Responses to Workshop Questions on Globa
Global Economic Crisis: Which Economy and What Crisis?
An exploration of alternative frameworks
Response prepared for a workshop at the University of Birmingham
2 April 2014
Sandy Brian Hager
Fellow in International Political Economy
Department of International Relations
London School of Economics and Political Science
[email protected]
sbhager.tumblr.com
1. What is the dominant theoretical approach that you adopt in understanding or explaining the occurrence of
the global economic crisis?
The theoretical approach that I develop to explain the global crisis – and political economy
more generally – isn’t a ‘dominant’ one. In fact, it is relatively new and marginalized, though
there are some signs that the approach is starting to gain traction (see Di Muzio 2013). This
power-centered approach to political economy, often subsumed under the label of ‘capital as
power’, has what I consider to be three distinguishing features.
First, the approach places the process of capitalization, the discounting of risk-adjusted
future earnings into present value, at the center of analysis. For existing theories of value,
both neoclassical and Marxist, this forward-looking process is treated as a mere fiction that
stands apart from what really matters in the so-called ‘real’ economy. Capitalization is also
the starting point for all finance textbooks, where it’s drilled into armies of business students
en masse. But for ‘capital as power’, this process isn’t just a fiction and it’s not just a benign
technical exercise. Instead, it is the central logic through which the price system is generated
and the entire capitalist order is governed. The very logic of the system compels capitalists to
accumulate differentially, and those that outperform the average end up redistributing
income and assets in their favour (Bichler and Nitzan 2014: 66). This dynamic quest for
differential capitalization, as the name of the theory suggests, is solely and only a matter of
power.
Second, the analytical focus of the approach is not on ‘capital in general’, but on dominant
capital – the cluster of large corporations and wealthy individuals – at the heart of
accumulation. This top-down approach is best viewed not as a general theory of society, but
as a theory of the worldview of dominant capital groups, and the symbols, language and
logic of capitalization through which they attempt to impose their will on society (Nitzan
and Bichler 2006: 28).
Third, the approach is anchored within a power theory of value, one that links together the
quantities of differential capitalization with the qualitative manifestations of power. We can
start by mapping the distribution of capitalized assets and income streams. This quantitative
map, however, only acquires significance once we start to link it to the qualitative power
1
conflicts and struggles that underlie the drive for differential capitalization. The linkages
between quantity and quality are partly speculative. And the validity of these linkages
depends on our abilities to tell a ‘scientific story’ that systematically ties together the
quantities and qualities of capitalist power (Nitzan and Bichler 2009: 313; Cochrane 2011).
One of the main advantages of this quality-quantity theory is that it offers research strategies
for empirically exploring capital accumulation; something that liberal and Marxist dual
quantity theories of value, anchored respectively in problematic units of ‘utility’ and ‘abstract
labour’, have had difficulty providing.
So how can this new power-centered approach help us to explain the current global financial
crisis? This is not a question that I have tried to tackle directly with my research, but it is
something that Bichler and Nitzan (2013, 2014) have tackled with reference to the US
experience. Their main argument is that this is a crisis of forward-looking capitalization. In
short, dominant capital (i.e. the ruling class) has lost confidence in the very process that
governs its worldview. Confidence in this case depends on the future abilities of dominant
capital groups to redistribute capitalized income streams in their favour. And in order to
redistribute income upward, dominant capital has to inflict more and more damage, or
strategic sabotage on the underlying population. But unprecedented concentration in wealth
and income, and the specter of ecological collapse, means that the system itself might be
pushing up against its asymptote. In other words, it is becoming increasingly difficult for
dominant capital to redistribute income upward without de-stabilizing the entire system.
Thus, paradoxically, the crisis is borne out of the unprecedented strength of dominant
capital. The power of dominant capital is becoming more difficult to augment further. Yet at
the same time, any attempt to reverse this power would require progressive redistribution
and the loosening of dominant capital’s grip over society, something that goes against the
very logic of accumulation. And given that, historically, there is a very tight counter-cyclical
relationship between the rate of unemployment and the capitalist share of national income,
what incentive does dominant capital now have to support a broad-based recovery (Bichler
and Nitzan 2014: 68)?
