, which in the era of civil rights made it a pillar of the struggle for abortion, divorce, and same-sex marriage. The communists were tied to the masses, and in a Catholic country, they were not so keen to advocate for divorce. Our great poet and filmmaker [Pier Paolo] Pasolini was expelled from the party for being homosexual. This was astonishing to the socialists, but this was what happened.

   As treasury minister for the Socialist Party, I struggled to convince other party members that what I was doing was actually necessary. There were elements of the party which were aware of the need to balance social rights with financial stability, but there were some elements of the party which were more unwavering in their advocacy for the expansion of social rights than the communists. Frequently, members of the Communist Party would offer me support behind closed doors, which they would never publicize. The communists were excluded from government, but as the main opposition they sought to build connections with the establishment. They had excellent relationships with the Bank of Italy, for example, which was well aware that social rights have a cost and that the debt could reach a point which was unsustainable. So the communists were also a bit schizophrenic.

   In the 1990s, largely due to the constraints of Europeanization, the need to limit public debt became a priority and the protection and expansion of social rights became secondary. This was so true that I remember reading an article which had to argue the point that public health does not exist to save money on health, but to protect the health of citizens. It seemed that the aim was to save money, and the constraint was people’s health. Somehow, this kind of thinking also came to dominate the leftist parties, and in part this is due to the fact that the communists ceased to form an effective opposition.

   But little by little, we’ve reduced public expenditure beyond the point which enabled the continuation of social rights, to the point where it has deteriorated them. People have begun to look for other political representatives. At the time, we could not understand the consequences of what we were doing. We could not see the moment in which the loss became greater than the benefits. And the people who lost as a result of these policies went somewhere else.

   Davide Ceccanti: Can you discuss the 1960s–80s debates in Mondoperaio which were carried out by Norberto Bobbio, yourself, and other intellectuals of the period? Politically, there was a transformation from De Martino, champion of the communist-socialist alliance, into the system formulated by Craxi.

   GA: There was a group of intellectuals around Mondoperaio in the 1970s, of which I was a part. Bobbio was the main father, a very active father. This group was challenging the underpinnings of the communist construction, primarily by asserting that freedom and socialism are in- separable. We argued that by centralizing power, Soviet communism destroyed the freedom it purported to bring. The explosion of the feminist movement and 1968 allowed the socialists to ideologically distinguish themselves from the Communist Party.

   The electoral outcome of this separation was a disaster. While we concluded that the youth want more freedom, not more communism, we remained under 10 percent in the election of 1976, while the PCI won 35 percent. The youth voted for them because they had transformed themselves from the party of the future to the party of the present. The collection of articles in Mondoperaio from those years, all the pages written by Bobbio, Galli della Loggia, Cafagna, Benzoni, and others, is beautiful. But electorally it did not work.

   After the 9.7 percent result of the 1976 election, De Martino had to resign. Craxi arrived, a young Northerner to replace the Southern professor. Was Craxi an anti-communist? I think so. He used to say that the coalition was unnatural. What Craxi understood, but never fully accepted, is that unlike other European communist parties, the PCI was not reliant on the Soviet Union. It was deeply Italian. This was because most of the original members of the party in the 1930s were more anti-fascist than communist. They entered the party because it was the most efficient organization to combat fascism. If we look at the biographies of Giorgio Napolitano, Alfredo Reichlin, Giorgio Amendola—these were generations of teenagers who realized they were living in a fascist country in the years of the racial laws. They wanted to rebel, and the Communist Party was their vehicle to do it.

   Among those who were satisfied with Craxi’s leadership there were two groups: the first, which held that a coalition of the left is something we should reach for in the future, and the second, of which I was a part, who wanted to pursue the coalition immediately. Pertini and I spent hours together when he was president of the Republic, at the time I was undersecretary to the Prime Minister’s office and every week I was supposed to inform the President what the government was doing. After five minutes we always moved to discussing other things, and one thing which he repeated to me was that while he opposed the unitary front of socialists and communists in 1948, he spent the rest of his life fighting to restore left unity. Craxi never denied that unity was feasible, and in the last years of his leadership he began to make some moves towards it. He understood that it was necessary, and, in 1991–92, after the fall of the Soviet Union, it was a real possibility. But the Socialist Party died before it could ever happen.

   MA: I’d like to get your thoughts on three specific policy reforms: the first, Il Divorzio in 1981; secondly, the wage negotiations in 1984; and finally, the abolition of the scala mobile, which had adjusted wages to inflation, in 1993. What were you thinking at the time?

   GA: Despite the difficulties, I think of this as a happy time because we were not yet at the stage of telling people they had to suffer. In my period, it was a question of integrating social privileges into a general fiscal framework—if the debt of any citizen has a cost, it couldn’t be that the debt of the Treasury had no cost. And we believed we were expanding benefits at a reduced cost because of our low interest rates. This was the idea behind Il Divorzio, and many people think that this policy led to the ballooning of the debt. But the catastrophe behind the debt in the 1970s was unavoidable; at the time it was a progressive decision.

   The wage indexation reforms of 1984–85 were advanced by the trade unions. When I was head of the research institute for the national trade union CGIL we studied the impact of the wage indexations on salaries of workers, and union bargaining power, in a context of high inflation. We realized that it was a threat for us, the trade union, because the indexes ate up all of the increases and diminished our ability to negotiate. We sought to slow the pace of indexation in order to preserve the negotiating power of trade unions in the long run. It was quite extraordinary that we won the 1985 referendum against most of the Communist Party on this matter.

   My reform in 1992 was also progressive. At the time, people were sometimes able to get their pension in their thirties and they were supported by the state for 60 more years. For instance, since 1973, married mothers can get a pension with less than 15 years of contributions, and civil-service employees with 20 years. I sought to build a universal welfare system rather than one based on categorical privileges. So the balancing that I pursued between the cost of rights and their expansion was one which prioritized equality, fairness, and redistribution.

5. Changing Bases

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   An interview with Emanuele Macaluso

   Emanuele Macaluso was an Italian trade unionist and politician with the Italian Communist Party (PCI).

   Davide Ceccanti: Why did you join the Communist party?

   Emanuele Macaluso: I clandestinely joined the party in 1941, when the country was under fascist rule. I was 17 years old and had almost finished my studies. At the time, I was studying at the Mining Institute of Caltanissetta, in Sicily. There was a strong underground organization in town led by a worker called Calogero Boccadutri, who ended up becoming our cell chief. I formed a small anti-fascist group and was convinced to join the PCI by a friend of mine, Giannone, who came to visit me at the hospital when I had tuberculosis. He gave me the address of Calogero Boccadutri, and when I left the hospital, I contacted him and joined. My relationship with the PCI began like this, in hiding. I was responsible for political education, for our newspaper, and for our library. These were so important that, when Caltanissetta was bombed, my friend Michele Cala, died trying to save them. This is how I started my political life as a clandestine communist militant.

   DC: Was antifascism your primary motivation?

   EM: It was antifascism, combined with the social conditions of Sicily and my city. Caltanissetta was a city of sulfur miners, where everyone broadly shared a left political consciousness. The group which I organized was made up of other boys in the mining school, all children of workers. We went to mining school because we weren’t able to go to high school, or even get a technical education. My father was a railroad worker. He was never to be promoted because he went on strike in 1922, but after the war they made him a train driver.

   DC: Tell us about your trade union organizing in Sicily after the war, between the 1940s and 1950s.

   EM: After the liberation, I immediately started working for the union. I organized the first demonstrations to reopen the mines that had been flooded. The miners were well organized, but there were also bricklayers, bakers and mill owners from Caltanissetta. The Chamber of Labor where I worked was central to the struggles of workers of all backgrounds—at the time, there were also assemblies of widowed women fighting for their pensions. In 1947, the regional congress of the CGIL was held in Caltanissetta, and [Giuseppe] Di Vittorio came to this congress. It was he who proposed that I become the regional secretary of the CGIL and then took me to the national congress in Florence. I was 23 at the time. The problem was that I was born and raised in Caltanissetta, I did not know anything about the rest of Sicily. Having to lead the Sicilian trade union movement, at 23, was a huge risk, particularly in the midst of the massacre of Portella della Ginestra. Nevertheless, at the age of 23, I moved to Palermo.

   DC: With new patronage networks, and the activities of the mafia, how did class conflict change after liberation?

   EM: It changed profoundly, particularly due to the massive struggles over land distribution. Immediately after the liberation, the then–Communist Minister of Agriculture, Fausto Gullo, made two declarations: one that assigned uncultivated or poorly cultivated lands to farmers’ cooperatives, and another dedicated to the countryside. In Sicily, the land was mainly dedicated to cultivating wheat. Two thirds of the wheat produced on a plot of land went to its owner, and a remaining third went to the peasants who worked the land from dawn to sunset. Gullo completely reversed the proportion, demanding that 60 percent of the product would go to the peasants. There were fierce struggles, both over allocation of the land itself, and over the division of the product between the peasants, owners, and the mafia, which was engaged in the fiefdoms and rented them. The land of the princes was all in the hands of Calogero Vizzini, the head of the Sicilian mafia. There were deaths, shootings and arrests, and this worsened after the communists left government. But this moment was the transition from rebellion to politics. We began to think clearly about how the left can govern.

   DC: In 1962, you moved to Rome and entered the Party Secretariat. By that point, you had organized Sicilian trade unions, worked in the Regional Assembly, and served as Party secretary in Sicily. Nevertheless, at age 23 you found yourself immersed in very intense and complicated political issues. What were the theoretical influences that helped you engage with and study Party doctrine? What was the internal educational infrastructure of the party like?

   EM: In 1962, I was called to Rome to help Berlinguer prepare for the 10th National Party Congress. Once the Congress was over, I replaced Berlinguer as manager of the organization. Prior to that, I was in the CGIL Regional Assembly until 1962, and I followed Paolo Bufalini to Rome.

   The politics of labor and the social relationships built around the wage relation were never theoretical for me. They were issues that had to be dealt with every day, by striking and occupying land. This is where my experience differed from that of other party leaders. I personally knew not hundreds, but thousands of militants all over Sicily. This was the school I attended—the direct, unmediated relationship with the world of work, with the peasants, with the workers, with the employees, has given me a very direct knowledge of reality.

   DC: In 1973, Allende was overthrown and inflation spiked due to the oil crisis. Within the party, Berlinguer became party secretary and introduced two major innovations: internally, he developed a closer relationship with the DC, and externally, he developed Eurocommunism and the detachment from Moscow. In your experience, how did the seventies change the PCI?

   EM: On the day of the Chilean coup, I was on vacation in the USSR with Luis Corvalan, the general secretary of the Chilean Communist Party. When we heard the news, we made the journey back to Rome together, and he left for Chile from there. The coup was a decisive signal of changes in the international climate. Specifically, it was a signal from the United States that it would not tolerate a socialist government in its so-called “backyard.” In Italy, we organized massive demonstrations in solidarity with the Allende government.

