The View From Europe.
Interview with DR.
March 16th, 2011
BONNIE FAULKNER: This is Guns and Butter [theme music] Listen [http://www.kpfa.org/archive/id/68300]
DR. MICHAEL HUDSON: So basically, the United States is in danger of being turned into a feudal type of "toll-booth" economy: in other words, rent extraction. The idea is not at all today what Marx and socialists talked about a hundred years ago, making profits. It's not about what the classical economists called "profit". It's about rent extraction, a pure monopoly power to charge for access, to use a road, the park, to use a hospital, to have education, to have medical care, for essentially monopoly rents on natural monopolies such as transportation, and most basic infrastructure.
BONNIE FAULKNER: I'm Bonnie Faulkner. Today on Guns and Butter, Michael Hudson. Today's show, The View From Europe. Dr. Hudson is a financial economist and historian. He is president of the Institute for the Study of Long Term Economic Trend, a Wall Street financial analyst, and Distinguished Research Professor of Economics at the University of Missouri, Kansas City. His 1972 book, Super-Imperialism The Economic Strategy of American Empire is a critique of how the United States exploited foreign economies through the IMF and World Bank. He is also author of Trade, Development, and Foreign Debt; The Myth of Aid; and Global Fracture The New International Economic Order. Today we discuss Dr. Hudson's most recent article, "The Spectre Haunting Europe Debt Defaults, Austerity, and Death of the Social Europe Model".
BONNIE FAULKNER: Michael Hudson welcome.
DR. MICHAEL HUDSON: Thank you very much.
BONNIE FAULKNER: In your recent article, "The Spectre Haunting Europe", you say that bankers and the financial press are asking European governments to emulate the financial and fiscal austerity policies of Latvia. Is fiscal austerity what you mean by "The Spectre Haunting Europe"?
DR. MICHAEL HUDSON: Yes. It means that countries have to increase their taxes in order to squeeze out enough revenue, slash imports, and generate enough foreign exchange to pay the foreign debts that their banks made so irresponsibly.
BONNIE FAULKNER: What policies has the government of Latvia implemented?
MICHAEL HUDSON: Well, for starters, they've lowered wage rates in the public
sector by 30%, in order to drive them down across the board. And the head of
their central bank told me he'd like to bring them down to about 45%. Latvia
has a 59% flat tax on labor. The highest in the entire world. It has a 1% tax
on property. So essentially, labor is being forced down and being made
uneconomic to employ, so that the government won't have to tax real estate, and
the result was a real estate bubble. The World Bank applauded Latvia, and the
Baltic Tigers, for being the most "business-friendly" economies in
the world, meaning the most anti-labor, the most anti-social, the most that are
running their economies for foreign bankers. The situation is so bad in
Latvia, or I should say, so successful from the World Bank's point of view,
that one third of Latvian labor of working age has been driven abroad to work.
And the situation there is so bad that real estate prices have fallen by 70%.
Now, when I met a year ago with the bank examiners, they explained to me, that they've
asked the banks to secure their position and these are mainly domestic
branches of Swedish banks that they've asked these banks to protect
themselves, not merely by getting a mortgage against the property, but by
getting the personal liability of the mortgage borrower, the children, the
parents, and their relatives, so that they're all personally liable.
Well, now that the real estate prices have fallen by 70%, you can imagine what the result is. The result is that people are defaulting, and whole families are becoming liable. So mothers in Latvia, as in Iceland, are telling their children, "you've got to emigrate, we've all got to emigrate, because we're all liable for these back mortgage loans. So essentially, Latvia is being returned to a state of Feudalism, which of course is the final stage of Capitalism, World Bank style.
BONNIE FAULKNER: You write about the October 2010 election in Latvia. What's your evaluation of that election? What happened?
MICHAEL HUDSON: Well, elections in Latvia and in the Baltics generally are not
fought over economic issues, surprising as that may seem. They're mainly
fought over ethnic issues between the domestic population and the
Russian-speaking population. The problem is that in the 1950s, Stalin tried to
move Russian speakers into the Baltics in order to Russify them. And they were
given priority over the domestic economy, and it was pretty much of a disaster,
and caused enormous resentment. Essentially Latvia, which has a million
and a half population, about fifty percent of the middle class were arrested,
or exiled, or sent to Siberia. So the middle class were wiped out, Russians
were brought in, and Latvians, like the other Baltics, the Lithuanians and
Estonians, developed a very active global population abroad. And after the
Soviet Union fell apart in 1991, a lot of them began to come back, try to
rebuild the country. And needless to say, there was an enormous resentment
against the Russian speakers. So the economic reformers, who were trying to
alleviate the debt problem happened to be mainly the Russian speakers. They
were expected before the election to get about 50% of the vote. They only got
30% of the vote, because when the election came, they fought it largely over,
"well, do we want to give voting rights, equal citizenship rights to
Russian speakers?" They made the whole focus of the election Russian
rights instead of economic rights for Latvians and Russian speakers in the
economy as a whole, so Latvians were reminded about how angry they were
[laughs] at Stalin, and basically there was not enough votes for the parliament
to overturn the Neo-Liberal World Bank-oriented policies that say that the cure
is austerity. And by austerity it's what they call "domestic
devaluation" although Latvia has its own currency, and has linked its
own currency to a stable Euro value, and since it can't devalue, it has to
drastically lower wages and lower living standards.
