Want to Stop Fascism? Start By Taming the Finance Sector.

Political economist Ann Pettifor on markets, Karl Polanyi and how to reverse the rise of the Right.

Kate Aronoff March 30, 2017

Progressives have ignored the finance sector at their own peril. (Sam valadi / Flickr)

It’s bud­get sea­son, and — like Wash­ing­ton, D.C’s trade­mark cher­ry blos­soms — a peren­ni­al myth about fed­er­al finances has re-emerged on Capi­tol Hill: That only tax­pay­ers pay for the things the gov­ern­ment buys. Asked on Morn­ing Joe about cuts to every­thing from the Envi­ron­men­tal Pro­tec­tion Agency to Meals on Wheels, White House bud­get direc­tor Mick Mul­vaney went for the heart­strings: One of the ques­tions we asked was Can we real­ly con­tin­ue to ask a coal min­er in West Vir­ginia or a sin­gle mom in Detroit to pay for these pro­grams?’ And the answer was no.”

People look to a strong man—and usually it’s a man—who promises to protect them from intangible market forces.

The truth is that the White House didn’t ask coal min­ers or sin­gle moms much of any­thing when it out­lined $54 bil­lion in addi­tion­al spend­ing for the Pen­ta­gon, which the budget’s drafters have argued will be pulled from non-defense dis­cre­tionary spend­ing. Polit­i­cal econ­o­mist Ann Pet­ti­for, direc­tor of the U.K.-based think tank Prime Eco­nom­ics, argues that gov­ern­ment spend­ing pri­mar­i­ly reflects polit­i­cal pri­or­i­ties- — not how much tax rev­enue is in the bank: What ser­vices will the state pro­vide, and which will it pri­va­tize? How many tax breaks will cor­po­ra­tions be giv­en in the name of job cre­ation? As she and oth­ers have point­ed out, ques­tions of deficits and belt-tight­en­ing rarely arise when it comes to new fight­er jets and bailouts for the finan­cial sector.

In her lat­est book, The Pro­duc­tion of Mon­ey: How To Break the Pow­er of Bankers, Pet­ti­for seeks to pull back the cur­tain on how mon­ey is cre­at­ed and used in the glob­al econ­o­my. Doing so, she con­tends, may just hold the key to tak­ing on some of the century’s most press­ing crises. In These Times caught up with Pet­ti­for to talk about mon­ey and mar­kets, the Demo­c­ra­t­ic Par­ty, tam­ing the finan­cial sec­tor and how a long-dead Hun­gar­i­an econ­o­mist can help us under­stand Trump’s rise.

I want to start off with an econ­o­mist you ref­er­ence a lot and who there seems to be kind of a revived inter­est in recent­ly, Karl Polanyi. What does Polanyi argue, and how does he help us under­stand where we sit in 2017?

Polanyi wrote a now quite famous book, The Great Trans­for­ma­tion, in 1945. It rose out of his expe­ri­ence of the rise of Hitler and the rise of nation­al­ism and fas­cism in the 1920s and 30s. Real­ly his argu­ment is quite unique. It’s a polit­i­cal econ­o­my of the way in which mar­kets are, in fact, social­ly embed­ded in soci­ety, and have always been since the begin­ning of time. We have always had mar­kets, for almost as long as we can count. And yet those mar­kets have always been embed­ded with­in social rela­tions, i.e., sub­ject to over­sight and reg­u­la­tion by soci­ety. What began to hap­pen in the 1920s was that the peo­ple who are involved in mar­kets began to lob­by for mar­kets to become dis­en­gaged — dis­em­bed­ded — from soci­ety, detached and self-reg­u­lat­ing and beyond the over­sight of the reg­u­la­to­ry bureau­cra­cy. As such, finan­cial mar­kets began to oper­ate in the stratos­phere. As a result, soci­ety had no influ­ence over them and no impact on them. Polanyi argued that the more that mon­ey, mar­kets, trade and labor became detached from soci­ety, the more like­ly it was that soci­ety at some point was going to react. Because if soci­ety did not react, then peo­ple would suf­fer from this detachment.

