Economic Unorthodoxy: An Interview with Doug Henwood


Editor’s Note: Doug Henwood is the editor of Left Business Observer and a contributing editor for The Nation. He hosts a radio program on WBAI in New York. He has also written three books: The State of the USA, Wall Street and After the New Economy. Here he discusses the term globalization, its uses and abuses, current trends and developments in the US economy, Martha Stewart and the role of economic questions in the 2004 elections. Joel Wendland conducted the interview.

PA: In After the New Economy you argue that globalization has always been a feature of capitalism.
DH: There is a fantasy among some people who don’t like present economic conditions that there’s been an innovation they call globalization that has been responsible for economic life taking an unpleasant turn. Capitalism from its onset has been indifferent to borders. It broke out of its regional origins, helped to create national economies and then spread well beyond that. Go back 500 years to European conquest of the Western hemisphere and later with 19th century European conquests of Africa and Latin America – these had a lot to do with the evolution of capitalism. People tend to forget that. They forget that in the late 19th century there were extensive trade relations, cross-border capital flows and gold was a kind of stateless international money that could move around without any sort of passport. There was a sort of de-globalization of capital in the World War I crisis – they tried to put it back together after the war but it didn’t work too well. Then we had a period of depression in the 1930s and war in the 1940s. But as soon as the war was over, the US was busy trying to reconstruct a global economy under its leadership and in its image and interest. All of this talk of globalization masks that history.

Of course there are always differences. The politically dominant role of the US now is not like earlier epochs with great rivalry among the European colonial powers. Now multinational corporations operate in various places around the world, though they aren’t exactly without precedent either. So there are innovations, and it does seem that things move a lot faster than they used to. I just want people to think more carefully about the long history of capitalism’s internationalizing tendencies that gets occluded by a word like globalization.

PA: You’ve also argued that globalization is not much different from old-fashioned imperialism. What are some strategies for opposing world imperialism and winning victories for the working class?

DH: There is something different now as I alluded to earlier: US domination of the global system is much more intense than British domination of the 19th century system. Everything is fairly well integrated and the major interests, at least with the second tier powers, pretty much agree with each other – we see some disagreements among them around things like the Iraq war, but that was an extraordinary moment. For the most part the Western Europeans and the Japanese yield, sometimes reluctantly, sometimes happily, to American domination.

Resisting it is very difficult. Certainly the kinds of mass mobilizations around the world to protest the imminent war in Iraq were very inspiring and had great potential, but unfortunately once the war happened that movement seems to have fizzled out. It seems a lot more difficult to organize against a concept or a structure like US imperialism or more broadly global imperialism or “empire” if you want to use the Hardt and Negri terminology. It seems a lot more difficult to organize against something that nebulous, precisely because it is so pervasive, than it is to organize against a specific event like the imminent invasion of Iraq. You can do what you can: the popular struggles resisting the IMF in the Third World, resisting pressures for austerity and cutbacks of welfare states in places like Canada and Western Europe. But those are topical struggles, and it is very hard to get people to think about the whole all together.

PA: The US been running a current account deficit of about $500 billion annually (mostly from its trade imbalance). To sustain this, a large part of the world’s savings has to be invested here. What are the implications of this for the world’s major capitalist powers on the one hand and for the world’s working class on the other?

DH: Clinton’s former economic adviser Laura Tyson put it succinctly a few months ago: “Asia lends and America spends.” This is pretty much the model that has kept the world economy going for the last several years. The US runs gigantic current account deficits, stimulates exports in many countries, but predominantly in East Asia especially China. Then they take their accumulated surpluses and buy US Treasury Bills. It doesn’t look like a sustainable model. The US can’t keep running current account deficits of 5 percent of GDP and running up large foreign debts.

The big question is how it comes to an end. One can imagine two versions of how it comes to an end. One, which mainstream people like to think when they think about it at all, is some kind of gentle adjustment: a slower rate of growth in the US maybe more rapid rates of growth abroad; the gradual movement of the US current accounts into something like a balance. The other extreme is some sort of financial crisis, a dollar crisis, a panic, a global financial crash. George Soros has argued in favor of the latter. Though he has political interest in getting George Bush out of the White House, he’s also a pretty clever reader of markets. So the fact that he’s saying that should give the position some credibility.

The global authorities have been clever at managing crises over the last 20 to 25 years. It looked like the Latin American debt crisis of the 1980s could have brought the system down, but actually they used the IMF and debt restructuring to turn the crisis to their advantage, prompting neoliberal restructuring of scores of economies around the world.

But now the question is how the imperial colossus itself goes through some kind of structural readjustment. In some ways, the US looks like Mexico in 1994 and Thailand in 1997 a country that has chronic imbalances and is cruisin’ for a bruisin’. But the United States is not a little country like Thailand or Mexico. It is not likely to have to have the IMF to come in and restructure its economy.

So I don’t know how it comes to end, but I don’t think anybody wants to provoke the crisis. Certainly it is not in the interest of the Chinese at this point to dump US Treasury paper and provoke some kind of financial crisis. That’s where all their export demand is coming from.

PA: Does Wall Street think that the worst has already happened?

DH: Most people on Wall Street think that the worst of the bear market is over, the economy is recovering and “happy days are here again” – maybe not as happy as the late 1990s but there’s a great deal of optimism and complacency among financial people right now which is a bit scary. Greenspan said recently that interest rates can’t stay low forever. At some point they’re going to go up, which is obvious enough. It’s the first time he’s said anything like that recently. It seems like he’s preparing the markets for some kind of change in policy, which isn’t imminent, but it is eventually going to happen. But I wonder how the financial markets or the real economy can handle any kind of serious increase in interest rates. We’ve gotten addicted to low interest rates and endless amounts of borrowing especially against home equity value. I don’t know how that endless line of credit gets cut off, but it has to be cut off somehow.