So the Neo-Liberals won on the promise of cutting living standards in half, cutting back healthcare, closing down most of the hospitals and most of the schools, and essentially impoverishing the country. And the Latvians were applauded in the Wall Street Journal and the others, for voting for impoverishment and fighting it. But they really didn't vote for impoverishment: they really voted against Russian revanchism. Jeff Summers and I wrote articles about this for The Guardian, for Counterpunch, for other newspapers. So it's been discussed quite a bit on internet. It's a lot is on my website.
BONNIE FAULKNER: So the majority voted for these right-wing policies, but they were really voting along ethnic lines. They weren't thinking about economic policies.
DR. MICHAEL HUDSON: That's it. The ethnic issues in the Baltics trump everything.
BONNIE FAULKNER: Now you write that "Latvia's economic freefall has been the steepest of any nation since the 2008 financial crisis." Is that right? A steeper drop than any other country?
DR. MICHAEL HUDSON: Uh, well, right now it may be that Ireland is going to be in an even worse condition. And Iceland may be in a worse condition. On April 8th, Iceland is going to vote whether to take responsibility for bailing out the Landsbanki. And if they bail them out, half the population of Iceland will have to emigrate. They'll lose their homes. It will be genocide. Right now, about 50/50 about 50% of Icelanders want to commit suicide, economic suicide, and destroy the economy.
That's the power of Neo-Liberalism. They make people think that it's really a good sign, make people want to destroy the economy, tear it apart and lower their living standards. And all this in a democracy. It's hard to believe in a democracy, people are gonna want to vote for lower living standards. But that's basically what's happening. And I don't think anybody a century ago ever could have imagined such a thing.
BONNIE FAULKNER: Well, now, you've mentioned Iceland's public vote on April 8th as to whether or not to repay Britain and the Netherlands for the Landsbanki bailouts. Five billion is owed. I thought Iceland already had this vote, that it passed overwhelmingly, that they weren't going to pay, but that that was overturned by Iceland's parliament. Now they're going to have another vote?
DR. MICHAEL HUDSON: That's right. The ultra-right parties of Europe are the Labor parties and Social Democratic parties, joined by the Greens. Ironic that the Labor Party should be on the ultra-right of the political spectrum, but that's what's happened. As a matter of fact, many people blame this on [inaudible] financing or takeover, but the parliament insisted that there be yet another vote, and they tried to loosen the terms a bit, and they refused to have another election, and so this is essentially tearing Iceland apart. There was a by-election, and a party of television comedians, sort of like Al Franken, you might say, ran a protest vote, called the Best Party, people who were not political at all, they were overwhelmingly voted in! So the people of Iceland overwhelmingly want to throw out the existing anti-labor, anti-social-democratic, anti-green party, that call themselves Labor, Social Democratic, and Greens.
Parliament tried to insist, saying, "We don't care what the people vote, we want to pay the British banks", because otherwise all of our fraud and our criminal activities that involve all of our relatives and all of our giveaways will be exposed and we're all gonna go to jail! And the don't want to go to jail, so they're doing everything they can to cover it up, cover up their crimes. Eventually, this is what the situation is about. The president under Iceland's constitution the president of Iceland, not the prime minister, but someone who is basically in a ceremonial position, very much like a corporate secretary, has to sign on the parliamentary decision to pay the debts, and the president says, "I'm not going to sign this. If you're going to cut the population in half, and destroy the economy forever, and empty it out, and be the greatest natural disaster in the last thousand years, people should have a vote on this. Of course the prime minister said, "that's awful! You don't let people vote on something that's going to kill them." But the president said, "Yes, you've got to let them vote." So the president refused to sign, and that's forced it to a vote again. The people can't decide whether to commit suicide or not. You know, it's wintertime, it's a Nordic country, they get depressed what can you say?
BONNIE FAULKNER: So they're going to have the vote yet again. And so, assuming that the people vote that they don't want to pay this money back, then then what? Then we'll see what happens then?
MICHAEL HUDSON: Presumably the parliament is just going to stall as long as it
can and then say stall for an election until they can say, "the statute
of limitations has run out, you can't throw us in jail, we gave away the
country fair and square, and we're keeping everything that we stole."
BONNIE FAULKNER: Why does economic austerity appeal to bankers?
DR. MICHAEL HUDSON: Because they believe that if you can lower wages far enough, that will somehow free more income to pay them in the form of debt service. Now ironically, just the opposite happens. Obviously, if you impoverish people, they don't have enough money to repay, and there're going to be more defaults. So the bankers then say, "we can live with defaults." For instance, a few minutes ago, just before you called, Moody's just downgraded Greece's bonds by a few notches, and so The Wall Street Journal just came out with something saying "this is great. Greece is bankrupt. Let's privatize things."
