Inaugural Lecture Helsinki Collegium for Advanced Studies

1. Inaugural Lecture Helsinki Collegium for Advanced Studies Stephen Gill Jane and AatosErkko Professor in Studies on Contemporary Society 30 September 2009, University of Helsinki

2. The Constitution of Global Capitalism • Capitalism, the market and the economists; or: the Queen’s question • Capitalism as a system of power: Seven constitutive features of global capitalism • New constitutionalism, the Rule of Law and global politics • Concluding reflections; or: can a leopard change his spots?

3. Part I: Capitalism, the market and the economists Or The Queen’s Question

4. The Queen of England visits LSE • Queen Elizabeth II visited the London School of Economics in November 2008, to open its new building

5. The Queen was shown charts on the financial and economic crisis

6. The Queen’s Question • Queen asked, “If these things were so large, how come everyone missed them?” [Daily Telegraph 26 July 2009] • Prof Luis Garicano replied : “At every stage, someone was relying on somebody else and everyone thought they were doing the right thing.” • The Queen described it as “awful”.

7. The British Academy answers the Queen • In 2009 British Academy “experts from business, the City, its regulators, academia and government” send an open letter to reply to the Queen: • They concluded that it "was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole."

8. And what about the most powerful US economists? • Some saw it coming but were ignored or marginalized. • E.g. 2005, at a special conference of key policy makers and economists in honour of Alan Greenspan’s tenure at USFR, a warning that the US financial system was taking on potentially dangerous levels of risk was dismissed by those present. • Obama’s economic Czar, Larry Summers dismissed such warnings as “misguided.”

9. The conventional wisdom: IMF Global Financial Stability Report, April 2006 • The ‘dispersion of credit risk by banks to a broader and more diverse set of investors, rather than warehousing such risk on their balance sheets, has helped to make the banking and overall financial system more resilient’. • This has helped to “mitigate and absorb shocks to the financial system” with the result that “improved resilience may be seen in fewer bank failures and more consistent credit provision”.

10. PAUL KRUGMAN: How Did Economists Get It So Wrong? • “Economists were seduced by the vision of a perfect, frictionless market system” which made them “blind to the possibility of catastrophic failures in a market economy” • Since 2007 $13 trillion in US wealth lost. Official unemployment rose by over 6 million to highest level since 1940. Collapse has huge negative effects on rest of the world. • October 2008: Greenspan admits he is in a state of “shocked disbelief,” because, as he put it, “the whole intellectual edifice” had “collapsed.”

11. “Modern economics”& the future • Krugman: what do the two schools of “modern economics” have to offer as guidance for the future? • “Saltwater” economists are neo-Keynesians at “coastal” universities. e.g. MIT, Harvard, Princeton. They argue that macroeconomic intervention and regulation is needed to correct market instability. • “Freshwater” economists’ habitat is inland, e.g. adjacent to the Great Lakes. They hold that the market is not the problem; it should be allowed to operate free of government intervention.

12. Notes on a failed paradigm • Both schools are part of dominant neo-liberal paradigm which has focused relatively unquestioningly on promoting GDP growth, liberalizing trade and investment and the deregulation of labour markets and the financial sector. • This paradigm has served to bolster consumerism and financial interests, fuelling the global crisis of accumulation and the wider organic crisis.

13. Notes on a failed paradigm – 2 • The dominant paradigm is neither “objective” nor “scientific”. It is built on abstract assumptions & mathematical models that do not deal with the real economy, but a fictitious and hypothetical one, devoid of social content. • These economists still hold positions of authority and power; presumably teaching new economists the same failed paradigm.

14. Part II: Capitalism as a system of power Seven constitutive features of capitalism

15. Market system or capitalist system? • Galbraith: when economists substituted the “free market” for “capitalism” they removed wealth from their analysis and substituted “the admirably impersonal role of market forces”. • “It would be hard to think of a change in terminology more in the interest of those to whom money accords power.” • John Kenneth Galbraith, “Free Market Fraud” The Progressive, January 1999.

