Finance and Economics after the Dotcom Crash

Interview with Doug Henwood

By Geert Lovink

Doug Henwood is one of the few marxist economists whose opinions and
analyses of the world of finance and trade are being taken serious by the
mainstream media. Seen as a toy rebel Wall Street analysts love to hate him.
Doug is very friendly and open, quite the opposite of what you may fear
dogmatic revolutionaries turned crusty academics look like. Unlike most of
his comrades Henwood is able to remain in dialogue with his liberal and
conservative opponents. In public debates he can surprise you with his
marvelous negative dialectics. Online he is sharp, short and precise.

In an interview with salon.com,Doug Henwood described his position as such:
"Wall Street is populated by some of the most cynical, greedy bastards on
earth. But it's not enough just to say that. The last thing I want to do is
sound like a guy on a soapbox moralizing. It's not their personal moral
characteristics that create the system they populate. Capitalism is
essentially an amoral system based on exploitation. And Wall Street is part
of the class struggle, to use an unfashionable term. But most people don't
realize this, so the market looks incomprehensible to them."

Doug Henwood publishes his own monthly newsletter on economics and politics
in the USA and the world at large called the Left Business Observer. It's a
subscription service, actually not all that expensive, specially if you
compare it with the thousands of dollar one has to pay for newsletters from
for example Esther Dyson or George Gilder. Lately you can pay online with a
credit card and get a .pdf version. Separate from the LBO newsletter is the
LBO mailinglist, a very active and high volume debating list which deals
with all the US-Americans cares of and disagrees about.

Henwood is also a contributing editor of The Nation and does a weekly
program on WBIA radio in New York. His book, The State of the USA Atlas, was
published by Simon & Schuster in 1994. The book which made him famous is
simply called Wall Street and was published by Verso in 1997 to great
acclaim and impressively vigorous sales (over 20,000). His upcoming book A
New Economy? will be published by Verso in a little while. Henwood
postphoned the publishing last year. He can now write the history of this
once so fashionable financial discourse.


----------------------

GL: With technology stocks in ruins, how do you look back at the hilarious
phase of dotcom.mania? What is merely a media hype, in terms of a hyped up
ideology, a simulacrum perhaps, with out of control stock values, pushed up
by vapor capital. Or rather something more substantial? In other words, how,
in your analysis, does the manic tulipomania aspect of the New Economy,
relate to broader economic changes in the nineties?

DH: Surely there were real technical changes - faster processors, better
graphics, bigger networks. But, as they often do, investors got way carried
away with that, and those that didn't spin tales of New Paradigms got caught
up in them. More broadly, the long U.S. bull market - which began in 1982,
was interrupted only by the 1987 crash and the brief 1990 bear market, but
basically ran for almost two decades - was at first a response to
fundamentals. First, there was a long upswing in corporate profitability,
reversing the long downslide of the 1970s, that began around 1981 or 1982
and ran through 1996 or 1997. It made perfect sense for stocks to rise in
reaction. And second, there was the great political victory of liberal
capital - the vanquishing not just of the USSR, but even of "nicer" versions
of capitalism like social democracy in the North and import substitution in
the South. That was a real gain for capital, and the bull market was its
financial reflection (just as "inflation" in the 1970s was shorthand for the
threats to capitalist control, from wildcat strikes to street demos to the
Third World's demand for a new redistributionist economic order).

GL: To what extend is the dotcom bashing not a mirror effect of the dotcom
pushing? Scapegoats have to found. Journalists and the Wall Street
Securities and Exchange Commission are investigating conflicts of interests
of financial analysts. Consulting firms such as Accenture may have played a
dubious too. Do we have to expect new codes of conduct and a regulation of
the (online) brokerage industry? And what difference does that make? Would
it stop the ongoing influx of money into mutual funds? Has the popular
belief system of owning stocks suffered fatal damages?