   Many have argued that Berlinguer revolutionized the PCI by fostering a closer relationship with the Christian Democrats. This is true only in relation to the socialists. As far as I know, Berlinguer aimed to develop a direct relationship—what Petruccioli called “historic compromise”—with the Catholics in order to avoid a relationship with the Socialist Party. A direct relationship with the Socialist Party would have broken our party. There was too large a portion of the party against it. So the practical PCI-DC relationship was explicitly formed against the socialists: in this sense, yes, it was something unthinkable before to split the left so much.

   Eurocommunism arises from an agreement with Berlinguer, Marchais and the Secretary of the Spanish Communist Party. It was not so much intended to break with the Soviet Union, as much as it was intended to indicate that there was not only Moscow—there was also Paris, Rome, and Madrid. It was a courageous choice and, in my opinion, full of possibilities that never materialized. Marchais was scolded harshly by Moscow, and the French communist party abandoned ship. But the intuition to indicate a plurality of centers was extraordinarily positive for international communism.

   DC: Many viewed Eurocommunism as a shift towards social democracy.

   EM: By signaling autonomy from the Soviets, it did open the possibility for a new relationship with social democracy. It was a commitment to a democratic and gradual movement towards socialism. The important thing was that we had a commitment to gaining power, and our idea of politics was integrated with the needs of society. This dynamic between socialism and social democracy could have created something profoundly revolutionary in Europe. But sadly, the commitment was not there.

   DC: I’d like to talk a little about the 1983–84 reformation of the scala mobile. What was the PCI’s position during the 1985 referendum? What broader shifts in the relationship between the party and its electorate does the referendum point to?

   EM: The referendum on the scala mobile was very complex. The scala mobile helped workers by pegging wages to inflation. But by the mid 80s, the degree of inflation we experienced was highly divisive. There was a lot of tension between workers over the referendum, and trade union leaders both in the CGIL and CISL had to handle the situation delicately. The “march of the forty thousand” is symptomatic of the fundamental shifts this period represents—it was a protest of leaders and managers, not workers. This statement of political identity by the professional class had never before manifested in Italian history. The notion that both bosses and workers were marching in the streets was an absolute novelty.

   DC: Nevertheless, the 1985 referendum was lost.

   EM: The referendum was lost because of divisions between the PCI and the CGIL. Berlinguer, who was extremely invested in the referendum, believed that Luciano Lama had doubts. And indeed, Lama thought that the scala mobile was falling apart. Added to these tensions was an agreement signed by Formica and Napolitano, the group leaders of the socialists and communists, which agreed to attenuate the referendum. This was rejected outright by Berlinguer, who considered the referendum a crucial battle in the broader scheme of class conflict.

   Upon Berlinguer’s death in 1984, the PCI entered a period of decline. Natta excluded the reformist elements of the party, and by doing so he eliminated a clear political aim. The party grew disconnected from governance and the needs of workers.

   DC: In between the fall of the Berlin Wall in 1989 and the judicial scandals that led to the dissolution of the PSI in 1992–94, there were several attempts to unify the PCI and the PSI. These never worked out. What prevented the left from unifying in those years, particularly after the transformation of the Italian Communist Party into the Democratic Party of the Left (1989–91)?

   EM: Under Occhetto’s leadership, many in the party grew increasingly distrustful of the PSI. For his part, Craxi always maintained that left unity had to be based on socialist leadership. Rather than coming together, the parties grew further and further apart in those years. The truth is that Occhetto did not consider the relationship with the PSI strategically essential. But beyond this, the PCI experienced internal splits. After Berlinguer’s death, I exposed a pact signed between Occhetto and D’Alema in which they planned their successive leadership of the party. But soon after I publicized this, mutual diffidence grew between them, and the party split into two camps.

   DC: You are suggesting that the competition for leadership between D’Alema and Occhetto prevented the PCI from talking more openly with the PSI. Usually, the lack of dialogue between the two parties is attributed to Craxi.

   EM: Neither Occhetto nor D’Alema wanted a strategic relationship with the PSI, particularly as Craxi envisioned it. But Craxi failed to preserve the agreement he made with Berlinguer in the 1970s. The PSI’s early shift to the left was entirely abandoned, and when the opportunity arose, the Craxi government made an agreement with the Christian Democrats and created the Pentapartito. Craxi’s strategy was to gain consensus and cease to be a minority. But this never happened, he never exceeded 14 percent of the votes.

   DC: Do you consider it a missed opportunity?

   EM: Yes. Until Berlinguer’s death and after the European elections that followed it, the PCI reached a maximum of 34 percent. After this point, the PCI slowly begins to decline. Was the downfall of the PCI in those years caused by Berlinguer’s death, or by political, cultural, and economic processes operating at an international level? I think the second option is the closest to reality. Times simply had changed. But these changes could have been dealt with differently if the left were united. As the left has not been committed to staying in government, we find ourselves today in a time when being a leftist, let alone a socialist, is seen as offensive.

   DC: What lessons can the left glean from the experience of the PCI throughout the 70s?

   EM: The most important thing is to build a party that is rooted in the experiences of the public. Our base has changed, but it has not disappeared, and similarly, our reasons to exist and to fight are becoming more pronounced. The Democratic Party today lacks this popular push, as did the movement of people like D’Alema. These people wanted to bring a force into government without having a political plan in society. Any party which disassociates itself from the public, which does not continually ask itself whether it is representing the movement in the electorate, will dissolve into obscurity. Conversely, every popular movement needs an organization which will politicize social unrest. Without internal governing bodies, parties are reduced to electoral aggregates serving their leaders.

6. Creative Destruction

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   An interview with Claudio Petruccioli

   Claudio Petruccioli is an Italian politician who was president of the Italian national broadcast network RAI from 2005–2009.

   Davide Ceccanti: What were your early ideological influences?

   Claudio Petruccioli: I joined the Communist Party when I enrolled in university, in 1959. I didn’t belong to a leftist family, but it was a work- ing-class family. My grandfather was a worker, my father was a technician. The first in my family to attend university, I was born in a tradition of work but was drawn towards intellectual labor. If I think of the day in which I decided to be a communist, it was probably when I was fifteen and I went to the library in Umbria. I found a small book titled “Wage Labor and Capital” sitting on the table. They were lectures Marx had given to a worker’s club in London. I read the book in one sitting, and when I finished I felt like I had just understood precisely how the world works.

   I was born in 1941, the immediate postwar years. They were difficult years, but my family never went hungry. So my shift to the left was not born of my immediate conditions. Why did I join the communists and not the socialists? It was because the socialists were forming a government with the Christian Democrats. It wasn’t because I was hostile to religion; the Christian Democrats repulsed me because they were the ruling party, and they imposed strict cultural limits (Machiavelli’s Mandragola was considered a theatrical text that could not be publicly performed). So the only leftist opposition for me was the Communist Party.

   DC: After 1956, the communist and socialist parties began to position themselves internationally. What was the relationship between the two parties like between 1956–1968? And within the Communist Party, what new tensions were emerging in the run up to 1968, particularly with respect to the trade union movement and the CGIL?

   CP: The decision made by the Italian Communist Party in 1956 was the most dramatic and, in my opinion, destructive one in the party’s history. I had joined the party after the Soviet invasion of Hungary and in 1956 I participated in demonstrations in support of Hungary. I believed in defending and supporting a population that fought for its freedom and independence. As I did also for Algeria, for Vietnam, and so on. So very early on, I opposed the actions of the USSR. But the party took ambiguous positions. Everything they did after the Eighth Congress was to try to put the pieces of a broken vase back together. They knew that right there, looking at the Italian left, the vase had broken.

   My real breakup with the Soviet Union happened in 1968 with the invasion of Czechoslovakia. I was the secretary of the Italian Communist Youth Federation. In a situation where the Czechoslovakian party and its leader attempted to guide a process of change, the Soviet Union intervened again. To me, this signaled the end of the possibility for an innovative social framework which surpasses our current ones. And unfortunately, the umbilical cord between the PCI and the Soviet Union was still not cut. Even Berlinguer did not cut the cord completely, and I think the party paid dearly for this.

   DC: At the very least, wouldn’t you say that the existence of the Soviet Union enabled other European governments to bargain with the United States?

   CP: With the end of the Soviet Union came the end of what Kissinger called the “world order.” But I find it difficult to think in terms of systems; saying, for example, that the fall of the Soviet Union strengthened the capitalist system. We have instead to think of power, and how power is organized. And in the current moment of concentrated financial power, we have to ask ourselves whether controlling access to data and information is not equally important to controlling the means of production and exchange. I’m thinking of Richard Baldwin’s “The Great Convergence,” recounting the second period of globalization (the first being 1820–1910). The fall of the Soviet Union can be understood as the consequence of this globalization.

   DC: How was the experience of 1968 in Italy different from that of France and the United States?

   CP: In Italy, we had a close relationship between student and worker struggles. The Italian 1968 occurs in a condition of political compression. It took place when the center-left failed in its reformist policy. The opposition movements of both students and workers supported one another but couldn’t find a clear political outlet. In France we see the consequences of the constitutional reform of De Gaulle, opening over time to the prospect of turnover. In Germany, the replacement is prepared politically through the Große Koalition, with Brandt becoming Chancellor. In Italy, however, everything moved forward, up to the attempt in the mid-70s of national solidarity after the advance of the PCI, which was convinced it was indispensable to resolving the crisis. That attempt ended tragically, as we know.

   DC: Let’s talk about the decline of Italian unions between 1970 and the Congress of 1997. What is the relationship between the PCI and the CGIL in this period?

   CP: The big problem in the relationship of the PCI to the trade unions, but even more importantly, between the unions and the workers, is the difficulty of both the party and the unions to free themselves from the categories they were comfortable with. The reality of work was changing, but the language and strategy of the trade unions and the Communist Party remained the same. One thing we never talk about in Italy is the enormous divisions between public and private sector workers. We have two pension systems, two social security systems. And if anyone points to this gap, we face an uproar. The majority of workers today, and beginning in the 1970s, are employed in services. And yet the party is still talking about the factory. Globalization has meant productive decentralization, the creation of value chains which have divided the factory across distant territories.

   One of the critical moments in the relationship between the party, the unions, and the workers was in the mid-1950s, coinciding with investment from the Marshall Plan. This was the defeat of FIOM by FIAT in the internal commission election of 1955. FIOM, which was the CGIL metalworkers’ union, and which had the overwhelming majority of votes, lost. or six years there was no strike at FIAT. I still remember the excitement as a very young militant member of the party when, for the first time in six years, on the occasion of a strike proclaimed by the metalworkers, 20 percent of the workers of FIAT in Mirafiori remained outside the gates on strike. The struggles returned in the 1960s. At that time there had been technical progress and some changes in the organization of work and duties. It was the moment when the CISL, which was the white collar Christian Democratic union, proposed firm level bargaining, while the leftist, Marxist union advocated a federal contract. In this moment the CISL was simply more attuned to changes in the form and structure of work. This was the CGIL’s problem throughout the 1960s, until 1969. The ongoing strikes in 1969–71 gave way to the formation of firm level councils. This was an innovation in the basic organizational form of the union within a company. We also started fighting for new things, healthcare for example. The moment in which we became more closely attuned to the changing nature of work is the moment in which our movement, if only briefly, recovered. The late 1960s to the early 1970s was a period in which production was already being decentralized, before the creation of global value chains.

