Professor of Economics,
University of Athens
The election of Donald Trump symbolises the demise of a remarkable era. It was a
time when we saw the curious spectacle of a superpower, the US, growing
stronger because of – rather than despite – its burgeoning deficits.
It was
also remarkable because of the sudden influx of two billion workers – from
China and Eastern Europe – into capitalism’s international supply chain. This
combination gave global capitalism a historic boost, while at the same time
suppressing Western labour’s share of income and prospects.
Trump’s success comes as
that dynamic fails. His presidency represents a defeat for liberal democrats
everywhere, but it holds important lessons – as well as hope – for
progressives.
From the mid-1970s to
2008, the US economy had kept global capitalism in an unstable, though finely
balanced, equilibrium. It sucked into its territory the net exports of
economies such as those of Germany, Japan and later China, providing the
world’s most efficient factories with the requisite demand. How was this
growing trade deficit paid for? By the return of around 70% of the profits made
by foreign corporates to Wall Street, to be invested in America’s financial
markets.
To keep this recycling
mechanism going, Wall Street had to be unshackled from all constraints;
leftovers from President Roosevelt’s New Deal and the post-war Bretton Woods agreement which sought to
regulate financial markets. This is why Washington officials were so keen to
deregulate finance: Wall Street provided the conduit through which increasing
capital inflows from the rest of the world equilibrated the US deficits which
were, in turn, providing the rest of the world with the aggregate demand
stabilising the globalisation process. And so on.
What goes up
Tragically, but also
very predictably, Wall Street proceeded to build unfathomable pyramids of
private money (also known as structured derivatives) on top of the incoming capital
flows. What happened in 2008 is something small
children who have tried to build an infinitely tall sand tower know well: Wall
Street’s pyramids collapsed under their own weight.
It was our generation’s
1929 moment. Central banks, led by US Fed chief Ben Bernanke, a student of the
1930s Great Depression, rushed in to prevent a repetition of the 1930s by
replacing the vanished private money with easy public credit. Their move did
avoid a second Great Depression (except for weaker links such as Greece and
Portugal) but had no capacity to resolve the crisis. Banks were refloated and
the US trade deficit returned to its pre-2008 level. But, the capacity of
America’s economy to equilibrate world capitalism had vanished.
The result is the Great Western Deflation, marked by
ultra low or negative interest rates, falling prices and devalued labour
everywhere. As a percentage of global income, the planet’s total savings are at a world
record level while aggregate investment is at its lowest.
When so many idle
savings accumulate, the price of money (ie. the interest rate), indeed of
everything, tends to fall. This suppresses investment and the world ends up in
a low-investment, low-demand, low-return equilibrium. Just like in the early
1930s, this environment results in xenophobia, racist populism and centrifugal
forces that are tearing apart institutions that were the Global Establishment’s
pride and joy. Take a look at the European Union, or the Transatlantic Trade
and Investment Partnership (TTIP).
Bad deal
Before 2008, workers in
the US, in Britain and in the periphery of Europe were placated with the
promise of “capital gains” and easy credit. Their houses, they were told, could
only increase in value, replacing wage income growth. In the meantime their
consumerism could be funded through second mortgages, credit cards and the
rest. The price was their consent to the gradual retreat of democratic process
and its replacement by a “technocracy” intent on serving faithfully, and
without compunction, the interests of the 1%. Now, eight years after 2008,
these people are angry and are getting even.
Trump’s triumph completes the mortal wounding this era
had suffered in 2008. But the new era that Trump’s presidency is inaugurating,
foreshadowed by Brexit, is not at all new. It is, indeed, a post-modern variant
of the 1930s, complete with deflation, xenophobia, and divide-and-rule
politics. Trump’s victory is not isolated. It will no doubt reinforce the toxic
politics unleashed by Brexit, the undisguised bigotry of Nicolas Sarkozy and Marine Le Pen in
France, the rise of the Alternative für Deutschland, the
“illiberal democracies” emerging in Eastern Europe, Golden Dawn in Greece.
Thankfully Trump is not
Hitler and history never repeats itself faithfully. Mercifully, big business is
not funding Trump and his European mates like it was funding Hitler and
Mussolini. But Trump and his European counterparts are reflections of an
emergent Nationalist International that the world has not seen since the 1930s.
Just as in the 1930s, so too now a period of debt-fuelled Ponzi growth,
faulty monetary design and financialisation led to a banking crisis that begat
deflationary forces which bred a mix of racist nationalism and populism. Just
like in the early 1930s, so too now a clueless establishment aims its guns at
progressives, such as Bernie Sanders and our first Syriza government in 2015, but
ends up being upended by belligerent racist nationalists.
Global response
Can the spectre of this
Nationalist International be absorbed or defeated by the Global Establishment?
It takes a great deal of faith to think that it can, in view of the
Establishment’s deep denial and persistent coordination failures. Is there an
alternative? I think so: A Progressive International that resists the narrative
of isolationism and promotes inclusive humanist internationalism in place of
the neoliberal Establishment’s defence of the rights of capital to globalise.
In Europe this movement
already exists. Founded in Berlin last February, the Democracy in Europe Movement (DiEM25) is
attempting to achieve that which an earlier generation of Europeans failed to
do in 1930. We want to reach out to democrats across borders and political
party lines asking them to unite to keep borders and hearts open while planning
sensible economic policies that allow the West to re-embrace the notion of
shared prosperity, without the destructive “growth” of the past.
But Europe is clearly
not enough. DiEM25 is encouraging progressives in the US, who supported Bernie Sanders and Jill Stein, in
Canada and in Latin America to band together into a Democracy in the Americas
Movement. We are also seeking progressives in the Middle East, especially those
shedding their blood against ISIS, against tyranny, and against the West’s
puppet regimes to build a Democracy in the Middle East Movement.
Trump’s triumph comes
with a silver lining. It demonstrates that we are at a crossroads when change
is inevitable, not just possible. But to ensure that it is not the type of
change that humanity suffered from in the 1930s, we need movements to spring
out and to forge a Progressive International to press passion and reason back
into the service of humanism.
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