Interview with Richard D. Wolff: Part 2

Ian Seda (IS): What has led to the various austerity measures that have been proposed and implemented in various European countries during the last months?

Rick Wolff (RW):Austerity’s immediate cause was the threat by lenders that they might not renew existing loans or make additional loans to these countries and/or charge them much higher interest rates unless those countries raised significant new money to guarantee the servicing of their debts. Lenders demanded that indebted governments either raise more in taxes or cut expenditures or both: i.e., “austerity”. Because the US borrowed so much more over the last 2 years and because it remains the world’s least risky debtor, lenders can demand more from all other countries. Lenders can lend all they want to the low-risk, heavily borrowing US, so they demand much more from riskier borrowing nations unless those nations impose an austerity that reduces lenders’ risks.

The global crisis suddenly forced the US and many other countries to vastly increase global borrowing to finance crisis management. New borrowings added to the long accumulation of debt by many governments who borrow rather than face (1) the political enmity of the business interests and wealthy who do not want to pay taxes and/or (2) the mass resistance of people who will not pay more in taxes. Borrowing allows such nations’ leaders to support business and the masses without taxing them more. That option for those leaders has now been damaged by the global capitalist crisis.

Not the least irony of the situation is that among the most important lenders to national governments are major global banks whose collapse provoked governments to undertake massive borrowing to rescue those banks (as well as global credit markets). The banks benefited because rising national debts financed their rescue by governments; in return, they now threaten their riskier benefactors and press austerity upon them.

Of course austerity can take different forms. Imposing austerity is a risky move by a desperate governmental apparatus, since it sharpens struggles internally over who will pay more taxes and who will suffer cuts in payments and services from the government.

(IS): Who are the major lenders to the U.S?

Treasury securities – the main form of the US national debt – are owned by both private (60 per cent) and public (40 per cent) creditors. The biggest single creditor is the U.S. Federal Reserve which buys and sometimes sells Treasury securities as a means of manipulating the money supply to influence the economy. The nations whose private and public creditors together have by far the largest holdings of US treasury debt today are the People’s Republic of China and Japan with roughly  $ 900 and $ 800 billion respectively out of a total foreign ownership of Treasury debt equal to $ 4 trillion (all data as of April 2010). Private owners of US Treasury debt include banks (on their own accounts and as trust and fund managers and advisers), pension funds, insurance companies, stock brokerages, etc

(IS): You recently had the chance to visit the latest scapegoat of the crisis, Greece. What general thoughts can you share with us about that particular situation?

(RW): Greece is a place now of sharpening struggles. Europe is close behind as the schedule of general strikes into Fall 2010 show. Greece has a militant working class that cannot be squeezed as easily as in many other capitalist countries. At the same time, it has a highly concentrated business structure and the small wealthy strata it sustains. Notorious tax evasion has been coupled with a relatively generous public employment and remuneration system: both financed with borrowing.

The plan for Greece – both its harsh form demanded by private lenders and the EU’s less harsh substitute loan – have one goal: reduce the risk of Greek default. They do not want default hanging dangerously over Europe and spreading from Greece. Imposing austerity on Greece aims to remove the risk of defaults renewing crisis as lenders collapse again.

Greek workers are fighting back against an austerity aimed with mounting general strikes. While initially defensive, such actions might evolve into more basic challenges of capitalism itself.

(IS): What should we expect of the G-20 meetings in Toronto which have, as one of the important topics in agenda. the restructuring of the world financial system? Will we see something similar to the Bretton Woods Agreement in terms of the dominant role of the US in such proceedings?

(RW): In Toronto, capitalism’s leaders rediscovered Marx’s insight that capitalism is caught in a contradiction: capitalists constantly aim to lower the wages only to discover that workers can then not buy what capitalists need to sell. Thus Obama worried that austerity would reduce what workers and governments buy. Would that not hurt rather that help efforts to emerge from recession? Europe’s leaders simply repeated the “need” to impose austerity given what horrors defaults might unleash. Europeans, Americans, Japan, the BRIC – all experience the uneven global capitalist crisis differently. Each seeks to emerge from it in better shape than the others. The relative decline of the US excites many other capitalist countries even as they fear being destroyed by it.

(IS): What is your take on those that say that China and India will dethrone the US in terms of global hegemony?

(RW): At this point, that is pure speculation provoked by the much more rapid rates of growth of both Asian economies over the last 20 years when compared to that of the US. However, both economies remain much poorer than the US, and more dependent on the US as an export market than the US is dependent on them in any way. The recent economic development of both India and China has been extremely uneven. A relatively small part of those societies has gotten much richer while huge populations - in India even more than in China – remain outside the zones of rapid development. This has been typical for economic development paths of both private capitalism (private shareholders select private corporate boards of directors who employ workers and distribute their surpluses) and state capitalism (state apparatuses select state officials who employ workers and distribute their surpluses). No one can predict how the class struggles inside all three nations will evolve and interact with the complex interdependencies and competitions within and among them. The current global capitalist crisis has impacted them in different ways as each scrambles to minimize the damage and gain advantages vis-à-vis the others.

The long history of capitalism has repeatedly included wars – including world wars of unprecedented savagery – resulting from the internal class and other contradictions and national competitions among nations. Neither China nor India can contest the US hegemony militarily, nor will that change quickly. While US hegemony economically and politically is declining relative to its position in the last half of the 20th century, it is premature to declare whether that decline will continue, what forms that decline would take, how the US might deploy its military and continuing wealth advantages, and how India and China will manage their own internal contradictions and external relations.