   DC: How do these broad structural changes figure specifically in reforms like Il Divorzio and the ending of the scala mobile, which hitched wages to inflation?

   CP: When Johnson decided not to run for reelection, and Nixon arrived, it marked a huge turning point globally. With the opening up to China, the end of Bretton Woods, the new balance of power in the global monetary order, and the oil crisis of the early 70s, the left spoke only of capitalist crisis. But will the crisis of capitalism that we’ve been chasing ever come? In a way, this is the story of the 1970s. We were chasing the fall of capitalism instead of looking at what was there. The innovations in the first phase of decentralization were organizational rather than technological. I was living in Lombardy at the time; there was a reorganization of factories and a decentralization of production which precipitated the introduction of technology.

   At this moment the Communist Party and the trade unions ceased to bear a relationship to the reality of workers. We see it with the referendum of 1985, on the scala mobile, which we lost by three million votes. 2,800,000 more people voted yes. Where did these votes come from? In most of the country, they were fairly equally distributed. It was Lombardo-Veneto: Milan, Bergamo, Brescia, and the Tri-Veneto which pushed the referendum. The Communist Party didn’t win because we didn’t understand the changes that were taking place. The union leaders were concerned with preserving their position as a bureaucratic class.

   Today the drama is enormous: There is no Communist Party. The problem is one of creative destruction. Capital has been able to reconstitute itself, we have not.

   DC: You argue that the PCI wasn’t able to adapt to a changing productive process. But it seems that after the Chilean coup in 1973, and with the development of Eurocommunism, there were efforts to evolve.

   CP: Eurocommunism was certainly a positive development, particularly because of its relationship to social democracy. But there were also two negative elements: one is that Berlinguer conceived the crisis of the 1970s, and the Chilean coup, as the first steps in the collapse of capitalism. This, of course, was wrong. The other aspect was that Brezhnev installed missiles in Europe as we adopted Eurocommunism. Really, the problem was in our relationship to the socialists: if they agreed with us, they were useless. If they didn’t agree, they were the enemy.

   DC: Between 1989 and 1991 there were some attempts at collaboration between the two parties. And then there was the name change, which ensured there was still a leftist party in Italy after all that happened. We would like to know your opinion on what worked, what did not work, what could have been done differently.

   CP: The turning point was not only about changing the name, and it was not primarily initiated by the fall of the Berlin Wall. We initiated the turning point by putting forward two proposals capable of winning, in order to enable competition. The turning point involved a process of unification that would put the Italian left in a position to compete for the government. We aimed to create institutional and electoral infrastructure that would put more power in the hands of the voters. That is why we promoted referendums. Once the Berlin Wall fell, we sped up the process, but we had already decided to join the Socialist International. The effort to unify the Italian left became a rescue operation for the Italian Communist Party.

   What failed in all this? The whole substance of the turning point. We failed because of our weaknesses, because of Christian Democratic obtuseness, because of socialist deafness. The fall of the wall was thought to be relevant to the communists, but it was pivotal for the entire country’s future. What happened after that? In 1992, when we could have followed up on the Turning Point, Tangentopoli broke out and we found ourselves without interlocutors. The Socialist Party disappeared, and the same for the Christian Democrats who changed their name.

7. Development, Growth, Power

   November 25, 2020 12:00 am Comments Off on Development, Growth, Power

   Amit Bhaduri was internationally selected professor at Pavia University and visiting Professor at the Council for Social Development, Delhi University. His six books and more than sixty journal articles have consistently scrutinized the foundations of neoclassical economic theory and presented theoretical and practical alternatives. Among his most widely cited contributions, co-authored with Stephen Marglin, is the Bhaduri-Marglin model. Distinguishing between wage-led and profit-led growth, the model has given way to a wealth of research on the relationship between the functional income distribution and effective demand. In other work, Bhaduri has studied technological change in agricultural societies, articulated and criticized the social consequences of finance-led growth, and developed just and equitable alternatives to standard models of development.

   In anticipation of Bhaduri’s forthcoming guest-edited edition of PSL Quarterly Review on social democracy, and a Phenomenal World series on related topics, we begin this interview by discussing alternatives to financial liberalization, before turning to a discussion on the future of welfare politics, development strategy, and contemporary models of economic growth.

   An interview with Amit Bhaduri

   Maya Adereth: The occasion for this interview was a reflection on the breakdown of social democracy. Why don’t we start there?

   Amit Bhaduri: In order to understand the breakdown of social democracy, we need to start with its prehistory. In the 1850s, Marx was convinced that if universal suffrage were granted it would spell the end of capitalism. He reasoned that as numerically the largest class in society, workers would dismantle it if given the chance. You also had members of the British Parliament like Lord Cecil, who argued that universal suffrage would mean the end of private property. We know, of course, that neither of these predictions came to pass—the proletariat never came to compose an absolute majority of the population, and private property persisted in spite of universal suffrage. The important inference to draw from this, and from the development of capitalism throughout the twentieth century, is that as a system, capitalism is far more capable of accommodating political change than economic change. General strikes, as powerful as they might be, have never been able to fundamentally alter the structure of property relations under capitalist society. Meanwhile political rights like suffrage were granted, and, progressively, expanded first across the Global North, and then gradually to many countries in the South.

   We are then faced with a question: why is there more flexibility on the political side than on the economic one? How is capitalist democracy possible? It’s the coexistence of one person, one vote in the political system and one dollar, one vote in the market system which makes both capitalist democracy viable and social democracy possible. Social democrats in Nordic countries focused generally on increasing social rather than private wage—things like health, education, and housing. This is a classical shorthand formulation of Social Democracy, and it’s what Stephen Marglin and I analyzed through the distinction between wage-led and profit-led regime in an economic framework inherited from Keynes and Kalecki. The former regime is strengthened through public investment, what we’re seeing with advocates of the Green New Deal, which generates effective demand in the short run, and also changes the composition of capital in the long run. But social democracy can also operate through profit-led growth with private profit motive strengthened by measures like privatization and deregulation rolling back the social wage component. This is what Third Way proponents were ambiguous about. The ambiguity blurring the distinction between wage-led and profit-led growth is one reason behind the breakdown of social democracy. The other reason is globalization, which meant that countries had to control wages in order to remain competitive on the international market by reducing labor cost. With globalization, both right and left parties began to converge around the importance of international competitiveness and wage discipline.

   ma: What’s impressive about the shift of the 1980s is how consistent it was—you had Reagan and Thatcher of course, but you also had socialist leaders like Francois Mitterrand deregulating the financial sector, and India began transforming to a market-oriented mode under Rajiv Gandhi around the same time. The period is characterized by Thatcher’s infamous TINA: There Is No Alternative. To what degree is that assessment true?

   ab: Stagflation, which drove this convergence, was caused by a combination of rising costs and stagnating output. Across countries, the late 1970s and early-1980s was a period of near full employment and rising wages without corresponding increases in production. For politicians, there was a short-term easy option in increasing international capital flows. Attracting capital through the monetary policy of higher interest rate and reducing public expenditure was the politically expedient thing to do, at least for a few years—and hopefully until the next election. Milton Friedman’s 1967 presidential address was entirely directed towards this. And so was Robert Mundell’s argument that it is monetary policy—and not traditional Keynesian demand stimulus—which works in a globalized economy. This inability to pursue expansionary fiscal policy in a global economy is at the root of the economic problems we face today. Indeed, quantitative easing operating mostly through the balance sheets of the central banks is a variation on the same theme.

   ma: The problem you identify, of stagnating output, is one which persists to this day. We may not have rising wages, but across the Global North, we’re still living in low growth economies in which the majority of growth is concentrated in the financial sector. How are welfare politics different in this low growth environment?

   ab: The question is not about growth per se. What we need to be thinking about is the sort of growth that we are generating. Different types of growth carry with them different distributional outcomes. There’s a tendency today to focus on creating growth by increasing productivity while sidelining employment. This is true across the board—from India and China to Germany, Japan, and the US. Countries like China and India have been good at increasing output, but they have failed to increase employment. This means increased mechanization driven by international competitiveness with little or no increase in public expenditure on the social wage, which generates enormous inequalities. Countries like the US, Britain, and France were able to externalize some of their demand for raw materials for higher industrial growth. But in the large late-industrializers, the frontier of growth is taking place through growing marketization of natural resources. The impoverishment generated by these expansions of natural resource markets is, I think, not acknowledged widely enough.

   How does this mechanism of growth maintain inequality? When we redistribute to the rich, as we have done in recent decades, we also starve the real economy of effective demand. There are only so many houses the rich can buy. And in the US, the data indicates that the rich and the companies simply tend to invest most of their money from property income back into the stock market in times of sluggish demand. So you have expanding demand for financial goods and a stock market performance which doesn’t reflect the state of the real economy. The compulsions of a welfare state is marked by a persistent divergence between the real and the financial economy of stocks and property titles. But what is less clear is who would finance welfare and how. Economists like Piketty propose financing it through a wealth tax. But as Joan Robinson once told me, almost paraphrasing Kalecki, a country which can effectively implement that sort of wealth tax required would no longer be a capitalist country. What proponents of the wealth tax don’t seem to understand is that every economic system is embedded in a structure of political power. The sphere of policymaking is bounded by that structure.

   I visited Brazil during Lula’s first government. And I remember being told, in slightly different words, that whatever we advise, we should avoid doing something which disturbs the financial markets too much. To return to your main question, the constraint on distribution is not so much tied to low growth, it’s tied to our capacity to change the finance-based power relations now underpinning the economy. Beyond Tobin taxes, which would require much global coordination to function, one idea which Keynes actually presented in the General Theory is a financial transactions tax.

   ma: You raise the question of capital flight, and the constraints it imposes on left governments. In the case of the US, at least in the near future, I always think: where would the capital go? Do you think there’s some more policy space here?

   ab: I think you are right. The position of the dollar as a global currency, and the enormous size of America’s capital market, gives governments in the US a tremendous unilateral advantage. To go back to your earlier question—I think saying that we can’t have welfare with low growth is like saying we can’t have socialism because it will redistribute property. The constraints on distribution do not emerge from the level of growth, but from the type of finance oriented growth process pursued. This was a relatively neglected aspect of the Keynes-Kalecki theory of effective demand because the composition of investment matters a great deal—both for generating demand in the short run and the supply of social wage goods in the long run. Universal health care and the Green New Deal are obvious examples in the United States.

   ma: Earlier, you identified the globalization of financial markets as a key factor in the breakdown of social democracy. How do we navigate a response to globalization that doesn’t fall into nationalism?

   ab: Having a focus on the domestic labor market rather than the international one is, at this moment, a good thing. The bluff on the right is the claim that we can achieve this through profit-led growth. If we look at the lower half of income percentiles in the United States, and it’s far more dramatic in a country like India, we see that their purchasing power doesn’t line up with what large corporations, especially financial corporations are willing to produce. The subprime mortgage crisis was a classic example of this. So long as you try to solve the problems of the poor through a profit-led growth of the financial sector, you will only generate economic instability and stock market mania leading to occasional breakdown and rising inequality.