He said that’s what had hap­pened in the 1930s. As the glob­al­iza­tion of the time — finan­cial lib­er­al­iza­tion — took off, almost imme­di­ate­ly soci­ety began to react. Soci­ety seeks pro­tec­tion from those mar­kets, which it con­sid­ers to be poten­tial­ly extreme­ly harm­ful, caus­ing local jobs to dis­ap­pear, mon­ey to become too expen­sive and trade to become very imbalanced.

Peo­ple look to a strong man — and usu­al­ly it’s a man — who promis­es to pro­tect them from these forces. That is exact­ly what Don­ald Trump has done. He said he could pro­tect Amer­i­can soci­ety from migra­tion: Hence, the build­ing of a wall. He thinks he can pro­tect the Amer­i­can econ­o­my and Amer­i­can jobs from what he regards to be unfair trade. The pop­u­lar­i­ty of Don­ald Trump is based on these promis­es that Amer­i­can soci­ety will be pro­tect­ed from unac­count­able, detached and remote mar­ket forces that are beyond the con­trol not just of reg­u­la­tors, but also of demo­c­ra­t­ic governments.

Gov­ern­ments on both sides of the Atlantic have said that there’s noth­ing we can do: The mar­ket thinks this ought to be the val­ue of the dol­lar; the mar­ket thinks this is where inter­est rates should be; the mar­ket thinks this is what the bond mar­ket should look like. By gov­ern­ments admit­ting that they have no pow­er over these mar­kets, or that they have ced­ed pow­er to these mar­kets, they them­selves become impo­tent in the face of these inter­na­tion­al forces. Vot­ers nat­u­ral­ly can see that. We can all say that gov­ern­ments are all shrug­ging their shoul­ders and say­ing, Noth­ing to do with me, guv.” And so peo­ple are say­ing let’s bypass gov­ern­ment and go find our­selves a strong leader. It might be Le Pen in France or Pres­i­dent Trump or Pres­i­dent Duterte in the Philip­pines or Pres­i­dent Modi in India, who will pro­tect us and our nation.

This ten­den­cy toward pro­tec­tion that Polanyi talks about, though, doesnt need to only fuel the Right. Do things like Occu­py Wall Street, and the rise of politi­cians like Jere­my Cor­byn and Bernie Sanders, hint at a pro­gres­sive, left-lean­ing retaliation? 

Yes. Again, in the 1930s soci­eties chose to be defend­ed but in dif­fer­ent ways. We had the rise of Hitler and Mus­soli­ni and oth­er fas­cists in Europe. But in the U.S. you had the rise of Pres­i­dent Roo­sevelt, who promised to pro­tect Amer­i­can jobs and who promised to put the bankers back in their place, and sub­or­di­nate the finance sec­tor to the inter­est of the econ­o­my as a whole. That was a pro­gres­sive response. And I think today we have the attempts at a pro­gres­sive response in some of these move­ments, but they haven’t made the same progress as the right-wing move­ments have.

Right now what is quite fright­en­ing is the degree of strength of the extreme Right, the cen­ter-Right and the far-Right, both in Europe and in the Unit­ed States. While there are left-wing move­ments — and they include the Cor­byn move­ment and the Occu­py move­ment — these haven’t been able to break through to the wider pop­u­lar imag­i­na­tion, and cap­ture the imag­i­na­tion of peo­ple. We find, for exam­ple, that while Cor­byn expounds great val­ues, his pop­u­lar­i­ty is quite low and is falling. And the Occu­py move­ment is now scarce­ly vis­i­ble, and was eclipsed by the Tea Par­ty movement.

So yes it’s quite pos­si­ble for there to be a pro­gres­sive reac­tion to these detached mar­ket forces. But what is most strik­ing about Europe is the extent to which social demo­c­ra­t­ic par­ties have lost the plot. We’ve seen in Hol­land that the Labor Par­ty has been almost dec­i­mat­ed in recent elec­tions. This has been the case across Europe. In France, the social demo­c­ra­t­ic par­ty is in decline. In Greece, the social-demo­c­ra­t­ic PASOK was wiped out by the finan­cial cri­sis there, because it was unwill­ing (or unable) to actu­al­ly pro­tect peo­ple from these forces. There are some signs in Ger­many that the social democ­rats there are regain­ing pop­u­lar­i­ty, and they’re doing so on the grounds of revers­ing some of the reforms that had hurt labor in the past. But it’s not at all clear that social demo­c­ra­t­ic can­di­date Mar­tin Schultz will win. Out­side of Ger­many, the trend is toward the Right and the far Right. And that is very worrying.