2. What actors are central to understanding the global economic crisis, what contribution did they play in
producing the crisis, and in what way?
This is a big question. And I want to avoid the temptation to merely reproduce general
arguments that explain the crisis. Instead, I will outline specifically how my own research on
the role of banks and other financial intermediaries in the US political economy might, in
some small way, help us to identify some of the key actors involved in the crisis (see Hager
2012).
Although it’s not necessarily an article of faith, I think common assumption within critical
political economy is that the rise of neoliberalism since the early 1980s served the interests of
the financial sector and, ultimately, helped to produce the crisis (see Duménil and Lévy 2004;
Bellamy Foster and Magdoff 2009). Examining the turn toward banking deregulation in the
1980s, my research suggests that this equation of neoliberalism with the interests of the
FIRE sector, although accurate at a very general level, misses out on some of the important
details concerning the class interests that underpinned the consolidation of neoliberal
2
hegemony. During this period, powerful groups within the FIRE sector were starkly divided
on the chipping away of the depression-era Glass-Steagall banking regulation. And I argue
that the power struggles and distributive conflicts that ensued between the dominant
commercial and investment banks over banking regulation shaped the development and
contours of the neoliberal project in its embryonic phase. I think that financial deregulation,
and especially the repeal of the Glass-Steagall Act, has an important role to play in explaining
the broader transformation of US capitalism over the past three decades. For example,
without this deregulatory wave, we wouldn’t have had the creation of the giant and complex
financial conglomerates that brought the global financial system to the brink of collapse in
2007-8. My research on the political economy of banking deregulation suggests that the
emergence of neoliberalism, which is so often blamed for producing the crisis, is more a
result of conflict within the financial sector than a reflection of the broader interests of the
financial sector.
3. Which actors benefited and which suffered as a result of the crisis, and why?
Again, it will be most productive to avoid generalities and try to comment specifically on the
relevance of my own research to this question. In particular, I think that my research on the
political economy of US public debt might help to shed some light on the on winners and
losers of the current crisis (see Hager 2013; Tett 2013).
Since the onset of the crisis, the portion of the US federal debt ‘held by the public’ has
doubled from 36 percent of GDP in 2007 to 72 percent in 2013. This explosive increase in
the federal debt raises an important question: who is exactly is buying this huge and growing
mountain of US Treasury securities? For the most part, policy makers and pundits alike have
fixated on the rising share of the federal debt owned by the ‘rest of the world’. Foreign
central banks and private investors now own around half of the federal debt, provoking fears
about the influence that foreign creditors, especially China, might have on US policy as a
result of their Treasury holdings.
But there is another aspect that has been completely overlooked in the current debates. And
that is the pattern of ownership by domestic private stakeholders within the US: the
American households and businesses who together still own roughly one-third, or US$3.8
trillion, of the outstanding federal debt.
The data is often patchy, but the estimates still reveal a staggering trend towards ownership
concentration over the past three decades. In the post-World War II period, the top 1% of
US households owned around 20 per cent of the household sector share of the federal debt,
while the largest 2,500 US corporations owned around 65 per cent of the corporate sector
share of the federal debt. Since the early 1980s, however, these shares have increased to over
40 per cent and 80 per cent respectively. What is perhaps most interesting is the rapid
increase in concentration that has taken place during the crisis. In 2006 before the onset of
the crisis, large corporations owned 77 percent of the corporate share of the public debt and
this share grew to 86 percent in 2010. Meanwhile the top 1% of households owned 38
percent of the household share of the public debt in 2007 and this share increased to 42
percent by 2010.
3
Does anyone then ‘suffer’ from this rapid concentration in the ownership of the US public
debt? Perhaps not, but it does indicate that large corporations and wealthy households at the
top of the hierarchy of capitalist power have been the primary beneficiaries of the ‘safe
haven’ that the US Treasury market offers to investors in times of crisis. This differential
advantage that dominant capital enjoys through its ownership of the public debt should
make us wonder whose interests are served by government macroeconomic policies.