   The left response to globalization originates in a sort of fear of the global market. In poor countries, there are good reasons for this, because you have to produce for the poor majority in your domestic market. Once you have capacity to produce enough quality products for your domestic market, you can start to export and trade more internationally. But you should not reverse the sequence. That was the mistake made intentionally or unintentionally in many third world countries. You must not forget the World Bank, the IMF and international credit agencies like Moody and S&P rate not merely financial papers but also the quality of a democracy in terms of its “the ease of doing business.” And governments in developing countries pay great attention to it in a globalizing financial market.

   ma: One of the problems with developing the capacity to produce for your domestic market is that it requires sustained investment over a long period of time. The political consolidation required to ensure this long-term investment has frequently given way to one-party governments which end up silencing the dissident movements they claim to represent. You propose an alternative model of decentralized industrialization. Can you talk more about that?

   ab: This is a question which has haunted me, and I wrote a book about it called Development with Dignity. It was always wrong to pose a choice between bread and freedom. I have seen when bread is more important: when I was in Vietnam in the 1970s, soon after the revolution, it was the most important thing. The same was true in Cuba and Chile. Revolutionary moments must be especially careful of high inflation when poor people are starved out, and exert control over distribution of essentials. But this initial moment of “bread” cannot last forever. The authoritarian seed of these governments is not only the one-party state. It’s something far more insidious, which exists also in institutionally democratic governments like that of the US—blind commitment to one’s party. What you can have, in these one-party governments, is decentralization from the top. And this is something which the communist state government of Kerala, in India, has done relatively well.

   When I talk about decentralization, I’m talking first about fiscal decentralization combined with large numbers of people elected at the local level making expenditure decisions independently at the local level. In India, we have more than 250,000 local government bodies. Some of them may be corrupt, and some of them may be incompetent. But even 10-15% of them would constitute a significant social movement. So in large countries like India, Brazil, and to some extent Argentina, you can have a decentralization of financial power at the local level and allow communities to decide how to allocate their resources. And if local governments fail to use their money towards appropriate social purposes, the central government can reduce or eliminate funding in the next round. In this way, we allow communities to decide how to allocate their resources at the local level.

   I think by doing so we also allow for industrialization alongside greater democracy. From this point of view, a universal basic income scheme in a centralized system is a wrong way to proceed because it would strengthen the patron-client relation and have greater tendency towards authoritarian democracy with a top-heavy bureaucracy between the state and the people.

   At the local level, democracy also works much better. This brings me back to our earlier conversation about social democracy, and this idea that capitalism is far more amenable to political rather than economic change. In India, we’ve managed to gain one-third representation for women, one-third representation for so-called lower castes. But we haven’t yet seen these changes manifest economically. At the level of the economy, decisions are still highly centralized. So the fight for the left in countries with formal democracies is to combine every political right with an economic one. And in India, and countries with similar social structures, what is urgently needed is the accommodation of financial power at the local level.

   ma: To close, it would be nice to take a step back and hear about the trajectory of your intellectual development. Which ideas have most consistently influenced you over the course of your career?

   ab: The biggest influences on me have not necessarily been theoretical, but experiential. After finishing my PhD at Cambridge and working in Delhi for a while, I moved to Sri Lanka at the invitation of Lal Jayawardena to work on the development of an irrigation project and a “free rice” public distribution system. In that moment of the Vietnam War and May 1968, there were also popular revolts of unemployed youth in Sri Lanka, and peasant uprisings in Naxalbari, West Bengal, later joined by students in large numbers. After leaving my position in Sri Lanka I traveled around West Bengal villages and saw the movement first gain momentum and then get ruthlessly suppressed by the communist government in power. In 1975, I moved with my wife to Hanoi, where for more than a year I observed the post-revolutionary mobilizations. And on my way to Hanoi, I was stranded in Vientiane, Laos, on the very day the revolutionaries took power in the capital. I vividly remember watching the Revolutionary soldiers, young peasant boys and girls with rifles on their shoulders, enter the city by the hundreds to mark the end of the nearly 700 year old monarchy.

   From these experiences, I began to develop my political orientation. I understood clearly the disastrous consequences of equating party with society, despite my total recognition of the achievements that these parties accomplished. I remember the first thing that struck me when I passed through China, right after Mao’s death, when the Cultural Revolution still had resonance, was that they actually managed to give people basic food, and clothing and housing. It was modest, but everyone got it; not like India. And even today, after fifty years, it stays in my mind. But as I mentioned before, the bread is not enough. At a certain point, you have to change the relative emphasis between bread and freedom, and the equation between the party and the wider society. My interest in reinventing social democracy is driven by this.

8. Change the Furniture

   October 10, 2020 12:00 am Comments Off on Change the Furniture

   Mark Blyth is William R. Rhodes Professor of International Political Economy at Brown University and a Faculty Fellow at Brown’s Watson Institute for International Studies. His research examines how the interests of states and economic actors shape ideological consensus and institutional development at the global scale. He is the author and editor of many books, including Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century (2002), The Future of the Euro (2015), and Austerity: The History of a Dangerous Idea (2013).

   His latest is Angrynomics, published this year, in which he and co-author Eric Lonergan argue that the rising tide of anger dominating global politics has its roots in decades of macroeconomic policymaking. Earlier in the pandemic, I spoke with Blyth about the economics of the Covid-19 crisis, the various approaches that governments and central banks across the globe have followed in order to tame it, and what an alternative program for the global economy might look like.

   An Interview with Mark Blyth

   Álvaro Guzmán Bastida: Let’s start with Angrynomics, which you co-authored with Eric Lonergan. You address the economic roots underlying the deep discontent and rage that have characterized the Western electorate over the last decade. What are some ways in which that anger is perpetuated by economic policy?

   Mark Blyth: In the book, we use the analogy of the macroeconomy as being like a computer. All capitalist economies have relatively similar hardware: they all have a labor market and a capital market, which vary in scope, depth, and regulation. And all economies have software: a set of economic ideas, or a dominant script dictating how you do things in the economy. Historically, we’ve had three different capitalist “computers.”

   The first was globalization under the gold standard, where capital and people were able to move freely between countries, and the system adjusted using the trade balance through exports and imports. The problem with this was structural: because everyone wanted to be an exporter, the system was biased towards deflation. That meant that wages were squeezed relative to profits, which resulted in a lot of pissed off labor. The first attempts at nationalism in the early 1900s, such as Joseph Chamberlain’s social imperialism, were meant to solve that. World War I was the culmination, after which the system fell apart.

   Version 2.0 had much more restrictive national economies and an international monetary system based on the dollar, somewhat tied to gold—the Bretton Woods system. We had national economies with national labor markets, and countries that made the same stuff occasionally traded with each other. Given the trauma of the previous period, the policy target was full employment. Now the problem with making full employment your policy target is the Kaleckian one. If you run a fully employed labor market for thirty years, given static technology, you’re ultimately going to bid up wages ahead of productivity. That’s going to hurt profits and profit expectations via inflation in the system. This is exactly what undid that order in the seventies.

   After versions 1.0 and 2.0, there was a fundamental reset and rebuild of the hardware of capitalism and a rewriting of its software. The rebuild was the rise of independent central banks, and price stability became the policy target. We reopened the global economy, this time with 700 million new people joining the global labor market and China rising from indigence to relative affluence. And, as Branko Milanović showed with his famous elephant chart in 2015, this squeezed the incomes of those between the fiftieth and the eighty-fifth percentiles in the OECD economies, particularly in the Anglo American economies.

   Now add to this the financial crisis in 2008, the costs of which were distributed asymmetrically. Capital owners were bailed out, the cost of doing so was put on the public balance sheet, and the public sector was squeezed through austerity. Ultimately, we had a decade in which real income losses and wage stagnation were compounded by an effective depression, particularly in southern Europe and the Anglo-peripheries. The political anger we’re witnessing now has been a long time in the making.

   The center and center-left parties who hived off responsibility to technocrats in the central banks and the WTO were the ones who were completely unprepared for the crisis. Since Covid-19 struck, we’ve seen more of the same. Governments have devolved political responsibility towards central banks, who know how to get money to business, but not how to give money to people. That, of course, leads to a backlash, which is weaponized in different ways, in part through the generation of what in the book we call public anger.

   ágb: Your main proposals to tackle this wave of anger are the institution of a national wealth fund and a data dividend. How would these policies solve our problems?

   mb: If you have a bunch of angry people, and you invite them in for dinner and sit them all at a table facing each other in rows according to which side they’re on, it’s going to be a very unpleasant experience. But if you break up the room with couches and beanbags and mood lighting, you’re going to change the dynamics. In order to get out of this mess, we need to change the furniture in the room.

   We don’t just want to think about ameliorative policies, we want to think about building things into the economy that restructure political and economic interactions. A citizens’ wealth fund would do exactly that. Right now, the Federal Reserve has effectively put a floor under asset prices, which means that equity prices will not be allowed to fall beyond a certain point. That encourages growth in the stock market despite the fact that the economy has taken a massive hit such that there’s a near divorce between the market and the economy. This is a wasted opportunity. When the coronavirus panic hit, investors dumped thirty to fifty percent of their equity holdings. Everyone wanted to buy government debt because it’s the safest asset. That meant, given current inflation rates, government debt over the ten to fifteen year period trades negative. Investors are basically paying you to borrow.

   With that type of demand and cost of funding, the Fed could have issued an extra twenty percent or more of GDP, bought up all of those equities that were just dumped across all those stock markets, and put them in a professionally managed passive fund. They could manage it like a big hedge fund with a low risk profile and allow the magic of the six percent premium you get in equities to manifest over a decade. Six percent a year compounded for ten years on twenty percent of American GDP would give them trillions of dollars.

   We could use that to pay back our debt, if that bothered you, or better, we could fully fund decarbonization efforts. For example, one of the biggest causes of carbon leakage are buildings. They’re thirty percent of all emissions. We could retrofit every building in the United States over a twenty year period. Or think of it from the point of view of a small, well-off country like Denmark. You’re already doing good stuff, just imagine what you could do with an extra twenty percent of GDP. There are huge possibilities here.

   As for the data dividend, twenty percent of the US stock market is composed of six firms, the so-called FAANGs (Facebook, Apple, Amazon, Netflix, and Google/Alphabet). They are what some people call a zero marginal cost business. They have huge markups over costs, and they also have monopoly status in many sectors. That means they’re fantastically profitable. It also means that, because they’re able to play one country off another, they pay pretty much no taxes.