I can read you from what they just said: The Wall Street Journal blog says "We don't hear nearly enough about privatization as a solution to Europe's sovereign crisis. Outside of Spain, where there are plans to privatize the airport and lottery, there is very little talk around the markets or around bankers of major state asset sales. If by some estimates, the Greek state owns 270 billion of real estate, much of it yielding well below the 6% the government must pay out on its emergency loans, some of which could be sold, to pay down the debt. So far, the Greek government has seemed RELUCTANT to consider selling this land. It doesn't even have a full inventory of what it owns. But with a total public debt of 340 billion, even realizing a fraction of this estimated value could transform the government's debt metrics."
bankers want austerity BECAUSE it will bankrupt the economy, because it will
force them to sell off the public domain and carve it up, and it's an asset
grab, just like it is in Wisconsin, Illinois, New York, California, and other
states here in America that are broke. There's a grab to say, "let's sell
off everything the public sector owns, let's give it to the bankers and the
creditors, and there won't be any government anymore, we will be the
government!" And that's basically what Free Market economics is: it's
centralized planning in the hands of Wall Street and the banks. The idea of
Free Market economics is to take planning out of the hands of government, out
of the hands of elected officials, and to put them in the hands of the bankers,
who then will take a banker's eye view of the world, and just lower living
standards, until you have what happened in Russia, where Vladimir Putin said
that "Neo-Liberal privatization had killed more Russians than World War
II", [Editor's note: that's 25 million] had shortened the lifespan,
reduced public health, led to lower birthrates, lower marriage rates, and emigration,
and the effect of Neo-Liberal economics is just as devastating as war. So
essentially, finance is the new form of warfare in a non-military sense. It's
cheaper, it makes money, and people seem to not even realize that they're under
BONNIE FAULKNER: I'm speaking with financial economist and historian, DR. MICHAEL HUDSON. Today's show, The View From Europe. I'm Bonnie Faulkner. This is Guns and Butter.
BONNIE FAULKNER: You contrast Latvia with its neighbor Belarus in your article, The Spectre Haunting Europe. Belarus has a centrally planned economy. What then is the difference between Belarus and Latvia? The point of this is, that Belarus is doing better economically. Correct?
DR. MICHAEL HUDSON: Yes. [laughs] People make fun of it because it's not a very free political economy. It's said that there's a lot of corruption there. But at least its metrics, economically, do a lot better than those of Latvia, ironic as it may seem. I think Jeff and I put that in mainly because we wanted to say, "Look, all of you make fun of centrally planned economies, but bad as they are, un-free as they are, politically corrupt as Stalinism is, at least it's not as bad as Neo-Liberalism. That was what we were saying, not that we were advocating that everybody be like Belarus.
BONNIE FAULKNER: Right. You say that Social Democracy and peace are at stake. How so?
MICHAEL HUDSON: Well, Social Democracy is supposed to be based on democracy,
and people are supposed to vote. But the financial sector wants to make
central banks, as they are in the United States, outside of the voting
process. It is said that the "hallmark of democracy is an independent
central bank", meaning, "We will screw you no matter what you vote,
no matter who you vote in, you can't stop us. You can't do anything because we
are appointed by politicians for a long period of time. There is nothing you
can do to bring us under control, and we can kill you if we want, and that is
just exactly what we intend to do. Try to stop us."
That is why democracy and finance are antithetical.
BONNIE FAULKNER: What is the connection between economic depression and war?
DR. MICHAEL HUDSON: Well [laughs] war has brought some countries out of economic depression, but in the past, the way to destroy a country was by military invasion, and today you can just destroy it by pushing it into a financial depression, by getting it into debt, and then forcing its government to run a budget surplus, to raise taxes to pay off the debt, to privatize its schools, to privatize its roads, to privatize its hospitals or close them down, to stop Social Security, to stop pensions, to stop paying on social things, to stop the idea is to use at least 75% of the tax revenues to pay the bankers on debts and back interest that have mounted up, that was the case of many countries in times past.
BONNIE FAULKNER: How important are capital controls, and government investment in the economy?
DR. MICHAEL HUDSON: Uh, government investment basically, governments will borrow from western banks, to put in place infrastructure, thereby getting the money to employ western firms that build it up, and then having put it in place, it will turn around and privatize them for maybe one penny on the dollar and give them all away, so the West, having already got paid once, can now get paid all over again by having a huge stock market boom, which is what happened in Russia, when Russia became sort of the darling of the stock market in the mid-1990s.
BONNIE FAULKNER: So then how do the economic policies instituted after World War II in Western Europe contrast with the policies in the 1990s after the Cold War in Eastern Europe? How do these economic policies differ?