References
Bellamy Foster, John and Fred Magdoff. 2009. The Great Financial Crisis: Causes and
Consequences, New York: Monthly Review Press.
Bichler, Shimshon and Jonathan Nitzan. 2013. Can Capitalists Afford Recovery? Economic
Policy When Capital is Power, Working Papers on Capital as Power, No. 2013/01: 1–36.
——— . 2014. How Capitalists Learned to Stop Worrying and Love the Crisis, Real-World
Economics Review, No. 66: 65–73.
Cochrane, D.T. 2011. Castoriadis, Veblen and the ‘Power Theory of Capital’, in I.S. Straume
and J.F. Humphreys (eds), Depoliticization: The Political Imaginary of Global Capitalism,
Aarhus: Aarhus University Press, pp. 89–123.
Di Muzio, Tim (ed). 2013. The Capitalist Mode of Power: Critical Engagements with the Power Theory
of Value, RIPE Series in Global Political Economy, London: Routledge.
Duménil, Gérard and Dominique Lévy. 2004. Capital Resurgent: Roots of the Neoliberal
Revolution, Cambridge MA: Harvard University Press.
Hager, Sandy Brian. 2012. Investment Bank Power and Neoliberal Regulation: From the
Volcker Shock to the Volcker Rule’ in H. Overbeek and B. van Apeldoorn (eds),
Neoliberalism in Crisis, International Political Economy Series, Basingstoke UK: Palgrave
Macmillan, pp. 68-92.
——— . 2013. What Happened to the Bondholding Class? Public Debt, Power and the Top
One Per Cent, New Political Economy, April: 1–28.
Nitzan, Jonathan and Shimshon Bichler. 2006. New Imperialism or New Capitalism?, Review,
29(1): 1–86.
Nitzan, Jonathan and Shimshon Bichler. 2009. Capital as Power: A Study of Order and Creorder,
RIPE Series in Global Political Economy, London: Routledge.
Tett, Gillian. 2013. Treasury Ownership Marks Wealth Divide, Financial Times, 15 November:
36.
4
An exploration of alternative frameworks
Response prepared for a workshop at the University of Birmingham
2 April 2014
Sandy Brian Hager
Fellow in International Political Economy
Department of International Relations
London School of Economics and Political Science
[email protected]
sbhager.tumblr.com
1. What is the dominant theoretical approach that you adopt in understanding or explaining the occurrence of
the global economic crisis?
The theoretical approach that I develop to explain the global crisis – and political economy
more generally – isn’t a ‘dominant’ one. In fact, it is relatively new and marginalized, though
there are some signs that the approach is starting to gain traction (see Di Muzio 2013). This
power-centered approach to political economy, often subsumed under the label of ‘capital as
power’, has what I consider to be three distinguishing features.
First, the approach places the process of capitalization, the discounting of risk-adjusted
future earnings into present value, at the center of analysis. For existing theories of value,
both neoclassical and Marxist, this forward-looking process is treated as a mere fiction that
stands apart from what really matters in the so-called ‘real’ economy. Capitalization is also
the starting point for all finance textbooks, where it’s drilled into armies of business students
en masse. But for ‘capital as power’, this process isn’t just a fiction and it’s not just a benign
technical exercise. Instead, it is the central logic through which the price system is generated
and the entire capitalist order is governed. The very logic of the system compels capitalists to
accumulate differentially, and those that outperform the average end up redistributing
income and assets in their favour (Bichler and Nitzan 2014: 66). This dynamic quest for
differential capitalization, as the name of the theory suggests, is solely and only a matter of
power.
Second, the analytical focus of the approach is not on ‘capital in general’, but on dominant
capital – the cluster of large corporations and wealthy individuals – at the heart of
accumulation. This top-down approach is best viewed not as a general theory of society, but
as a theory of the worldview of dominant capital groups, and the symbols, language and
logic of capitalization through which they attempt to impose their will on society (Nitzan
and Bichler 2006: 28).