In the Unit­ed States were at a dif­fer­ent start­ing point, in that the Demo­c­ra­t­ic Par­ty has not been a func­tion­al­ly social demo­c­ra­t­ic par­ty for some timeif it ever was. What might a cor­rec­tive on that look like? How can pro­gres­sives talk about the econ­o­my in a way that responds to this moment?

The prob­lem with much of the left and pro­gres­sive move­ments is that they’ve had a com­plete blind spot for one of the most impor­tant sec­tors of the econ­o­my, which is the intan­gi­ble, invis­i­ble finance sec­tor, which built up more than 200 per­cent of GDP in debt and has tril­lions and tril­lions of dol­lars in assets and that is engaged in spec­u­la­tion across a whole range of asset class­es. The Left on the whole has just not dealt with that. The pre­oc­cu­pa­tion has been with the tan­gi­ble stuff: trade, labor rights and immigration.

What should hap­pen to sub­or­di­nate the inter­ests of the glob­al finance sec­tor to the inter­est of the peo­ple and democ­ra­cies? The Left doesn’t have an answer on that. Much of the Left — and I include the British social democ­rats and the Labour Par­ty under Tony Blair — are com­plete­ly wed­ded to the idea of glob­al­iza­tion and the idea that the mar­ke­ti­za­tion of pub­lic assets is a good thing. They’re com­plete­ly wed­ded to the idea that it’s vital for finance cap­i­tal to be able to be mobile across the globe, because it increas­es lev­els of invest­ment in places where invest­ment has been low.

That’s the sto­ry that’s been told. In real­i­ty, what mobile glob­al cap­i­tal has done is to mas­sive­ly enrich the 1% and to mas­sive­ly increase inequal­i­ty while at the same time ren­der­ing the lives of mil­lions of peo­ple incred­i­ble inse­cure, not only in terms of pub­lic ser­vices, but also in terms of employ­ment and rights. Glob­al­iza­tion doesn’t just mean the inter­net and new tech­nol­o­gy and for­eign trav­el, which is the way the Right would like to think about glob­al­iza­tion. To my mind, glob­al­iza­tion is first and fore­most the detach­ment of mar­kets and cap­i­tal and mon­ey from the over­sight of reg­u­la­to­ry democ­ra­cy. That way finan­cial mar­kets can avoid reg­u­la­tions and any of the fric­tion involved in, for exam­ple, pay­ing tax­es where they make profits.

We have a prob­lem here in Britain with Star­bucks and Ama­zon and oth­er big com­pa­nies, who are will­ing to do busi­ness and make prof­its here but unwill­ing to pay tax­es here. Peo­ple quick­ly pick up on the fact that they pay tax­es and these huge firms don’t, and yet do very well. And then you have Sil­i­con Val­ley and com­pa­nies like Uber, which extract rent, if you like, from British peo­ple using the Uber app, while at the same time under­min­ing the trans­port sec­tor here in Britain. We have all of this going on and very lit­tle is said about it by the Left.

You argue that its pos­si­ble to tame finance, and bring the pro­duc­tion of mon­ey back under pub­lic con­trol, giv­ing democ­ra­cies a big­ger say over how the econ­o­my oper­ates. In the U.S., we have a cab­i­net now thats stock full of Gold­man Sachs exec­u­tives. How does that com­pli­cate the project of reclaim­ing mon­ey pro­duc­tion and the economy? 

It mas­sive­ly com­pli­cates the issue. And it means that for some time there will be absolute­ly no chance of that hap­pen­ing, because Wall Street has cap­tured the polit­i­cal sys­tem and is manip­u­lat­ing it in its own inter­ests. They’re doing that at the invi­ta­tion of the pres­i­dent and his staff. And the prob­lem is that I don’t think the Amer­i­can peo­ple real­ly under­stand that. Take the exam­ple that Wall Street has done very well since the cri­sis, even though they were respon­si­ble for it. On the whole, what peo­ple care about is health­care and the ser­vices they get from their local states. These are the things that are going to mat­ter in the near-term and that a lot of lib­er­als will focus on, main­ly because there’s a poor under­stand­ing of money.

