- There's a favorite
quote of mine in the book
where Margaret Thatcher,
after she retires,
is being interviewed,
and the interviewer says,
"What do you think your
greatest accomplishment was?"
And she thinks for a minute and she says,
"I think my greatest
accomplishment was Tony Blair."
And Blair adopted far
more Thatcherite policies
than he needed to.
- I'm here today with Robert Kuttner,
the co-founder and co-editor
of "The American Prospect,"
and a professor at Brandeis University.
We're here to discuss his new book
"Can Democracy Survive Global Capitalism?"
to be published by Norton shortly.
Thanks for joining us Bob.
- Pleasure.
- It feels to me like
you're on to one big story.
It's about the whole fabric
of our social system,
and whether our economics
is enhancing our welfare,
as we're taught in our models,
or whether it's tearing apart
the fabric of our society.
- I'm trying in this book
to connect a number of dots.
The basic storyline is as follows:
during and after WWII,
the entire West had a very
unusual social contract
because there were counterweights
to the power of finance,
the power of capital
in the form of
democratic-elected governments,
in the form of labor unions,
that made it possible to have
this very unusual 30-year period,
throughout the West, this
wasn't just an American story,
where the economy grew nicely,
and it became more equal.
And this was not just
an accidental product
that some economic historians think
of the rebuilding after the war.
This was a deliberate social
contract, if you will,
that was the result of
some fortuitous events.
Namely the Great
Depression had discredited
both the Republican Party,
and it had discredited standard economics,
the idea that markets are self-regulating.
And then after the war,
both the corporate-right
and the libertarian-right
were very weak.
And so you had left-Catholic parties
and social democrats in Europe.
You had the Democratic
Party in the United States
in a more left-wing mood than usual.
And so for 30 years,
we built and prospered
from this unusual form
of managed capitalism,
or as some have called it,
repressed finance, empowered labor.
And that was a kind of social contract
that was unprecedented,
either before or since,
and it was the result, politically,
or this harmonic convergence of forces.
Now, this starts unraveling in the 70's,
and by the 80's the usual
suspects are back in charge
and they change the rules,
and they use globalization
to undo this social contract.
Important point here,
it's not the only brand of globalization.
I get very fed up with
the framing of this debate
as are you pro-trade, or anti-trade?
Are you pro-globalization,
or anti-globalization?
At Bretton Woods in 1944,
John Maynard Keynes,
who knew the importance
of a full employment form of
managed capitalism at home,
deliberately structured the ground rules
of the global economy so
that international finance
would not undercut the
ability of nation-states
to have a prosperous
egalitarian form of capitalism.
That also gets shifted into
a form of globalization
that deliberately undermines
these social contracts
rather than reinforces them.
The last point, what you get?
You get a backlash.
Of course you get a backlash.
'Cause when ordinary people are harmed
and their aspirations are
destroyed for 30 or 40 years,
what happens is not that the
workers of the world unite.
What happens is you get
support for neo-fascism,
you get support for the
racialization of economic grievance,
and the demonization of the other.
And again, just as the
post-war story was systemic,
this story is systemic,
and the same kinds of
nationalistic dictators
and false-populists, who are
really in bed with the 1%,
are gaining influence everywhere.
- Let's go back to the 70's,
how it starts to come unraveled.
We've talked about Paul Samuelson
warned economists in a paper he called
"International Trade for Rich Countries,"
which he delivered at
the Chamber of Commerce,
the Swedish-American
Chamber of Commerce in 1972.
Walter Wriston is credited
with being the person
who changed finance from something you did
until three o'clock before playing golf,
to a new, dynamic, creative,
innovative profit center
within the economy.
And now we have what they
call financialization.
What were the building blocks of stress
that led to the resurgence
of the usual suspects
you described moments ago?
- It's very interesting.
Some of this was random,
and some of it was deeply systemic.
Because in a capitalist economy,
it is anomalous to have
the kind of repression
of the power of capital
that we had during the post-war boom.
It took strong unions.
It took the war giving
unusual powers to the state.
It took this very usual period
where real interest rates were negative
during the 50's and 60's,
which meant that the rentier class,
the asset-owning class, didn't do so well,
and everybody else did very well
because the rest of the economy
had very cheap capital costs.
So it's anomalous to expect
that a capitalist economy would continue,
even though this is very
good for everybody else
and did not deter innovation,
or entrepreneurship, or economic growth.
So in the 70's you have
this convergence of events.
First of all, Bretton Woods collapses.
And Bretton Woods, to some
extent, was an anomaly
because as Robert Triffin long warned,
the dollar was not capable of being
the de facto global currency,
and being the currency
of the United States of America
without courting inflation.
And then Bretton Woods
might have been reformed,
but Nixon, because of Watergate,
was otherwise engaged,
and was not the least bit interested
in reforming Bretton Woods.
And then you had the 1973 war,
Israel versus the Arabs,
and so while Nixon in
preoccupied with Watergate,
and Bretton Woods is collapsing,
the dollar price of oil goes down
because the dollar has been devalued.
And the Arabs are very
annoyed at the West,
and so they see a moment in which OPEC
can raise oil prices without being invaded
because everybody else
is otherwise engaged,
and they get away with it.
The price of oil is quadrupled,
and then that cycles through the economy
in the form of higher prices.
- And we come out of the Lyndon Johnson
led guns and butter,
after the race riots--
- [Robert] With some inflation.
- And Vietnam.
So there was pressure,
upward pressure on wages, some inflation,
and a compression of profits.
And then, what might call
the straw that broke the camel's back
was the compression
related to energy price
squeeze on profits.