   But all of these companies only work because you use the product and give them your data. Facebook is simply a platform. You give them the data, which they then harvest and sell. So why are we giving it away for free? You have a property right to your data and the data that you will generate in the future for them. Why don’t we put that into a national trust, which you can opt into or opt out of, then license that data to these companies for a very hefty fee in lieu of taxation. If they start to abuse it, we call it back. That way, we could bring some transparency and democracy to these very important but unaccountable platforms, and also raise valuable revenue in the process.

   ágb: Many of the trends that you lay out in the new book have been exacerbated during this crisis. Unemployment has gone through the roof globally, with half a billion people at risk of being pushed into poverty, while American billionaires have grown 565 billion dollars richer as of June. In New York City, where I live, the luxury condos in Manhattan emptied out while the ICUs in Queens and the Bronx were over capacity. It made me think of a phrase of yours: “the Hamptons is not a defensible position.” What do you mean by that?

   mb: All revolutions preceded by inequality involved this fact: we know where the rich people are. Currently, they’re partying in the Hamptons. If you have capital, exits, and properties—or, to be sympathetic, if you have kids and you’re worried about Covid—of course you’re going to go to your nice big beach house. This isn’t really that interesting, but it’s emblematic of how the mantra at the beginning of the Covid-19 crisis—“we’re all in this together”—isn’t true. There are groups that have exit options, and they will exercise those exit options. And when they do, the racialized distinctions, gender distinctions, class distinctions, and the illnesses in our society become ever more stark.

   I’m sitting in the richest part of Providence. The last time I checked, the infection rate from my neighborhood was in the order of one to two percent. If I go to Central Falls or Pawtucket, or some of the poorer parts of Providence, it’s something like fourteen percent. Is the Hamptons a defensible position? Maybe in the short term, but in the long term, it’s a vulnerability.

   ágb: The crisis that emerged following the global lockdown seems very different from a typical recession. What makes this crisis different?

   mb: Unlike financial crises, this didn’t start with a private sector debt bubble, where underlying valuations could not be supported by the income streams that the assets were based upon. We told the workforce to go home, but all of the capital is still there. Now we have to ask, can we go back to it?

   If someone asks you whether the Yankees have been doing well recently, it’s pretty easy to answer that. You just look up the last game they played, check the score, and make a judgment based on that game. But in this crisis, we can’t judge who is doing well because we don’t quite know what the game is. Is it to make sure that nobody is unemployed during a lockdown? That makes sense if you think the economy will reopen in a few months. But what if it’s two years? What if it becomes part of the furniture?

   Look at Boeing. It’s a hugely important part of the American economy and a major plane builder for the world, but it was so obsessed with C-suite enrichment and buybacks that it didn’t bother to update any of its designs. We’ve got the 737 Max, which we all know had problems. That’s going to come back to a market in which there are far too many planes already. Then there’s the 777 X. Nobody wants it. Nobody needs it. That’s what’s happening at one of the biggest firms in the US due to enrichment and overinvestment.

   There’s been much discussion about commercial real estate. Let’s say that offices become problematic going forward in a way that is different from where we’ve been before. What happens to the real estate investment trusts that rely upon the income from rents coming from commercial customers, which then go to the investors? You can see how this begins to spin out of control in ways that we’re not adequately monitoring. But the ultimate paradox is that we didn’t destroy any of our capital. There was no bust. We just left it, and it’s not clear in all cases how we can go back to it.

   Can we even figure out who’s doing well in this? You could say the United States is doing all the wrong things: it didn’t keep people in furloughs, it didn’t protect them, it didn’t cushion the economy as much. The checks were haphazard, the unemployment boost worked but they can’t agree on an extension, and now people will lose their houses or lose their jobs. But what if those jobs aren’t ever coming back? What if they need to get new jobs as they emerge? The European solution, what I call the Volvo with all its airbags, is kinder but perhaps not as good in the long run as the Mustang, since you’re keeping people in jobs that may never come back. So what’s the best way forward? We don’t know.

   ágb: Can you elaborate on this distinction between the “Volvo” and the “Mustang”?

   mb: A Volvo is covered in airbags. And it’s very comfortable and looks very nice. But it costs a fortune to run. Whereas if you have a Mustang, it’s all about performance. You’ve got a five liter GT engine, two real seats, and some air bags. If everything’s moving correctly all at once, you can run a Mustang at 100 miles an hour, and everybody else will fall behind.

   The American economy is very much like a Mustang. It doesn’t do airbags. It doesn’t do shutdowns. If everything’s optimized—your labor markets are flexible, your capital markets and credit markets seem to provide infinite liquidity—it’ll go fantastically well. But if you care about survivability after a crash, a Mustang is not ideal. That’s what we’re seeing in the American economy right now. When you throw something like Covid-19 at an economy that only works when you assume everything is functioning perfectly, the system will break, and it’s not clear how you build new airbags to absorb those shocks.

   The Volvo solution to this crisis would be to send everybody home for months and pay them eighty percent of their original wages until we all go back to work. We live in a world in which that’s possible. First of all, because it’s all relative value trade, every country’s deficits are ballooning so one country gets blamed for doing it. Everybody gets headroom. Secondly, for lots of complex and simple reasons, interest rates have been falling, by some estimates, for 700 years. Inflation is nowhere to be seen, except in consumption baskets of poor people and in asset prices. You can issue bonds in these uncertain times at negative rates. Because of that, you can run the Volvo for a very long time.

   But eventually you have to get out of the Volvo. That’s the problem. How do you do that? The Republicans were saying the problem with 600 dollars a week of unemployment benefits is that you’re disincentivizing people from returning to work. Why are Americans paid so low that 600 bucks a week would make such a difference in someone’s incentive to go to work? That means you’ve built a low wage economy, and there are very negative consequences to that.

   ágb: There’s very little talk of a V-shaped recovery anymore. Why is that?

   mb: A V-shaped recovery assumes mean reversion. Even a W-shaped recovery assumes that. What’s happened is that we’ve had a big bump. The assumption is the economy will come back to where it was before. But what if it doesn’t? What if we end up in a whole new growth track? The minute you realize this—the notion that large portions of our capital will need to be mothballed, other portions will need to be redeployed, and the way that we do business will need to be rethought—you abandon the idea of mean reversion.

   ágb: What about China? Is there a scenario where it comes out stronger from this crisis in relative terms?

   mb: Someone took my car analogy and suggested to me that China is a military truck rather than a Volvo or a Mustang. I kind of like that. It’s big enough that it just rolls over all of the bumps in the road, but it takes a pounding in doing so. It is only survivable because it has a military infrastructure. If you want to continue the analogy, that’s where I’d go.

   China has a very different kind of command and control system for its economy. When the central banks in the United States and England, for example, say to the financial markets that they will launch a program that will buy assets, they’re actually all playing games with each other. The Chinese state just goes right to the banking system and says, “You will lend this much to this entity. Then tell the entity what to do with the money.” That’s much more direct.

   But the problem, as Herman Mark Schwartz and Michael Pettis have pointed out, is that the fiscal multiplier you get out of money declines over time. The first time you get a huge monetary stimulus, it’s good, but eventually you’ve built all the bridges you could possibly build. So China may be about to do a big stimulus, but the effectiveness of such stimulus programs seems to decline over time. You’re also then massively in debt on your public balance sheet. There are corresponding assets, but there remains a question of the valuation of the assets because it’s a relatively closed economy.

   ágb: The pandemic took longer to take root in the developing world, but it seems to be ravaging both public health systems and economies in Latin America and in countries like India. How will they fare given this structure you’ve laid out?

   mb: Latin America, despite its own efforts and exertions—and sometimes because of its own efforts, since there’s big money to be made in soybeans and ripping out the Amazon—has always been integrated globally. Countries in Latin America are commodity exporters, and if the global economy goes down, nobody wants commodities. These countries have also loaded up on a lot of international debt, denominated in dollars, which is now twice as expensive because local currencies have fallen. We’ve seen all of this many times before in Latin America, and with Covid, it’s come back again with a vengeance.

   India is a very different case. It has nearly the same population as China, but a much smaller economic footprint, a much higher degree of inequality, and a large number of people who are still living on a subsistence basis. Obviously, Covid-19 is going to affect them much more. We’re beginning to see that even in those areas of the country that seemed to be doing really well, like Kerala. When the Gulf ran out of money because of the oil price collapse, they started sending home migrant workers. But the migrant workers had all been living in dorms, potentially with Covid-19, and they’re all going back to the local populations. But the population demographics do seem to help. Being young as a country does seem to mean less death.

   Put it this way. It’s good to have a Mustang because even if you crash it, you’ve still got a Mustang, even if the rebuild is painful. It’s really nice to be in a Volvo if you’re in a car wreck; the question is just can you get out of it once you get in it. For everybody else who’s driving an army truck or just walking along the road, it’s a lot harder.

   ágb: There’s been talk of reshoring production to Western Europe or the US, who lacked the capacity to supply themselves with tests and masks during the first wave of the pandemic. Even before the pandemic hit, there was some deep questioning of globalization. What lies ahead for that political project?

   mb: Michael O’Sullivan’s book, The Levelling, argues that the era of globalization is over and we have a global leadership vacuum. Forget the G20, there’s a G0! I think that’s all true, but there’s a problem with oversimplifying the negative effects of globalization. Martin Sandbu’s book, The Economics of Belonging, explains this really well. It’s true that trade shocks and terrible domestic policies in certain countries have hollowed out the industrial base and ramped up inequality. But let’s not forget that Apple is an American company that puts its taxes through Ireland and Holland. Practically none of the profits end up being remitted to the United States in any taxable form, and they still make many of their products in China.

   Let’s say you reshored Apple. What would happen? Sandbu’s point is that capital substitutes for labor at the margin in manufacturing better than in any other sector. If you have to reshore Apple’s production, Apple is not going to pay more American Foxconn workers, they’re going to build robots. Increasingly, you don’t need people to make stuff anymore. Think scaled up 3-d printing and manufactures. It’s a fundamental problem that we refuse to get our heads around. The question then becomes how to distribute the value added from that increased production in a way that leads to sustainable growth. That’s a political question, not an economic question.

   ágb: How do you navigate the critique of globalization while preserving a commitment to internationalism?

   mb: Nationalism is not an economic category. From an economic standpoint, you get into trouble when the congruence between the economic means of production and the area encompassed by a democratic settlement are displaced. That’s where we are. Democracy is local, production is global. If you can design a set of rules to more closely align those interests then you can perhaps make the game more positive sum.

   The other thing about national economies that I like is that we can all try different things. If I have one deep critique of the EU, it’s their very nineteenth-century idea that there’s a single set of best practices. If we have one set of market institutions, and one set of ways of dealing with crises, then we’re flattening all of the niches, complementarities, and unique aspects of these different growth models, as if there’s one thing called the “European economy.” There isn’t.