We tend to think of mon­ey as a com­mod­i­ty, like gold, that is scarce. And so because we have this flawed under­stand­ing of mon­ey, one that is very wide­spread — includ­ing by peo­ple like Paul Krug­man in the New York Times—it’s hard to under­stand how effort­less­ly banks cre­ate addi­tion­al finance and enrich them­selves at our expense, with­out ade­quate over­sight. What I fear is that this will go on for a while, and peo­ple will come to under­stand what is going on and the reac­tion will be even ugli­er. But if we look across the world, like in Chi­na for exam­ple, they are mak­ing stren­u­ous efforts to man­age their finan­cial sys­tem, cer­tain­ly the glob­al part of their finan­cial sys­tem. They’ve intro­duced what is known as cap­i­tal con­trol, to lim­it the flow of cap­i­tal out of Chi­na and into Chi­na — main­ly out of Chi­na. They’re doing to keep the econ­o­my in Chi­na sta­ble. Chi­na and the Chi­nese Com­mu­nist Par­ty can­not afford to have anoth­er insur­gency. They can­not afford to allow the finance sec­tor to desta­bi­lize the whole economy.

Even in this mod­ern age of new tech­nol­o­gy, it’s pos­si­ble for gov­ern­ments to act. There has to be the will to do so. There’s no will in the Unit­ed States, but we know that it can be done because it was done post-war: After the cat­a­stroph­ic fail­ure of the finan­cial sys­tem in the 1920s and 30s, economies came togeth­er with gov­ern­ments — led by Pres­i­dent Roo­sevelt — and came up with a new finan­cial archi­tec­ture, which sub­or­di­nat­ed the glob­al cap­i­tal mar­kets to the inter­ests of the domes­tic econ­o­my. And we had thir­ty years that is known in eco­nom­ics text­books as the gold­en age of eco­nom­ics. There was sta­bil­i­ty and vir­tu­al­ly full employ­ment and very few finan­cial crises. We know it can be done.

They had to cre­ate this finan­cial archi­tec­ture after a cat­a­stroph­ic World War. With the world in shreds they rebuilt. If they were able to make those changes, we know it’s pos­si­ble for us to make those changes. There has to be the polit­i­cal will, and for there to be the polit­i­cal will there has to be under­stand­ing and debate and dis­cus­sion pub­licly about the role of the finance sec­tor in cre­at­ing insta­bil­i­ty, volatil­i­ty and in job loss­es — all of the things that make Amer­i­can peo­ple insecure.

Whats the sto­ry to be told about a new eco­nom­ics, that car­ries the same sort of rhetor­i­cal pow­er that mar­ket fun­da­men­tal­ism has man­aged to in the last sev­er­al decades?

The nar­ra­tive is that the respon­si­bil­i­ty of a demo­c­ra­t­ic gov­ern­ment is to address and meet the inter­est of the domes­tic econ­o­my — of peo­ple liv­ing with­in the bound­aries of the nation. I think a real­ly impor­tant point to dis­cuss is this: That for a gov­ern­ment to make pol­i­cy — on pen­sion, on health­care or tax­a­tion — requires bound­aries. The Amer­i­can gov­ern­ment can­not make pol­i­cy for the British peo­ple when it comes to tax­a­tion. Amer­i­can tax pol­i­cy is bound by Amer­i­can bound­aries. Mon­ey and finance abhor bound­aries and want to exceed them. We have to tame cap­i­tal and finance and insist that they too are sub­ject to the bound­aries of pol­i­cy­mak­ing. Sub­or­di­nat­ing the finance sec­tor to the inter­est of the real econ­o­my must be the slo­gan of move­ments in the future.

Kate Aronoff is a Brook­lyn-based jour­nal­ist cov­er­ing cli­mate and U.S. pol­i­tics, and a con­tribut­ing writer at The Inter­cept. Fol­low her on Twit­ter @katearonoff.
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