- Yes, so you have a very
turbulent, unstable economy,
and you have the beginning
of this anomalous stagflation
where you have both
inflation and stagnation
at the same time,
and you have a weak
president in Jimmy Carter.
And so all of this serves to discredit
the so-called Keynesian
management of the economy.
They really weren't Keynesian.
They were centrists.
But the right in economics,
Milton Friedman and company,
in politics, Ronald Reagan and company,
even though the 30's had
completely discredited the idea
that markets are self-correcting
or self-regulating,
this old idea gets another turn.
And so it gets resurrected
at the level of ideology,
and a professional economics,
and it gets back in the saddle
at the level of politics.
Of course, first with
Thatcher, and then with Reagan.
And then when these people get into power
they double down on
destroying the social contract
of the mixed economy.
- Well, this Lewis Powell memo
that was written to
the Chamber of Commerce
before he became a Supreme Court Justice,
I think, late in the Nixon term,
almost paints the picture
of where they're gonna go,
vis is vis universities,
vis a vis government,
vis a vis the media,
to market a restoration
of the, how you say,
strength of corporate power,
and the importance of markets,
and the importance of finance.
- Well, and, it's, you
know better than I do,
and the last word that you said, I think,
deserves to be italicized here.
It's finance.
Not just corporation,
it's financial capital.
It's Wall Street, it's
the city, it's banking.
And so, you know, banking
in the 30's and 40's
had almost become a public utility.
It was very, very, very
tightly constrained
in terms of what banks could do.
We had one set of regulations
for commercial banks,
one for investment banks,
and I think it was Simon
Johnson who pointed out
that right after the war,
the financial sectors,
maybe 12 or 13% of all corporate profits,
and on the eve of the collapse it's 46%.
So that's not because the
financial sector's contributing
that much benefit to
the rest of the economy.
Rather, it's a leech on
the rest of the economy.
But all of that economic power translates
into political power,
and you get a self-reinforcing cycle.
The more political power they get,
the more they change the
rules to their own benefit.
- In your book, you have a chapter
on the decline of the center-left.
- [Robert] I actually
call it the disgrace.
- The disgrace, that's right.
- And this is Schroeder,
Clinton, and Blair,
who were buddies.
Who had the same analysis
of what center-left parties had to do.
Namely, that had to become
more like center-right parties.
And so when the collapse comes,
you say, well, where's
the opposition party?
There is no opposition party
because the things that
led to the collapse,
who's fingerprints were on them?
Well, Clinton, Schroeder, and Blair.
They were co-conspirators
in the deregulation
and ultra-financialization
that had led to the collapse.
So when people start
looking for a champion,
where do they look?
Well, they look to Syriza in Greece,
except the rules are so rigged
that even when a radical
party get elected,
the radical party is forced
to be brought to heel
because the austerity party--
- [Rob] They're embedded in the system.
- has so much power.
- Do you see the pressures
on the center-left parties
related to the rise of money-politics?
That they felt like
they had to build bigger
and bigger war chests in order
to play in the mass media,
and be suitable for election?
Or do you think it's a changing balance
with the structure of interests?
You mentioned the rise of finance.
What's driving them to their disgrace?
- Well, it's both.
And of course, Schroeder,
Clinton, and Blair
have all become wealthy men.
They didn't have to become wealthy men.
I mean, Jimmy Carter did
not become a wealthy man.
And so some of it, I think,
is venality and corruption.
Some of it is a feeling that, yeah,
we gotta get in bed with Wall Street
to be financially competitive.
But Bill Clinton did not
have to give Robert Rubin
the power that he gave Robert Rubin.
I wrote a piece on Rubin in 2007,
called "Fatal Attraction,"
about the Democratic
Party and Robert Rubin.
And in researching that piece,
I went and I read every major piece
that had ever been written on Bob Rubin.
This was the first
unfavorable feature piece
that had ever been written on Bob Rubin.
Rubin had the press
eating out of his hand,
and there was that famous
cover of "Time Magazine,"
- [Both] "The Committee to Save the World"
- Greenspan and Larry Summers, right?
- Right.
So these people, did they save the world?
No, they cost the world
20 trillion dollars of GDP
when their policies brought
about the financial collapse.
So I guess in the book,
I try to link this story
of how the social compact
that used to serve ordinary
people was done in,
and then how that led to
the rise of neo-fascism,
and what we might do about it.
- People have often said that capitalism
gets its moral authority from
being governed by democracy.
But as the democracy,
how would I say,
is increasingly exhibiting despair
because the economic system
has not been responsive,
it becomes extreme.
It elects people like the
people you're talking about
around Europe, like Donald Trump.
And I think there's a great danger here
that we may lose faith in democracy
as the corrective mechanism.
- No question about that.
And what I argue in the book
is that democracy is being
pummeled from two sides.
First, as corporate
capital, financial capital,
increasingly makes the rules,
the compass of democracy to govern,
especially to govern the economy,
is being narrowed.
So you have trade deals that say
we're gonna have a clause that allows you
as part of a trade deal to argue
that ordinary health, safety,
environment, and labor regulation,
violate my right to do
free trade under NAFTA,
or violate my right to do free trade
under TTIP, or whatever.
This is investor-state dispute resolution.
It's removing from the province
of democratic governance
to a kangaroo court,
all kinds of issues involving
the governance of capitalism.
So from one side, and
Dani Rodrik, I think,
is the great spokesman for this viewpoint.
A professor at Harvard.
From one side, the takeover
of the rules by the 1%
is narrowing the ability of
government to govern capitalism.
From the other side, the reaction to that
on the part of ordinary people,
is calling into question
whether we even care
about democracy itself.
So you can see the domain
of democratic government
being shrunken, and
shrunken, and shrunken.
And we gotta take that back.