   National economies mean that you can have national experiments. Like we explain at the end of Angrynomics, nobody knows how to get to full decarbonization. Should we have one big international agreement with no monitoring, like Copenhagen? Or should we have everybody confront the reality in their own way and try to do what works for them? Individual national experiments would let us learn from each other and scale up from there. I think that’s a much more sensible and survivable way of doing it. If deglobalization means anything, that’s what it means to me.

   ágb: Throughout this conversation, you’ve criticized the role played by central banks, the austerity hangover, and the upward redistribution of income before and during the pandemic. All of this goes back to the building social discontent you wrote about in Angrynomics. What would an alternative program look like?

   mb: I have written on neoliberalism as a set of ideas, but another approach is to think about it as a set of practices that governments do: open up, privatize, globalize and integrate. Once you’ve made that choice, unless you have wars, pandemics, or other course-altering events, it’s very hard to imagine a world that’s different. What we try to do in Angrynomics is to say that you don’t need an entire plan, you just need to change the furniture.

   In the first part of the crisis we sent the workforce home, leading to a drop in consumption and production. In the second part we realized that there is no V-shaped recovery. We can’t go back to cruise ships, because they won’t have any passengers. Our capital is still there—it hasn’t been destroyed, unlike in a war—but it’s functionally destroyed in the sense that we can’t use it right now, and we’re not sure exactly what we can and cannot use in the future.

   But then we have a good question, how do you repurpose that capital? We’ve got a chronic housing shortage, and we effectively stopped building public housing in 1980. Well, we’ve got all this office space, some of which is pretty damn fancy, in really nice locations. You can imagine retaining people from those displaced sectors from decarbonization and converting those buildings into carbon neutral housing. Since our capital hasn’t been destroyed, we have to ask how it should be redeployed. That’s the good side of this, and given the current cost of capital, it’s really limited only by our imagination.

   But this process of redeploying our capital can also become an opportunity to think about what we actually need and how we get there. Part of the function of government is to act as that bridging fund that allows the private sector to liquidate bad assets in such a way that they don’t go bankrupt, and then redeploy that capital in such a way that we all get a new set of investments. I think of decarbonization as the greatest investment opportunity in the twenty-first-century. Get it right, and everything can be made anew. Get it wrong, and nothing else matters. It’s like a covered option. Covid is going to force us to start making those choices.

9. Banks, Bubbles, Profits

   August 26, 2020 12:00 am Comments Off on Banks, Bubbles, Profits

   Richard Westra is University Professor at the Institute of Political Science, University of Opole, Poland and international Adjunct Professor of the Center for Macau Studies, University of Macau. His research focuses on the philosophical underpinnings of economic phenomena, with an emphasis on financialization, globalization, and neoliberalism. His many writings also consider the politics of states of exception, legalization of politics, and the study of global apartheid.

   Alongside Robert Albritton, Makoto Itoh, and Thomas Sekine, Westra traces his intellectual lineage to Japanese political economist Kozo Uno (1887–1977). Arising largely out of debates about the nature of the transition from feudalism to capitalism in Japan, Uno’s thought responds to a need to comprehend social-economic forms displaying “mixed” characteristics—mixed modes of production (i.e. feudal societies with capitalist characteristics or vice versa) and mixed economies (i.e. socialistic economic forms internal to capitalist economies or vice versa), as well as “capitalist” economic activity in pre-capitalist societies. Both Uno and Westra’s work is therefore concerned with reconciling the “law-like” aspects of economic phenomena with the contingency of empirical history. The task of analytically articulating these mixes necessitates a theoretical understanding of capitalism in its most pure and general form.

   This standpoint of “pure theory” distinguishes Uno and his followers from theorists, both mainstream and Marxist, who conceptualize capitalist development on a continuum from zero to full development. For the former, economic growth and the process of historical development are determined instead by ongoing encounters between the ideal form of capitalism and the conditions of actually existing human societies. Crucially, this process does not necessarily move towards an endpoint where the ideal form is fulfilled, nor towards full development.

   Westra argues that this tension between the tendencies of capitalism as an ideal and the real needs of society begins to implode during the latter half of the twentieth century. What differentiates this period from earlier ones is the dissociation of social development and economic growth. Profit-seeking continues but does so mainly via financialization, understood not as a result of business cycles, but as an ongoing structural crisis demonstrating the unraveling of value creation, production, and non-capitalist institutions that constituted much of what is known as liberal civil society.

   Something of a heretic among heretical Marxians, Westra’s writings might inspire a—hopefully productive—disagreement across the ideological spectrum. What he and the tradition he works in offers is twofold: first, an approach to Marx that attempts to isolate methodology; and, second, a way to think seriously about historical regression in the present that relies on neither mystical theories of civilizational decline, nor a truncated framework of secular stagnation.

   In the interview that follows, we discuss financial globalization, the changing historical role of the banking sector, the decoupling of growth from development, and the historical specificity of capitalism.

   An interview with Richard Westra

   Brendan Harvey: How do you define capitalism, and how do you understand the relationship between capital and labor that’s specific to it?

   Richard Westra: My view originates in Marx, who gives us quite a clear way to distinguish capitalism from other types of historical modes of production. He does this by demonstrating two things: the first is that the division between propertyless workers and property owners is a class structure specific to capitalism. The second is that within capitalism, the reproduction of material life depends on the market, and is thus a by-product of profit making. The commodification of labor is therefore about the separation of workers from their means of subsistence and the consolidation of ownership over those resources in the hands of capital. Wages enable workers (not as individuals or families, but as a class) to purchase goods required for their own reproduction via the market.

   bh: Discussions about the slow recovery after 2008 often make reference to the postwar “golden age of capitalism.” You have a different interpretation of this period—can you describe it for us?

   rw: In the nineteenth century, capitalism very closely conformed to Marx’s understanding of it. Wherever it spread, it reproduced similar class relations and expanded market dependence. But by the late-nineteenth and early-twentiethth century, this sort of trend begins to stall. Capitalism begins to generate noncapitalist practices in order to support market operations. The golden age of postwar capitalism reaches the apogee where noneconomic, noncapitalist practices are marshaled to support profit making, but where the goal of profit making is not eliminated. The partial decommodification of labor was, paradoxically, necessary to preserve its continued commodification. It is the matrix of extraeconomic and welfare state support that is really characteristic of the so-called golden age of capitalism. I understand globalization, financialization, and neoliberalism as a breakup of this matrix, and with it the stalling of what capitalism is as a historical society.

   bh: In Periodizing Capitalism and Capitalist Extinction, you describe the way that, during the 1970s, economic growth becomes “decoupled from development as development is decoupled from the sequences of industrialization which marked it heretofore.” What is the role of banks in this shift?

   rw: In mid-nineteenth-century Britain, the modern banking system emerged as commercial or “relationship banking.” A system of commercial banks backed by a central bank lent the money of depositors, which were essentially businesses holding money as depreciation and contingency funds during the course of business cycles.

   Once this money was removed from the circuit of capital and deposited in the banking system, it was no longer capital—it was rendered “idle” or “dormant” as Marx referred to it. The role of commercial banks was to socialize this money. Let’s say I’m a producer of cotton garments, and I hold my depreciation fund or contingency fund in the banking system. Once it is stored there, other firms—say, a furniture business facing growing competition or increased demand—can borrow it. Once the money of one capitalist is put into the banking system, it is made available to all capitalists, thus increasing the magnitude of capital in operation within the broader economy. However, it is not merely a question of increasing the magnitude of value augmentation but also its speed. As capital generates relationship banking to manage its collective savings, so commercial capital is generated to manage the buying and selling of commodities. Commercial capital, which takes over merchant activities, can also avail itself of idle funds to purchase commodities in bulk, returning money to capital for reinvestment before the commodities they produce are sold. This speeds up the turnover time of capital to enhance profit making.

   In the early twentieth century relationship banking began to play a more pronounced social role with the presence of so-called “finance capital.” This period saw a transition away from family-run “entrepreneurial” firms towards large monopolies and oligopolies. In order to manage the investment demands of, say, the steel industry—and also the new transportation and shipping industries that accompanied it—capital could no longer rely on socialized savings in banking systems. Finance capital relied on a new cohort of upper middle class savers, landowners, and small business owners to compensate for the missing funds. By agglomerating idle money that is scattered across different layers of society and investing it into the stock market, finance capital places these additional idle monies into the hands of industrial capitalists.

   It is important to distinguish between finance capital and financialization. Rudolf Hilferding called the former finance capital precisely because it used the levers of finance to agglomerate and invest funds in real capitalist production. Finance capital not only agglomerates the wealth across society and puts it to work, but it also begins to actually manage it as the profits of big banks become ever more intertwined with the success of these businesses.

   The sheer amount of idle funds expands exponentially in the postwar economy. Even the working class managed to accrue significant savings, and large corporations made so much money that they no longer relied on big commercial banks. They generated their own banking operations and used them to fund investment (as, for example, the General Motors Acceptance Corporation did). But for idle money to become capital, it needs to be invested in production-centered activity. Some of this investment came from expenditures associated with the welfare state; governments themselves started to borrow more, particularly to support counter-cyclical fiscal policy during business cycle troughs. This began a sort of cycle of temporary deficits that you can see on all of these graphs of the economic expansions and contractions from, let’s say, 1950 to 1970 among advanced economies. In this period we also see the emergence of socialized savings such as pension funds, insurance funds, and the beginnings of mutual funds. But again, up until around the 1970s, these pooled funds were largely absorbed by industrial production, the welfare state, and, in countries like the United States, by the military.

   bh: Does this money stop being absorbed?

   rw: In the 1970s, there’s a huge accumulation of idle money that can no longer be profitably invested in domestic production. Some of it goes into overseas industrial expansion, particularly to newly industrialized countries like South Korea, Taiwan, Singapore, and Hong Kong. But once these countries generate their own capital base, they no longer need to tap into this pool of money for production.

   This is when this pool of money begins to take on several new forms, and it is these new forms, in domestic and international banking systems, that I and others refer to as financialization. To reiterate, financialization is not a form of capital; once money leaves the production-centered circuit and becomes idle, it is no longer capital. Financialization emerges when the transformation of idle money back into capital comes to a halt.