DR. MICHAEL HUDSON: After World War II, everybody expected governments to take the lead in building infrastructure in supporting economic expansion. Governments followed a Keynesian policy, a pro-Labor policy, they put in place pensions and healthcare systems. Governments were part of a Keynesian type of social-democratic expansion. Exactly the opposite happened when the Soviet Union was carved up. There, wages went unpaid in Russia for six to nine months. Instead of government taking the lead, essentially government gave away all of the the mineral rights, the companies, the land the real estate, to political insiders to sell off very cheaply to American and European investors, and you had privatization, and western bankers running things to shrink the economy. Throughout the Soviet Union lifespans shortened, marriages declined, birthrates fell, emigration accelerated. In Russia, $25 billion worth of capital flight occurred per year. At the time, the Russian stock market was booming for American and European investors.
So you had essentially Russia following the junk economics that the Harvard boys from Harvard University imposed upon it, very much like the Chicago boys did in Pinochet's Chile after 1973 when there was a military coup there. And in fact, the Russian Free Market Party even called itself the "Pinochetistas", looking at Chile as the Free Market model that they emulated. So, you could say Russia was the final stage of the Chilean Neo-Liberalism.
BONNIE FAULKNER: You write that in contrast to the Marshall Plan's "government to government grants", the European Central Bank's focus has been on commercial lending to the Eastern European Countries. What are the differences? In other words, then, would you say that Eastern Europe, instead of being helped was simply being ripped off?
MICHAEL HUDSON: When governments spend money, it's basically on infrastructure
or some social policies, and it usually employs labor. When commercial banks
lend money, it's not to expand production or for a social purpose. It's
usually lent against collateral in the form of real estate or other
properties. So the commercial banks essentially fueled a huge real estate boom
in the Baltics and throughout the Soviet Union. You got the most rapid real
estate bubble there of anywhere except for Iceland, which called itself a kind
of quasi-post Soviet economy.
So the difference is between a social-democratic Keynesian expansion, and a financialized bubble economy.
BONNIE FAULKNER: You write that Eastern and Southern European countries were brought into the Eurozone with its strong currency and strict government lending programs with no way to develop their manufacturing. What do you mean by "strong currency"? And what do you mean by "strict government lending programs"?
DR. MICHAEL HUDSON: Well, a high currency exchange rate meant that labor is pretty high priced. When you change a currency, there's a world price for raw materials, a world price for oil, a world price for technology, but the only thing changed when you devalue a currency is the price of labor. But these countries entered at a rather high exchange rate, that was set basically by keeping their interest rates high enough to be able to borrow to support the exchange rate. So, their industry wasn't competitive, and the European Central Bank prohibits central banks from lending to government. So the governments, if they ran a budget deficit, they couldn't do what the United States does and simply print the money electronically on their computer keyboards, freely. They had to go out and borrow, at interest, from foreign banks. That was written into the European Constitution. So these Southern European countries were very high cost economies, and were unable to compete with the core countries of France and Germany.
BONNIE FAULKNER: Right. Well, what is the similarity between the IMF's austerity doctrine for the Third World, and the EU's expectations of Eastern and Southern Europe?
DR. MICHAEL HUDSON: They're identical. The idea that governments, once they're in debt, and once they owe foreign money, have to essentially squeeze money out of their labor force in order to pay debts. Now, Third World countries, under the IMF, were supposed to devalue. And by devaluing their currency, they devalued the price of their labor, and the rate at which their labor exchanged for imports and for raw materials. But under the European Union, they can't devalue the currency, so they have to simply lower wage rates there, by drastic austerity programs, and they do that by creating massive unemployment. So the European policy towards Southern Europe and the Baltics is enough unemployment to keep wages low. Well of course, what happens is, when you pay people less than it costs them to live, they emigrate. They don't simply starve quietly in the country. There's a huge emigration, and that's why you have so many Baltic workers working abroad, so many southerners, Greeks and Spaniards, working abroad. There's a demographic crisis that's going to be occurring as a result of the financial austerity programs that didnt necessarily occur in Third World countries under the IMF in the 60s and 70s and 80s.
BONNIE FAULKNER: What restrictions does the Euro place on its member countries?
DR. MICHAEL HUDSON: Essentially that they are not permitted to lend to the central banks and the central banks have to let the economy be run by commercial banks in America, England, and Germany. The commercial banks become the central economic planners, not the government, and essentially that the democracy is overruled by the centralizing planning in the financial institutions.
BONNIE FAULKNER: You write that "aside from the misery and human tragedies that will multiply in its wake, fiscal and wage austerity is economically self-destructive. It will create a downward demand spiral, pulling the EU as a whole into recession. Isn't this also the case for the United States?
DR. MICHAEL HUDSON: Well, you're seeing that in Wisconsin, now, and in California, and you're seeing that in the states. People believe that the next big budget uh financial crisis here will be default from the states and cities that can't pay their bills Illinois, Chicago, Wisconsin. And they're all told to do what Greece and other countries are being told to do: sell off all your public domain. Chicago's been told to sell off its streets and replace them with parking meters, so that they can raise the money in advance. They've been told to sell off their roads and turn them into toll roads. So basically, the United States is in danger of being turned into a feudal type of "toll-booth" economy: in other words, rent extraction. The idea is not at all today what Marx and socialists talked about a hundred years ago, making profits. It's not about what the classical economists called "profit". It's about rent extraction, a pure monopoly power to charge for access, to use a road, the park, to use a hospital, to have education, to have medical care, for essentially monopoly rents on natural monopolies such as transportation, and most basic infrastructure.