Third, the approach is anchored within a power theory of value, one that links together the
quantities of differential capitalization with the qualitative manifestations of power. We can
start by mapping the distribution of capitalized assets and income streams. This quantitative
map, however, only acquires significance once we start to link it to the qualitative power
1
conflicts and struggles that underlie the drive for differential capitalization. The linkages
between quantity and quality are partly speculative. And the validity of these linkages
depends on our abilities to tell a ‘scientific story’ that systematically ties together the
quantities and qualities of capitalist power (Nitzan and Bichler 2009: 313; Cochrane 2011).
One of the main advantages of this quality-quantity theory is that it offers research strategies
for empirically exploring capital accumulation; something that liberal and Marxist dual
quantity theories of value, anchored respectively in problematic units of ‘utility’ and ‘abstract
labour’, have had difficulty providing.
So how can this new power-centered approach help us to explain the current global financial
crisis? This is not a question that I have tried to tackle directly with my research, but it is
something that Bichler and Nitzan (2013, 2014) have tackled with reference to the US
experience. Their main argument is that this is a crisis of forward-looking capitalization. In
short, dominant capital (i.e. the ruling class) has lost confidence in the very process that
governs its worldview. Confidence in this case depends on the future abilities of dominant
capital groups to redistribute capitalized income streams in their favour. And in order to
redistribute income upward, dominant capital has to inflict more and more damage, or
strategic sabotage on the underlying population. But unprecedented concentration in wealth
and income, and the specter of ecological collapse, means that the system itself might be
pushing up against its asymptote. In other words, it is becoming increasingly difficult for
dominant capital to redistribute income upward without de-stabilizing the entire system.
Thus, paradoxically, the crisis is borne out of the unprecedented strength of dominant
capital. The power of dominant capital is becoming more difficult to augment further. Yet at
the same time, any attempt to reverse this power would require progressive redistribution
and the loosening of dominant capital’s grip over society, something that goes against the
very logic of accumulation. And given that, historically, there is a very tight counter-cyclical
relationship between the rate of unemployment and the capitalist share of national income,
what incentive does dominant capital now have to support a broad-based recovery (Bichler
and Nitzan 2014: 68)?
2. What actors are central to understanding the global economic crisis, what contribution did they play in
producing the crisis, and in what way?
This is a big question. And I want to avoid the temptation to merely reproduce general
arguments that explain the crisis. Instead, I will outline specifically how my own research on
the role of banks and other financial intermediaries in the US political economy might, in
some small way, help us to identify some of the key actors involved in the crisis (see Hager
2012).
Although it’s not necessarily an article of faith, I think common assumption within critical
political economy is that the rise of neoliberalism since the early 1980s served the interests of
the financial sector and, ultimately, helped to produce the crisis (see Duménil and Lévy 2004;
Bellamy Foster and Magdoff 2009). Examining the turn toward banking deregulation in the
1980s, my research suggests that this equation of neoliberalism with the interests of the
FIRE sector, although accurate at a very general level, misses out on some of the important
details concerning the class interests that underpinned the consolidation of neoliberal
2
hegemony. During this period, powerful groups within the FIRE sector were starkly divided
on the chipping away of the depression-era Glass-Steagall banking regulation. And I argue
that the power struggles and distributive conflicts that ensued between the dominant
commercial and investment banks over banking regulation shaped the development and
contours of the neoliberal project in its embryonic phase. I think that financial deregulation,
and especially the repeal of the Glass-Steagall Act, has an important role to play in explaining
the broader transformation of US capitalism over the past three decades. For example,
without this deregulatory wave, we wouldn’t have had the creation of the giant and complex
financial conglomerates that brought the global financial system to the brink of collapse in
2007-8. My research on the political economy of banking deregulation suggests that the
emergence of neoliberalism, which is so often blamed for producing the crisis, is more a
result of conflict within the financial sector than a reflection of the broader interests of the
financial sector.
3. Which actors benefited and which suffered as a result of the crisis, and why?
Again, it will be most productive to avoid generalities and try to comment specifically on the
relevance of my own research to this question. In particular, I think that my research on the
political economy of US public debt might help to shed some light on the on winners and
losers of the current crisis (see Hager 2013; Tett 2013).