   Once financial and industrial elites recognized this pool of idle funds, they thought of ways to liberate them. Contrary to what others have said, I frame liberalization as a sort of reregulation: there was deregulation around the matrix of institutions that make up the welfare state, but there was also a series of new regulations allowing idle money to operate on its own account to attract an income stream despite weakening real profitability from capitalist investment. Financialization, then, is the point in the disintegration of capitalist economies when pools of idle money accumulate to such an extent that there is virtually no chance they will ever be invested in production.

   bh: There is a tendency within to describe deregulation as the cause of this increased speculation. But you argue that it was actually an effect of pressures to speculate arising from the lack of opportunities for profitable investment.

   rw: Yes, and globalization is just the corollary to financialization—it is the physical disintegration of production-centered economies. On the one hand there’s an increasing agglomeration of funds, and, on the other, there’s a disintegration of vertical production models dependent on national economies. The latter only lessens the demand for the former to be invested in real production. Eventually, segments of the elite class begin to realize that this money is there, and something needs to be done with it. What needs to be done with it—from their perspective—is speculative modes of arbitrage. For these activities to occur, new regulations had to be put in place. The old regulations which granted industrial capital leverage over finance were dampened, tweaked, and ultimately changed outright, leading to the deregulation, liberalization, and privatization that define this era.

   bh: How is this process related to the dollarization that occurred in the early 1970s?

   rw: All of this money flooding into the global banking system encouraged excessive borrowing, particularly among countries seeking to build their own industrial system. At this point the structure of the US economy was quite different than it is today. Before the USD became the world’s reserve currency, the United States was largely constrained by its own resources, and this greatly limited the ability of the government to respond to the crisis. This is when we see books like James O’Connor’s Fiscal Crisis of the State, for example, which argued that government borrowing was crowding out private investment. Wealthy countries were borrowing to keep financing the welfare state—particularly with unemployment rising, businesses closing, and the tax base shrinking—while many poorer countries were borrowing to create productive industries.

   When Paul Volcker unilaterally raised interest rates on the dollar, it nearly destroyed the US banking system, and destroyed the aspirations of developing countries. Third World countries were placed at the mercy of the IMF and the World Bank, which were repurposed from development operations to extortion operations through structural adjustment programs. But because interest rates reached about twenty-one percent, the dollar became the hottest commodity in the world. Money flowed into the US economy; into US banks, US denominated assets, and treasuries and other US dollar “safe havens,” with very lucrative payouts. The interest rate hike during the decline of production-centered business profit further accelerated the hollowing out and disintegration of advanced economy production systems. It did this by creating a situation where real interest rates were higher than profits, thus de-incentivizing production-centered investment.

   Prior to this point, the banking sector had yet to fully embrace securitization and trading in “secondary markets.” Banks lent borrowers money directly, and they expected those countries, states, or municipalities to pay that money back to them with interest. With the near collapse of global banking systems, there was no way to return to the commercial banking model of lending—the sheer extent of national and global debts among all categories of borrowers significantly outstripped the capital holdings of the financial system upon which relationship lending was based. Securitization decreased the amount of money the financial system needed to hold against lending, allowing banks to remove nonperforming loans or otherwise illiquid assets—like Third World debt or home mortgages—off their balance sheets by packaging them into investment vehicles which were sold to investors who then traded them in secondary markets. It is at this point when the alphabet soup of newfangled financial instruments and the new architecture of derivatives hedging and shadow banking took center stage.

   bh: You describe a shift from business cycles to alternating asset bubbles and meltdowns. How does this shift change how we understand economic crises?

   rw: Initially, capitalism was marked by decadal business cycle oscillations driven by the renewal of fixed capital. The upward part of this cycle consisted of massive reinvestment and increased productivity, as well as a new cluster of innovations which spread throughout the economy and provided a new foundation for profit making. By the 1980s, I argue, economies no longer operate according to these business cycles. Instead, we see swells of financial capital oscillating around financial bubbles and bursts. In 1987, we saw a huge global stock market crash, after which states like Japan were forced to bail out much of the world with their savings. And this process continued through the 1990s and into the 2000s. The shift from business cycles to bubbles also abrogates relationship banking. Banks no longer lend directly to customers. They initiate loans, but once they are originated, they are distributed to different investors and packaged off to different financial entities. In the old commercial banking model, banks had to be very conscious about debt and lending. But in the new financial model, they don’t have to be conscious about that at all.

   It’s important also to note that these bubbles have nothing to do with market fundamentalism. It’s all about governments and commanding heights businesses—either erstwhile production-centered transnational corporations, financial corporations and the various categories of funds management in collusion with government and central banks—fostering a peculiar simulacrum around what neoliberals believe their late beloved market should do, and then blaming odious outcomes on the invisible hand.

   bh: You articulate the close relationship between particular types of value production and the respective “nexus” of institutional and infrastructural supports that accompany them. Are we on the brink of a new phase in each of these spheres?

   rw: Capitalism comes into historical being to satisfy a delimited range of human wants: these are manufactured, standardized material goods. The system of accounting upon which its profit depends is rooted in production-centered activity. As we discussed, the cluster of mass produced consumer durables of the golden age depended on noncapitalist supports. As these supports have largely disintegrated, so has capitalism’s ability to produce and distribute those goods to the people that need them. The decoupling between production and development has left us with something more predatory and less connected to the sorts of social development that has accompanied it in the past.

   The new global putting out system dissolves the capital-labor relation as we know it and transitions into an economy in which work is performed around the world by contingent quasi-peasant, quasi-proletarian labor forces. Politically, this may manifest in authoritarian regimes where manufacturing wages do not meet reproduction costs and must be supplemented by family work in agriculture, services, seasonal labor, etc. While the surplus value this system yields is enormous, little of it is invested, as it accrues largely as interest and rents. The consumption wealth effects of this arrangement are enjoyed by those in both advanced and non-developed economies who are plugged into the interest and rent economy. For the rest of us around the world, life chances are diminishing and the specter of destitution is becoming our reality.

   There is “another world” staring at us. There are new energy sources, durable public transportation infrastructure, reconfigured living spaces, renewable communication infrastructures and devices, and so on out there. But this requires more long term investment and lower rates of profitability than capital can survive on. As long as capital can produce extremely high rates of surplus value through the current system, and governments and central banks support the bubble economy, there is no economic imperative to invest money otherwise.

10. Economics, Bosses, and Interest

    August 8, 2020 12:00 am Comments Off on Economics, Bosses, and Interest

    Stephen Marglin is Walter S. Barker Professor Economics at Harvard University, where he has taught since he received tenure in 1968. Somewhat infamous for his post-tenure radicalism, Marglin has published extensively on a wide range of topics over his decades-long career. Among his most cited early works is the two–part “What Do Bosses Do?”, which sought to explain hierarchical production as a function of accumulation, not technical efficiency. Divisions of labor between workers, managers, and bosses do not, Marglin argued, serve increases in productivity and material prosperity, but rather the consolidation of wealth and power.

    Similarly influential work published with Amit Bhaduri in 1990 contested neoclassical models that view economic growth as a product of technological advancement and increases in the factors of production. Drawing on a Kaleckian framework which sees output as a function of effective demand, their paper distinguishes between “wage-led” and “profit-led” growth regimes. In the former, income redistribution increases employment and productivity, and in the latter it does not. Marglin’s numerous other books and papers have touched on cost-benefit analysis, the dynamics of labor-surplus economies, the determinants of captialism’s “Golden Age,” and much else. His 2008 book The Dismal Science continued his lifelong project of challenging the foundations of economic orthodoxy.

    His latest book, Raising Keynes, forthcoming in 2021, revisits and expands Keynes’ General Theory, aiming to provide the foundations for a twenty-first century macroeconomics. We met with Marglin last winter to discuss his theoretical development, the new book, and his reflections on the future of research in the social sciences.

    An interview with Stephen Marglin

    Shani Cohen: Tell us about your coming out as a radical economist.

    Stephen Marglin: There’s a story that keeps coming back and is never going to go away: most people believe that I only revealed my radical leanings after receiving tenure. The facts of the story are true—I was a neoclassically trained economist, I got tenure, and I changed my orientation. But the implied cause and effect are false.

    I was a pink diaper baby. Pink, not red. I vividly remember my cousin coming back from WWII and trying to convince my parents to join the Communist Party, and their heated push-back. As a young adult, I was broadly left wing, but I didn’t view economics as an ideological discipline. For me it was a kind of operations research; I was at the tail end of a generation who entered economics in order to improve the world through appropriate government interventions. I saw no contradiction at all between doing neoclassical economics from nine to five and going to demonstrations against the Vietnam War evenings and weekends.

    Things changed dramatically in 1968. I was in India during the academic year 1967–68, working on water-resources planning and teaching graduate students at the Indian Statistical Institute. Their mathematical preparation was so much better than that of Harvard grad students I had taught the previous year that I could indulge my own predilection for mathy economics. But I was surprised to learn that for many of my students, who had grown up in rural villages with largely communal forms of living, classical theory which began with the interests of individuals made little sense to them. The theoretical assumptions of economics bore no clear relation to how they lived. Working with these students formed the personal transformation through which I registered the assassinations of Martin Luther King and Robert Kennedy. From afar, the May protests in France seemed to herald the breakdown of the existing order.

    Then came the anti-Vietnam demonstrations in the fall of ’68 and the occupation of University Hall at Harvard the following spring. My most vivid memory was of a group of undergraduates from an intermediate theory course who came to my office one day to ask me to help them prepare anti-Vietnam War arguments that might convince their fathers, who as I recall were executives of prominent New York banks. I remember thinking that the anti-war movement had finally won in the battleground of public opinion, whatever their fathers might think. So it was the combination of my personal experiences and the general political shift that changed me and, hardly incidentally, changed my understanding of economics and its role in legitimizing the existing economic order. This all happened shortly after I got tenure, so it was easy for friend and foe alike to mistake tenure as the life-changing event.

    For a time, because of the pressure of students, Harvard and Harvard economics opened up to new ideas. Unfortunately, the openness of the economics department was very brief. While my radicalization and my tenure were coincidental, the denial of tenure to slightly younger colleagues like Sam Bowles and Herb Gintis was not coincidence. They paid a price for their radical views even as they went on to distinguished academic careers elsewhere.

    Jack Gross: What was it like to publish “What Do Bosses Do?” in that environment?

    sm: That was kind of my coming out, and there was actually a great deal of interest around the paper. At Harvard, there was a period of great intellectual ferment from 1966 until about 1974, when Bowles and Gintis left. I had Michael Reich, David Gordon, and Rick Edwards all in my first graduate economic theory class in the fall of 1966. From my perspective, the decade from the mid-60s to the mid-70s was the last time that there was so much intellectual ferment in department.

    Maya Adereth: In “What Do Bosses Do,” you offer a more structural definition of the specificity of capitalist social relations. But much of your work forwards a moral critique of capitalism, as a set of attitudes. Which of these understandings of capitalism do you find more compelling? And, if we do conceptualize capitalism morally, what does that say about the potential for change?

    sm: I think they are both true, that the material and cultural aspects of capitalism developed symbiotically over several hundred years. Markets require a certain kind of individual, and they create a certain kind of individual. For me, the assumptions of neoclassical economics are really the assumptions of modernity. These chickens are coming home to roost. A key assumption of modernity and mainstream economics is that we live in a world without limits to consumption and accumulation. (This is a bit ironic given that the conventional definition of economics is the allocation of scarce means to unlimited wants.)