BONNIE FAULKNER: I'm speaking with financial economist and historian, DR. MICHAEL HUDSON. Today's show, The View From Europe. I'm Bonnie Faulkner. This is Guns and Butter.
BONNIE FAULKNER: European governments are pursuing policies of privatization, which we have been discussing, cuts in social spending such as health and essential services. In Greece in February, the eighth general strike since the financial crisis took place in response to a privatization and deregulation law by the Greek parliament. The bill abolished regulations on 150 professions, including workers in public transports, civil engineers, doctors, lawyers, pharmacists. The deregulation was demanded by the IMF and the EU as a condition for access to further loans. Greek officials have promised to raise 50 billion from privatization sales of state agencies. In the UK, the government has just published its "Big Society Plan to release the grip of state control". The goal is really to privatize state services such as health, education, and other essential social expenditures. Students in the UK have staged repeated mass demonstrations against this policy, but, it's going forward anyway. Is this the program all over Europe?
DR. MICHAEL HUDSON: Yes. What they call "the grip of state control" is to be replaced by the grip of financial control. In other words the grip of control by elected democracy is to be replaced by bankers and creditors who are immune from people's voting, and can do whatever they want. So what do you think is a tighter grip? That of elected representatives, or that of unelected bankers and Wall Street, saying "We want to take whatever you have. Pay us or else. Your money or your life." That's the choice that they're given, and that's what they're told to do by the World Bank and the IMF as arms of the US treasury.
BONNIE FAULKNER: So then, is this the program all over Europe?
DR. MICHAEL HUDSON: Yeah, that's the program. That's why some money managers in America and Europe are engaging in a capital flight of their own economies. They're putting their money into the BRIC countries Brazil, India, Russia, China, South Africa, Singapore countries that don't stand for this nonsense. So there's a capital flight out of Europe, out of North America, at the same time this is happening. So the financial managers themselves know that this won't work, but they say, "well, we're gonna grab as much as we can for as long as we can. Why not?"
FAULKNER: Well, it's a self-destructive policy then, right?
DR. MICHAEL HUDSON: Uh, it's destructive of the countries that follow it, but the bankers think"well, we're gonna end up as the new power elites. We're gonna end up owning the world." It's demographically destructive, because poverty means that people get sicker, it means they die quicker, it means they can't afford to get an education, it means productivity goes down, it means just a huge waste.
BONNIE FAULKNER: In Wisconsin, which you mentioned a little bit earlier, Governor Walker is attempting to destroy collective bargaining, a basic right of working people. What are the implications of this right on the part of the state government? Is this effort going to be tried across the country, depending on how it turns out in Wisconsin?
DR. MICHAEL HUDSON: Well, it's already been tried in a number of states, like Ohio. But the most important thing in Wisconsin isn't simply the collective bargaining. Of course they want to get rid of collective bargaining so that they can dictate lower salaries, but the main thing in Wisconsin, the bill that tries to abolish collective bargaining is 133 pages long, and the key parts of it are the privatization parts. The governor gets to sell off electric utilities, power utilities, whatever assets he wants to whatever at whatever price he wants to his campaign contributors, or whoever he wants to. So he could sell his main backers, the Koch brothers, say, an electric company for $1, and saying "it's in the public interest, private interest is better, after all, that's what they did in Russia." So you could have all of Wisconsin's, uh all of the public utilities, the streets and road and schools that have been built up over the last century, and the land, the forests, the beachfront, all just sold off for a dollar or two, to whomever he wants. Essentially it would be the biggest asset grab since the railway land grants of the mid-19th century.
BONNIE FAULKNER: In that regard, you've just written a short piece about some of the privatization grabs in different countries. You told a startling story about New Zealand, and other places. Could you mention a few of those?
DR. MICHAEL HUDSON: Well, there are a number of books about New Zealand. Again, the Labour Party in New Zealand, as in Australia, were the ultra-rightwing Thatcherite party, and they've tried to sell off everything they could throughout the country, essentially at giveaway. For instance, the privatized the electric utilities, saying that it would be more efficient to have it in private hands. But the first thing the new buyers did was said, "We want to increase profits by cutting costs. So we don't need to hire repairmen or fixit men in case anything goes wrong." And so they fired them all. And most of these people couldn't find work in New Zealand, and so they left the country. And then things began to break down and go wrong, and there were no repairs, and Auckland, the capital, was without power for months on end, just causing a devastation of New Zealand business. So the New Zealand economy is basically killed. It's dead, it's been privatized and carved up, and been left an empty shell. And the Labour Party is convinced still that this is more efficient.