PA: Greenspan also indicated that we ought to prepare for austerity as well by saying that Social Security and domestic programs have to be cut in order to balance the budget. Is that related? The focus on offshoring or outsourcing as the major source of our job woes is really misleading. The number of jobs that have been offshored by most estimates is in the low six figures, and we are now some eight million jobs below where we would be in a normal economic expansion or recovery. The outsourcing thing explains about 1/20th of our jobs weakness. What’s really going on is the hangover form the bubble years. We’re in an economic period like what Japan went through in the 1990s of extended stagnation and failure to recover briskly. People are misleading themselves into thinking that it is just an ordinary business cycle. The persistent failure of the job market to recover is much more deeply structural than just this matter of offshoring, but as with this globalization thing it is sometimes easier to blame foreigners as the source of our woes than some of our own domestic economic structures.

PA: How big of a role in the election will these economic issues play?

DH: It depends. Democrats just focus on the offshoring stuff. All we need is several months of good job growth and that may disappear as an issue. There are some really long-term structural considerations that nobody’s talking about: the incredible anti-labor bias of our legal system, the weakness in the unemployment insurance system, the lack of any kind of job placement, job training or public job creation, the lack of anything resembling a civilized welfare state (whether we’re talking about childcare or public health insurance) and the tremendous polarization of incomes, the huge chasm between rich and poor, which is about the widest of any first world country. These things are hard to bring up as issues. So if the Democrats just focus on some of the short-term cyclical things and don’t really take on some of these longer-term issues, they run the risk of looking silly if the job market finally does recover in the next three or four months. But if the job market stays weak, and I really think it is likely to – we aren’t going to see anything like a collapse, but I don’t think we’re going to see anything like vigorous job growth in the next several months either – that may keep it alive as an issue, but I wish they had more nerve to bring it up as a serious issue.

The Democratic Party suffers a major identity confusion. It is essentially a party of capital that nonetheless has to pretend it’s the people’s party. So they are constantly bringing important issues of class up but its very muffled or dulled or distorted in imperfect ways. It’s not so much because they are cowardly or weak, but it’s because they are in this structural position of having to serve two masters: their electoral base and the people who fund them.

PA: You wrote a piece on the class nature of the elections titled, “Perils of Third Party Voting” for Left Business Observer. What are the perils? DH: People look at the situation in the Democratic Party and see one disappointment after another. I find myself urging people to vote for a Democrat in November more intensely than I ever have before, because I find the Bush administration so frightening and so alarming. I do so fully aware that whatever they do is going to be disappointing. A lot of the permanent policies of imperialism will continue with minor modifications if a Democrat wins. But people look at this chronically disappointing situation and look to a third party to deliver them from it. I can certainly support the idea of organizing third, fourth, fifth, sixth parties, but the obstacles are so enormous.

There’s this kind of habitual tendency on the American left not to think in terms of long-term organizational or ideological terms, but to just take stabs. Every four years there’s some hero or other who is supposed to deliver us from this conundrum. This was Nader’s role in 1996 and 2000, and he’s trying to repeat it this year. In the earlier races there was at least some pretense that Nader was doing this as part of an effort to build a Green Party alternative to the boss’ two parties, but he’s not doing it this time. He’s running as an independent.

There is also this tendency on the left, even within Green politics, to be very afraid of compromise, of getting too dirty with confrontation with power. There’s a sense that all you need is the right message and the right degree of moral purity in politics. There’s no strategy for achieving power or for what happens when you do take power.

Power is a very, very conservatizing force. We can see this repeatedly: all the hopes that people had when the ANC took power in South Africa or when Lula took power in Brazil. Political and social movements don’t come much more honorable than the ANC and the Workers’ Party in Brazil. These are long-term movements of serious political radicals. Even so, once they got into office, their behavior has been disappointing. There is a tendency among Americans who take this purist, moralizing or personalized approach to politics to think it is a matter of “selling out.” There are tremendous constraints once in power, whether it’s just the simple practical constraints of governing, of having to keep the water flowing and the electricity running, or, and this is especially true for the smaller countries, under the constraints of the international capital markets. If they don’t like you and they withdraw their capital then your economy is screwed. Then you have to worry about your own domestic capitalists who might take their capital out of the country, as they did in the case of South Africa. That powerful trend of holding state power to lead toward compromise is what people perceive as “selling out.” The only way you can resist that is to have a deeply organized social movement behind you that is willing to act around or beyond the electoral arena. Even in the case of South Africa or Brazil where you do have these large and honorable social movements, there’s still been a great deal of compromise and “sell out.”

So if you look at home where we don’t have anything like that, and all these people, well, not that many people, but enough to matter, are placing some kind of chimerical hope that Nader is going to be the magic agent of deliverance from all of these problems with no institutional or organizational backing behind him, it is even more dangerous than when you see better organized and better institutionalized radical forces taking power. Here it is just nothing but a personality.

PA: Can you talk about Left Business Observer?

DH: LBO is a newsletter on economics and politics. We talk about fiscal policy, business practices or labor markets or what’s going on with the stock market, the federal reserve or any other central banks. People often find economics incomprehensible, and that’s the way elites want to keep it. They want to keep it as this sort of mystified region that is best left to their experts. So I try to demystify the dismal science and put it into popular accessible language and even making a few jokes along the way. I started the newsletter in 1986 because left writing in economics was not really engaged with the issues of the moment. It was either theoretical or historical, but not deeply engaged with developments within capitalism.