    As for a theory of change, I’ll repeat what I say at the end of my forthcoming book, Raising Keynes. I argue that the Keynesian revolution was successful because it coincided with the rise of a new politics: the New Deal in the United States and social democracy in Europe. Keynes didn’t create those political movements, and those movements didn’t create Keynes. But the Keynesian revolution and the left politics of the period from the 1930s to the 1970s were mutually supportive, symbiotic. Conversely, it’s not a coincidence that the demise of Keynesian economics came at the same time as the collapse of the New Deal coalition and social democracy, nor that the politics of Ronald Reagan and Margaret Thatcher came at the time of the neoclassical revival.

    So what’s the moral? The moral is that to effect change you need ideas, but ideas won’t thrive until they are associated with a political movement. In Raising Keynes I put forward some ideas, but I don’t know whether there will ever be a political movement which can make use of them. I think of what I’m doing, and what other radical economists are doing, as planting seeds. We don’t know if the soil is any good, we don’t know if we’ll get the rainfall that we need, we don’t know if the plants will grow at all. Nonetheless, we do what we can to raise our crops; we not only hope for a good harvest, we work for one.

    ma: Tell us more about the argument of the new book.

    sm: There are four main points. The first is that Keynes’s General Theory was not about market rigidities and imperfections, as it has been interpreted in mainstream macroeconomics. (Joan Robinson called mainstream Keynesians “bastard Keynesians” in that it was a perversion of his theory to make it simply a theory of market imperfections.) Instead, it was a critique of fundamental aspects of the capitalist system.

    sc: Including that it’s incorrect to assume that perfectly competitive markets lead to full employment.

    sm: That’s right. The capitalist system, even stripped of all its warts and imperfections, has no self regulating mechanism. To see why, we have to abandon the conventional focus on equilibrium as demand equals supply and instead focus on the dynamic adjustment process. Equilibrium as a balance of forces tending in different directions may or may not exist. But if it does, there is no reason why it would imply full employment.

    A second challenge to mainstream macroeconomics is that demand matters in the long run as well as in the short run. The conventional view is that imperfections and rigidities—the warts on the capitalist body—dissolve in the long run. Even if unemployment can exist in the short run, there is a self-regulating mechanism at work in the long run. The “proof” is that if there weren’t such a mechanism, the economy would be characterized by growing unemployment or chronic labor shortages, neither of which we observe in practice.

    There is a self-regulating mechanism, but in my view the mainstream has it backwards: it is not that the demand for labor adjusts to the supply, but that the supply adjusts to the demand. In the long run, the labor force available to a capitalist economy is endogenous. Capitalism draws on new and different parts of society to generate new “reserve armies” (to borrow from Marx) as needed.

    In the twentieth century we’ve had three reserve armies in the United States. One was the family farm, which constituted 40% of the population in the early twentieth century and dropped to 2% of the population by the end. The second is women, who were increasingly integrated directly into the capitalist labor market. And the third is immigrants.

    A third innovation of Raising Keynes is a substantial revision of Keynes’s theory of interest, the most original ingredient of the theoretical apparatus of the General Theory. Keynes’s enduring contribution was to locate the determination of interest rates in markets for financial assets. This was a departure from the mainstream theory of Keynes’s day and the mainstream theory of today, in which the rate of interest is determined in the real economy, by the forces of productivity and thrift, by the demand for investment and the supply of saving. In Keynes’s view interest rates affect investment, but investment and savings do not determine interest rates.

    So far, so good. But Raising Keynes argues that while Keynes had the right intuition about where interest rates are determined, he doesn’t really have a theory of interest rates. There is a missing link because Keynes provides only a theory of interest rate spreads (the difference between, say, short- and long-term interest rates on government bonds or the difference between rates on government and corporate bonds). He does not provide a theory of the level of interest rates.

    The General Theory obscured this lack because it never went beyond a simplified model with only two financial assets—cash and bonds. Because the interest rate for cash is zero, a theory of interest which only considers cash and bonds is a theory of the level of the interest rate as well as a theory of the spread between the return on cash and the return on bonds. But a cash vs. bonds model is misleading because there are in fact assets which serve the same purposes as cash but do pay interest, namely Treasury bills. Without a theory of the interest rate on Treasury bills, a theory of spreads does not tell us what the level of interest rates is, and it’s the level of interest rates, not the spread, that is important for determining the level of investment.

    Does this matter? At one level no, because central banks fix the rate of interest on short-term Treasury bills, so knowing the spread also means knowing the level. For practical purposes, central banks provide the missing link in Keynes’s theory.

    But Keynes’s theoretical purpose was to show that a capitalist economy left to its own devices, that is, without a central bank, had no self-regulating mechanism. In this perspective the missing link has drastic implications. Keynes disputed the mainstream view that a market equilibrium meant full employment; he believed instead that equilibrium would usually fall short of full employment. But if you don’t have a theory for the level of the rate of interest, you don’t have a theory of equilibrium at all. On its own terms Keynes’ model was incomplete. We are thrown back on a non-market theory of interest rates!

    The final innovation of the book is more directly related to current policy proposals like the Green New Deal. This is the section of the book that deals with “functional finance,” a term which originated in the work of Abba Lerner. Lerner sought to use Keynes’s theory to legitimize deploying fiscal policy to serve the needs of the economy rather than being bound by an artificial and counterproductive constraint of balanced budgets, which is what passed, and in large part still passes, as “sound finance” on Main Street, Wall Street, and the halls of Congress.

    Lerner’s emphasis is on the need for the government’s budget to balance out the vagaries of private demand over time, increasing spending and reducing tax revenues in times of slack demand. In short, the emphasis was on counter-cyclical public finance, with the proviso that if private demand remained slack for an extended period—the idea of “secular stagnation” first raised by Alvin Hansen as the Great Depression entered its second decade and recently revived by Larry Summers and others as the Great Recession lingered on—then functional finance implied a readiness to accept fiscal deficits on a more or less permanent basis. In this case functional finance would imply a growing public debt.

    Over the last half century we have had a quasi-permanent deficit, but not because of the lack of private demand that Hansen and others expected. If all that were at issue was stabilizing the economy, deficits needed to maintain the economy on an even keel in periods of slack demand could and would have been offset by surpluses in the good times.

    My contribution in Raising Keynes is to provide a framework for analyzing a second Lernerian explanation for why the government budget might not be in balance, a political choice about the combination of private consumption, publicly funded consumption (think public parks or summer camps for disadvantaged children), publicly funded investment (schools, roads, airports), and private investment. This is a choice about the composition of aggregate demand, not about its level. Unlike the use of the government budget to stabilize the economy, choices about the composition of aggregate demand necessarily have permanent consequences for the deficit and the debt.

    Consider in this light the Green New Deal, which proposes public investment of trillions of dollars to repurpose the American economy to meet the challenges of the twenty-first century, starting with the threat of climate chaos. If this program is enacted in the context of full employment, it will require a reduction in demand somewhere along the line, starting with the reversal of Trump’s tax “reform” that reduced taxes on the rich and even more so on the very rich. If that’s not enough, then taxes will have to be raised farther down the income distribution. The point is that at full employment something has to give if public investment is significantly increased.

    But there’s a further point: the requisite tax increases would not be to balance the budget for the sake of balancing the budget (sound finance), but to keep aggregate demand in line with the productive capacity of the economy (functional finance).

    This suggests two important qualifications to the need for taxation to pay for a Green New Deal. First, if the program is undertaken in a time of slack private demand and unemployment, then the new GND jobs would be a bonus, a free lunch for the economy as a whole, paid for by a deficit that fights unemployment at the same time it repurposes the economy for a green future. Second, if the Green New Deal is undertaken over a period of time that approaches the economist’s long run—say, a decade or more—then, as I have argued earlier, full employment need not be a constraint at all. Instead one or more reserve armies would be mobilized. Which ones? That remains to be seen, but the gig economy seems to be a prime candidate. And I imagine that a large number of part-time workers in the private sector would readily enlist in better-paid, career-building jobs that pave the way (perhaps literally) to a green future. Immigration could, as it has in the past, make America great once again.

    sc: Many neoclassical economists claim that people, like rational agents in models, smooth their consumption over time. You have argued instead that most people just spend what they have. Empirically, we see that people don’t actually save. Some economists in recent years have tried to resolve this using the notion of ‘present bias,’ but the coefficients still don’t match. Why don’t people’s savings behaviors fit the expectations of neoclassical theory?

    sm: My view is that consumption smoothing works for a small portion of the population. James Duesenberry, who was my teacher, and then a colleague for many years, once quipped that the life cycle hypothesis is exactly what you would expect from a middle-aged college professor. There is a lot of truth to that, because the middle-aged college professor, if she has tenure, has a fairly predictable income and is therefore capable of planning her financial life. But for most of the population, which doesn’t have stable, secure, and predictable incomes, the theory doesn’t make sense at all. And then you have the 1%—no one has any clue what determines their savings and consumption. We know they’re not living paycheck to paycheck, and we can be pretty sure that they’re not doing lifecycle planning for retirement. The takeaway is to situate consumption and saving behavior in class terms; we are not analyzing a homogenous population which can be characterized, as in mainstream macro, by a representative agent.

    sc: Shifting to the discipline more broadly, I wonder whether you can discuss the relationship between the positive, normative, and predictive functions of economics. Should economists aim to predict people’s behavior? Tell people how to behave? Or simply describe their behaviors in the past?

    sm: On very small questions, we may be able to predict people’s behavior. But there is nothing in my book, or anyone else’s book, that would have allowed them to predict the financial crisis in 2008. We also can’t really predict how an economy functioning on entirely different premises than the capitalist economy might operate. We can’t predict these large questions because human beings, and the institutions we’ve developed, are too complex.

    Economics claims to be primarily a descriptive subject, with a secondary normative function. But I think the relationship is exactly the opposite—economics is basically a normative discipline, and those normative beliefs shape our descriptive tools and analyses. That is not a criticism; it is rather a call for honesty about our political and moral presuppositions, and how they shape the way we think about the economy.

    There’s another aspect to economics, which I refer to in an earlier book, The Dismal Science, which is the constructive function. Economists not only describe and make judgments; they also try to shape the economy in the image of their economics. Given the predominance of the mainstream, this means shaping the economy in the image of a self-regulating market and curing any market failures by more and better markets. This would less pernicious if economists were upfront about their ideological presuppositions rather than claiming their economics is ideologically neutral.

    ma: What do you think is the best use of empirical research in economic theory?

    sm: There is certainly an important role for empirical research. In Raising Keynes, I try to understand what drives interest rates and rely heavily on empirical research to figure that out. A few years ago, my work with Peter Spiegler looked at state responses to the Obama stimulus. The novelty of our research was that we actually asked state budget officers what they did with the money. These are questions on which empirical research sheds light, and empirical research does not mean just econometric analysis.

    While empirical research is certainly very important, it won’t settle the kinds of questions that really interest me and, I think, most of us: what is a good economic system? How much should we rely on markets? How can we configure other forms of economic activity? How can we make the economy work for the most vulnerable among us?