The New Zealanders are so stupid, that they really believe that dying quickly in the dark is the way to help the world develop, because they're told this helps create wealth Alan Greenspan-style, for the financial sector. The country has committed mass suicide.
BONNIE FAULKNER: When did they privatize the electricity in Auckland?
DR. MICHAEL HUDSON: A few years ago. But they've been doing this since about 1990. I think Douglass came in as the privatizer there, and just began selling off everything he could, much more even than Margaret Thatcher did in London, and Pluto Press published a good book on that a few years ago. People don't usually talk much about New Zealand, but it's in just as bad a condition as the Baltic countries.
BONNIE FAULKNER: What do you mean, in terms of what has been privatized in New Zealand?
DR. MICHAEL HUDSON: [ a second or two lost in the audio? ] ation, causing just mass economic breakdown. They've sold off the water systems, the sewage system basically, nothing works. It's like London used to be.
BONNIE FAULKNER: Well, so then, how long has this privatization scheme been going on in New Zealand?
DR. MICHAEL HUDSON: Since about 1990. There are a number of books written about it in the 1990s, I know that Pluto Press published one. And it's just been an overall disaster. And it justs gets worse and worse, and the New Zealanders keep saying they want to privatize yet more and more. They're told, "yes things are worse because you didn't privatize enough. You're not poor enough." So the New Zealanders are saying, "OK, sell off even more of the state, we'll get even poorer, lower our living standards even more. Will that help?" Of course it doesn't help. It just declines and declines and declines.
BONNIE FAULKNER: How bad of shape is New Zealand in? What would you compare it to in another country?
DR. MICHAEL HUDSON: Uh, to the Baltics. To Latvia and other countries where a lot of skilled labor is emigrating.
BONNIE FAULKNER: Really? You're kidding! It actually compares with the Baltics?
DR. MICHAEL HUDSON: Well, I've never been to New Zealand, but I've been to Australia, and I meet New Zealanders here, New Zealanders in Australia. They've all told me they have to leave because there's no work in Australia [obviously he meant to say New Zealand]. There's no education, there's no hope for their children. There's only worse and worse poverty. And essentially the government has told them, "Drop dead or move, because we're selling off the country, and there's no room for New Zealanders to live in the country. Essentially it's like in Scotland when they evicted the tenants to put sheep on the land. They want to use New Zealand for the sheep to grow wool, and they're telling the people, "get off our land! It's ours now, and we want to grow sheep on it. We have no need at all for people."
BONNIE FAULKNER: Is the government in New Zealand presently a right-wing government?
DR. MICHAEL HUDSON: Yes, its a Labour-Social-Democratic Party.
BONNIE FAULKNER: I see. Because not that long ago, several years ago, I thought they had a more Liberal government, didn't they?
DR. MICHAEL HUDSON: Liberal today, uh they call themselves Liberal. But Liberal means privatization and the right wing. It's just the opposite of what Liberalism used to mean. Liberalism in the 19th Century meant freedom from unearned income. Freedom from land rent, from monopoly rent, and from privatization of banking. A Liberal meant that the government was supposed to take the lead, and that was what all of classical economics was all about. They wanted to tax away the land rent, the economics of Henry George and all that, or they wanted to nationalize the land and monopolies. But today Liberalism [in New Zealand] means abolish the government and turn all the power over to monopolies. Instead of making money by profits, by employing labor, to sell it at a markup, the products, the don't really care about industrial capital investment, or employing labor, or expanding production, or expanding markets. It's simply an asset grab. Let's just take over the assets, and get the people out of there.
BONNIE FAULKNER: So would you say that regardless of what party has been in power in New Zealand over the last decade or so, it's been the same type of NeoLiberal policy?
DR. MICHAEL HUDSON: That's exactly correct.
BONNIE FAULKNER: I see.
Some commentators have pointed out that the three major outbreaks of North African unrest, Tunisia, Egypt, and Libya, which have toppled two dictators and are threatening a third, occurred in three countries singled out for praise by the IMF as "success stories of free market restructuring" including large scale privatization, scaling back of economic and financial regulation, and massive job and social spending cuts. Do you agree that the revolts in North Africa are most fundamentally uprisings against the NeoLiberal "free market" pushed globally by the US and allied financial powers?
DR. MICHAEL HUDSON: Well, certainly, labor unions have taken a much stronger role, especially in Tunisia, than has been talked about in most of the papers. The problem is, these countries were educating a lot of people uh, basically, this is a bourgeois revolution, not an lower class revolution. A lot of people were educated, sent to college, [laughs] and then there's no work for them, because the economies have been Neo-Liberalized, and there's not much work in Neo-Liberalized economies, so needless to say, there was a lot of anger at the government. But it was also a reaction against the dictatorships that the Americans have been putting in power. The IMF, the World Bank and the US State Department praised these countries basically because they followed US policies. And US policies were, "let foreigners take as much of your raw materials as possible", and dictators are pretty good at controlling populations, and keeping them quiet. And so, they've been keeping their populations quiet for decades, and I'm told in Tunisia, for instance, that families all sort of suffered quietly, not really they were afraid to talk to each other about how bad things were. And once there were all of a sudden there was a spontaneous uprising against the dictator there, all of a sudden people began to talk to each other, and they found out what the neighbors thought. Many of them didn't even know their neighbors' names before. One of our faculty members at Univ. of Missori at Kansas City, said now the neighbors even know when each others' birthdays are. Suddenly it brought each other together, and they just decided that they were tired of being afraid.