Since the onset of the crisis, the portion of the US federal debt ‘held by the public’ has
doubled from 36 percent of GDP in 2007 to 72 percent in 2013. This explosive increase in
the federal debt raises an important question: who is exactly is buying this huge and growing
mountain of US Treasury securities? For the most part, policy makers and pundits alike have
fixated on the rising share of the federal debt owned by the ‘rest of the world’. Foreign
central banks and private investors now own around half of the federal debt, provoking fears
about the influence that foreign creditors, especially China, might have on US policy as a
result of their Treasury holdings.
But there is another aspect that has been completely overlooked in the current debates. And
that is the pattern of ownership by domestic private stakeholders within the US: the
American households and businesses who together still own roughly one-third, or US$3.8
trillion, of the outstanding federal debt.
The data is often patchy, but the estimates still reveal a staggering trend towards ownership
concentration over the past three decades. In the post-World War II period, the top 1% of
US households owned around 20 per cent of the household sector share of the federal debt,
while the largest 2,500 US corporations owned around 65 per cent of the corporate sector
share of the federal debt. Since the early 1980s, however, these shares have increased to over
40 per cent and 80 per cent respectively. What is perhaps most interesting is the rapid
increase in concentration that has taken place during the crisis. In 2006 before the onset of
the crisis, large corporations owned 77 percent of the corporate share of the public debt and
this share grew to 86 percent in 2010. Meanwhile the top 1% of households owned 38
percent of the household share of the public debt in 2007 and this share increased to 42
percent by 2010.
3
Does anyone then ‘suffer’ from this rapid concentration in the ownership of the US public
debt? Perhaps not, but it does indicate that large corporations and wealthy households at the
top of the hierarchy of capitalist power have been the primary beneficiaries of the ‘safe
haven’ that the US Treasury market offers to investors in times of crisis. This differential
advantage that dominant capital enjoys through its ownership of the public debt should
make us wonder whose interests are served by government macroeconomic policies.
References
Bellamy Foster, John and Fred Magdoff. 2009. The Great Financial Crisis: Causes and
Consequences, New York: Monthly Review Press.
Bichler, Shimshon and Jonathan Nitzan. 2013. Can Capitalists Afford Recovery? Economic
Policy When Capital is Power, Working Papers on Capital as Power, No. 2013/01: 1–36.
——— . 2014. How Capitalists Learned to Stop Worrying and Love the Crisis, Real-World
Economics Review, No. 66: 65–73.
Cochrane, D.T. 2011. Castoriadis, Veblen and the ‘Power Theory of Capital’, in I.S. Straume
and J.F. Humphreys (eds), Depoliticization: The Political Imaginary of Global Capitalism,
Aarhus: Aarhus University Press, pp. 89–123.
Di Muzio, Tim (ed). 2013. The Capitalist Mode of Power: Critical Engagements with the Power Theory
of Value, RIPE Series in Global Political Economy, London: Routledge.
Duménil, Gérard and Dominique Lévy. 2004. Capital Resurgent: Roots of the Neoliberal
Revolution, Cambridge MA: Harvard University Press.
Hager, Sandy Brian. 2012. Investment Bank Power and Neoliberal Regulation: From the
Volcker Shock to the Volcker Rule’ in H. Overbeek and B. van Apeldoorn (eds),
Neoliberalism in Crisis, International Political Economy Series, Basingstoke UK: Palgrave
Macmillan, pp. 68-92.
——— . 2013. What Happened to the Bondholding Class? Public Debt, Power and the Top
One Per Cent, New Political Economy, April: 1–28.
Nitzan, Jonathan and Shimshon Bichler. 2006. New Imperialism or New Capitalism?, Review,
29(1): 1–86.
Nitzan, Jonathan and Shimshon Bichler. 2009. Capital as Power: A Study of Order and Creorder,
RIPE Series in Global Political Economy, London: Routledge.
Tett, Gillian. 2013. Treasury Ownership Marks Wealth Divide, Financial Times, 15 November:
36.
4