16. Global inequality & global power • December 28, 2006: Financial Times asks how, without reading Marx’s Capital, could one possibly explain how the world’s richest 2% of people now owned more than 50% of the world's global assets. • In fact the top 1% owned 40% of total global assets – 37 million wealthy people. • The bottom 50% (approx 3.3 billion people) collectively owned less than 1% of total wealth • The World Distribution of Household Wealth, by James B. Davies et al (UNU-WIDER December 2006)

17. Where the wealthiest live, 2000

18. Distribution of world GDP 1990 • UN Human Development Report 1992 • Richest 20% had 82.7% of world income; poorest 20% had 1.4%

19. Seven constitutive features of global capitalism: 1-3 • Restoration of political power of capital and the plutocracy -- reminiscent of the 1920s; extreme inequality of income, wealth & life chances is obverse of wealth of plutocracy. • Disciplinary neo-liberalism extends power of capital and market discipline in social life; extension of markets is accompanied by rising exploitation of labour and nature; • Acceleration in dispossession of producers of their means to subsistence – enlarges the size of the global proletariat “free” to sell its labour to capital.

20. Seven constitutive features of global capitalism: 4-5 • New constitutionalism locks in private property rights & subordination of the state to capital • Privatization of profits and socialization of the risks for corporations & the strong (e.g. bail outs). Increased privatization of risk for the weak (small firms, workers), especially as social provisions for social reproduction are cut.

21. Seven constitutive features of global capitalism: 6-7 • Capitalism is prone to two kinds of recurrent, systemic crises of accumulation: (1) cycles of overproduction/ under consumption & (2) financial crises caused by cycles of credit expansion and contraction -- especially in liberalized financial sectors. • Crises of accumulation are part of a wider “organic crisis. If 1- 6 continue it will deepen the “global organic crisis” in the foreseeable future.

22. Part III: New Constitutionalism, the liberal Rule of Law and global politics

23. Three dimensions of new constitutionalism • Measures to reconfigure state apparatuses - via laws, treaties, constitutional & institutional measures e.g. WTO, NAFTA, bilateral measures; Maastricht. • Measures to construct and extend liberal capitalist markets and the commodity form – into new territories & new market sectors; exploit new sources of labour supply; new types of property rights, e.g. patents and intellectual property rights over life-forms • Measures for dealing with crises and political challenges to disciplinary neo-liberalism.

24. The global crisis & rising hunger • “Almost unnoticed behind the economic crisis, a combination of lower growth, rising unemployment and falling remittances together with persistently high food prices has pushed the number of chronically hungry above 1bn for the first time”. Financial Times April 6 2009. • In fact we live in a world where half the world’s population suffers from malnutrition – 25% are over-fed, many of whom over-weight and obese, with 25% underfed or starving.

25. Global food prices increasingly determined by capitalist market forces • US production of subsidized grain export floods the world market in the 1990s & wipes out many small Third world producers – e.g. Mexico after NAFTA (1994) 1.17 million Mexicans are displaced from agriculture following trade liberalization. • A “perfect storm”? No -- recent price spike is mainly caused by man-made factors including: • Shift of US grain production to bio-fuels creates supply shortages. • Global futures trading e.g. in Chicago & New York markets, linked to speculation & rising food prices

26. Global prices & food sovereignty • 2005-8, food prices rise 83%; are still 60% higher than in 2006. 37 nations experience intense food crises 2008; world-wide riots break out. • Via Campesina, Landless Workers’ Movement in Brazil (MST) & other grassroots peoples’ organizations continue to press for food sovereignty & organic production. • April 2009, 58 Third World governments agree to redirect agriculture to support small scale farmers, women, local knowledge; counter global warming. • Food security/food sovereignty issue helps cause breakdown of Doha talks extending the WTO; G20 offers $20 billion to help agricultural productivity.

27. Part IV: Concluding reflections: or, can a leopard change his spots?

28. Il Gattopardo (The Leopard) President Obama represents the possibility to restore the credibility of US ruling class power by making minimum necessary concessions and changes in policy. Lampedusa’s novel, 1958: As Garibaldi’s revolutionaries invaded Sicily in 1860, the aristocrat Prince Tancredi observed: “Unless we take a hand now, they will force a republic on us. If we want things to stay as they are, things will have to change”

29. Towards an alternative paradigm of progress? • We need a new debate on democratically planned solutions, tax regimes & ownership so as to create just & sustainable societies. • E.g. debate a new & democratic global constitutionalism to guarantee three sets of substantive freedoms, rights and conditions: • human rights (including freedom of conscience; of expression; of association); • human security (freedom from violence, discrimination and intolerance; rights to food, clean water and the means of livelihood) • human development (rights to: non-alienating work, education, leisure, sports, art & music).