that's how revolutions occur. People all of a sudden decide they're tired of
being afraid. And they thought, "What's the point of living in such
abject poverty? If it's this or nothing, we're as far down as we can be, we
have nothing to lose, we might as well fight back. And they began to fight
back, and it just spread because there was just such a anger, latent anger
throughout the country that what the American State Department, Hillary and her
right-wing gang, thought was the success of Mubarak in keeping people quiet
actually was just suppressing an enormous pressure that has simply exploded.
BONNIE FAULKNER: I'm speaking with financial economist and historian, DR. MICHAEL HUDSON. Today's show, The View From Europe. I'm Bonnie Faulkner. This is Guns and Butter.
BONNIE FAULKNER: What impact would such increases have on the prices of other commodities, such as food? Won't such price increases cause even greater social unrest? What parts of the world are most likely to see these results? Even China could be destabilized by social unrest, could it not?
DR. MICHAEL HUDSON: I don't think so. I don't sense any destabilization there at all. A lot of commodity funds are starting to invest in commodities. And when you have billion dollar hedge funds coming in, they can bid up the price of commodities, or drive them down in the same kind of zig-zagging patterns you have with foreign currencies or stocks and bonds, so I think once you have political instability in oil or in raw materials, you have an opportunity for hedge funds to come in and manipulate the financial price on forward trading, on derivatives, and so its much more financially driven than it is politically driven at the present time.
BONNIE FAULKNER: Well, right with the speculation of course. But oil prices and commodity prices are rising.
DR. MICHAEL HUDSON: Uh, they're rising partly because of an enormous amount of money going into Wall Street hedge funds and raw materials investment funds, commodity funds driving it up. Normally this is a new source of demand. The demand for raw materials is not for people to use, and the demand for food is not for people to eat. It's a demand by hedge funds and financial speculators to drive up the price and monopolize it.
BONNIE FAULKNER: I see. So you see these price increases basically as a result of speculation?
DR. MICHAEL HUDSON: Uh, yes.
BONNIE FAULKNER: OK. Criminals like Angelo Mozilo of Countrywide Financial are going off scot-free. The Justice Department has dropped its investigation of Mozilo, saying his activities did not amount to criminal wrongdoing. All he did was pocket over $500 million between 2000 and 2008 off the interest of high-risk sub-prime loans to low-income borrowers and the sale of the securities to Wall Street Banks which sold them on as Collateralized Debt Obligations. He also sold $10 million of his own stocks in Countrywide just before the company's collapse, while telling other company shareholders that the company was healthy. The Justice Department says that this is not criminal. Isn't the word "criminal" being redefined here? Who is in charge the financial sector, or the government?
DR. MICHAEL HUDSON: Well, financial crime has been decriminalized, basically, uh, for two reasons: in order to prosecute a crime, there not only has to be a crime, you need prosecutors, and you need investigators. Under Bush and Obama, the staffing of the Securities and Exchange Commission, the FBI, and other criminal agencies has been cut, so much, that there are no lawyers, no investigators to actually do the research to prosecute. And essentially, the only person who has been arrested is Bernie Madoff, who walked into police headquarters and said he surrenders. Nobody else has been sent to jail, and my University of Missouri, Kansas City, colleague William Black has written very extensively on this, on the UMKC economics blog on all of his columns. He was the prosecutor under the Savings and Loan scandal in the 1980s. And it's just amazing. You can read Naked Capitalism, for instance, Yves Smith's site, for a listing of the crimes, you can read the UMKC blog. It's obvious how much crime has occurred, but nobody's gonna be sent to jail, and even all of the settlements by the SEC have been made without acknowledging any criminal wrongdoing, just to make sure that in civil trials that the victims are not able to recover from the fraudsters. The real aim of not prosecuting is not to let any prosecution be used in a civil case to make people like Mozilo pay back the money that they've gotten. They can say, "Look, we didn't do a crime." Then it'll be much harder for a class action suit, or the victims of their crime to make any claim because the government is simply not supporting them.
BONNIE FAULKNER: That's a good point. If they're not prosecuted, then how can anyone go after them?
DR. MICHAEL HUDSON: That's right. And as Balzac said, "Behind every great family fortune is a great crime, often unforgotten" [Slight misquote here by Hudson. The actual quote is "Le secret des grandes fortunes sans cause apparente est un crime oubli้, parce qu'il a ้t้ proprement fait." (The secret of great fortunes without apparent cause is a crime forgotten, for it was properly done.)] And, uh, Economics should begin with that. You'd think Economics textbooks, with Economics 101, the first class should be on crime, because that's what pays more than anything else. That what pays even faster than finance. And yet they don't talk about crime there, and it doesn't even occur in the national income accounts as a service. Of course the service is things like, "your money or your life". They provide as much of a service as Finance, Real Estate or Health Insurance.
FAULKNER: US corporate profits are at record levels. They grew 27% in the 4th
quarter of 2010, while sales have declined for the second year in a row. The
discrepancy between profits and revenues is due, evidently, to the fact that
the recovery is built on layoffs and speedup. US corporations have stockpiled
huge sums of cash, $1.93 Trillion in December, with which they are buying back
their own stock to pump up stock prices and enrich the executives who hold the
stock. They are not reinvesting profits in new productive activity or jobs.
Please explain this corporate strategy. It seems as if the corporations are
acting self-destructively. How can such a policy lead to long-term profitability?
DR. MICHAEL HUDSON: Uh, you're very confused when you read that. First of all, you're pretending that corporate profits are produced by producing goods and services. 40% of the corporate profits that you're talking about were made by the financial sector. And another large portion by real estate and insurance. These are not sectors that produce goods and services. They're not sectors that necessarily employ people, so the idea that you make profits by employing people is not a contradition at all finance doesn't make its profits by employing people. It makes what used to be called Capital Gains, and essentially makes money by speculation. The FIRE sector is not part of the real economy. The FIRE sector, finance, insurance and real estate, is a form of economic overhead, and is purely extractive. So, it doesn't make profits, in the way industrial companies make a profit, and whatever you were reading from doesn't acknowledge that there are two kinds of corporations, FIRE sector corporations, and industrial/manufacturing corporations.
BONNIE FAULKNER: Well, exactly. And it's the FIRE sector that's making all the money. Right?
DR. MICHAEL HUDSON: That's right. So it's an oxymoron, or it's a non sequitur to say that there's some contradiction between this in the form of layoffs. The financial sector makes its profits by creating the kind of ripoff economy that causes the layoffs to [inaudible]. It's perfectly natural, perfectly explainable, for anybody who has a more cynical view of how the world economy works.
BONNIE FAULKNER: Despite claims of recovery and improving employment prospects, the situation for working people in the US is really increasingly dire. The Obama administration is proposing cuts to the federal budget for social expenditures for the next ten years, while prices of gasoline and food are rising. Massive layoffs continue, foreclosures and bankruptcies keep increasing, and home values continue to fall. At the same time, the Fed is pursuing a policy of massive Quantitative Easing which allows Wall Street speculation to carry on unchanged and drives the value of the dollar down. Will we be seeing scenes like those in Tahrir Square across the US?
DR. MICHAEL HUDSON: No. I don't think there'll be a revolution here. People will just suffer more and more. It'll be like England. In England, people just got poorer and poorer decade after decade, and they wouldn't invite friends over for dinner because they couldn't afford to serve meat, and things just went down and down. And as long as you can convince people that all this poverty, although it's needless, is really part of economic nature, they'll be satisfied, and although $600 billion in Quantitative Easing has gone abroad, mainly to BRIC countries, it hasn't driven down the dollar because Europe, and England, are in just as bad straits. So you have all of the financial centers of the world, America, Europe and England all going down simultaneously. The illusion is that everything is stable.
BONNIE FAULKNER: How do you explain the strength of the Euro, vis-เ-vis the dollar?
DR. MICHAEL HUDSON: It's not strong. It's going down, because there was a slight increase in the exchange rate because of the Quantitative Easing, which led to money going out via England to other countries, but they're all going down together, basically.
BONNIE FAULKNER: Long term, which currency do you think will devalue more, the Euro, or the dollar?
DR. MICHAEL HUDSON: There's no way of knowing. They're both so badly run that [laughs] it's a competitive self destruction.
BONNIE FAULKNER: So the Quantitative Easing and those dollars have all fled to the BRIC countries for investment, huh?
MICHAEL HUDSON: That's where they're trying to go.
BONNIE FAULKNER: Michael Hudson is there anything else you'd like to add?
DR. MICHAEL HUDSON: Just that the Economic textbooks have a myth that wealth is gained productively by investing in capital goods and hiring labor. Obviously, what we're talking about today, Neo-Liberalism and financial wealth, isn't caused that way. It doesn't make profits by employing labor. It makes profits by grabbing assets and essentially privatizing the public domain. If you're talking about making money by theft, the biggest source of property and enterprise is still the public sector roads, utilities, infrastructure, and that's what the financial sector is grabbing now. We're in an asset-grab phase. And in the past, you needed military armies to do this, today all you need is finance.
BONNIE FAULKNER: And to close, how would you describe what the United States is going to look like in five years, let's say?
DR. MICHAEL HUDSON: Probably much poorer, with dismantled state and local government, with economic planning centered in the banks of Wall Street and the large insurance companies, well, in the financial centers, not in Washington.
BONNIE FAULKNER: Michael Hudson thank you very much.
DR. MICHAEL HUDSON: Thank you very much, Bonnie.