DH: Fatal damage, no. It's going to take a long bear market for that. So
far, it's just some cuts and bruises; the broad U.S. public hasn't given up
yet. When they do, it'll probably be time to buy, too. After a bubble
bursts, there's always a search for a scapegoat. In the 1980s, it was
Michael Milken and his junk bond universe - even though Wall Street busily
emulated him, and he initially had the approval of the authorities to do his
work. (A friend who worked in the Federal Reserve Bank of New York in the
1980s told me that the central bank was nervous about Milken and his
cronies, but didn't do anything, because the Reagan administration had given
the junk bond cowboys and corporate raiders a green light.) And now it looks
like it's going to be Frank Quattrone and his shop within Credit Suisse
First Boston - another west coast bad guy, just like Milken, even though
everyone on Wall Street was trying to get in on the game. No doubt there
will be calls for self-policing and new codes of conduct, but this is so
much at the heart of the way speculative markets work that it's hard to see
how you could "fix the abuses" without shutting the whole damn thing down.

GL: Until mid 2000 there was hardly any radical critique of the new ecomomy,
not even in leftist academic and activist circles. The so-called Seattle
anti-globalization movement is mainly focussed on issues of labor, trade and
debt. There is a bit done on global monetary policy, but not much. There is
this odd historical singularity of Seattle and the tech stock craze reaching
its peak in December 1999. Do you see a change here or is the stock market
still, by and large, terra incognito for political and cultural critics?

DH: Mostly the latter, except for the occasional symbolic reference. It's
common among cultural types, ranging from airheads like Jean Baudrillard to
serious and generally admirable people like Fredric Jameson, to regard
finance as divorced completely from the real world - either irrelevant or
malignant, but almost never seen as integral to the functioning of modern
capitalism (and by modern I mean since the emergence of the large publicly
owned corporation at the turn of the last century). The corporate form
depends on stable and happy stock markets; they're the institutions through
which ownership is arranged and rearranged. And the markets can have a big
effect on the real world - as the dot.com bubble shows to a historic
extreme.

GL: So you critique the notion of a parallel universe where capital
circulates. Money has not migrated to heaven, as Hakim Bey once stated?
Could you extend a bit on where this idea of the 'relative autonomy of
finance' getting out of hand, is coming from?

DH: You could certainly get that otherworldy impression just from watching
capital bounce around. Something like $1.2 trillion a day, for example,
passes through the main New York bank wire, which includes most of the
world's legal transactions involving the U.S. dollar. That's an
unimaginably large amount - a value equal to U.S. GDP turns over in a bit
over a week, and to total world product in about a month. So it's easy to
conclude from this that it's just pure speculation, unmoored from any
relation to the real world. But to conclude that would be to over look at
least two important facts: 1) speculation itself has real world
consequences, like, say, the
remarkable inflation of the Southeast Asian bubble and its disastrous
breakage a few years ago, and 2) financial instruments, no matter how
rapidly they're turned over, represent claims on real-world assets - bonds
are a claim on a firm or government's income, and shares are certificates of
actual ownership, and shareholders have become increasingly assertive over
the last two decades in setting corporate policy (downsizing, outsourcing,
etc.). That's the last two decades in the U.S.; shareholder activism is just
beginning in Europe, and the consequences, unless they're resisted, should
be lower wages, less generous benefits, more tenuous employment, and
pared-back welfare states. Since most people aren't aware of the effect of
the shareholder revolution, they ascribe the increased nastiness of economic
life to abstract, agentless entities like "technology" and "globalization,"
as if there weren't identifiable sets of interests behind those forces.

GL: What do you think of Robert Kurz' idea of casino capitalism? In general,
how do see, contemporary marxism analyzing the unprecedented growth of the financial sector over the last twenty years? It seems that not much has happened since Rudolf Hilferding wrote his study "Das Finanzkapital," back
in 1910 (except for your 'Wall St.' of course).

DH: I'm very critical of Hilferding in Wall Street for many reasons, most
relevantly to this exchange, for arguing that the German-style model of
capitalism, with a handful of big banks owning big industrial concerns, was
the future of the system, and that the Anglo-American
stock-market system was on the way out. He couldn't have been more wrong;
as the gloomy Wall Street economist Henry Kaufmann put it a few years ago,
we're seeing the Americanization of global finance. Even development finance
for the poor countries is coming more and more from bond and stock markets,
with less from commercial banks and official development banks.

Hilferding's lingering influence - given a shot in the arm because Lenin
took up his analysis in Imperialism - is one reason contemporary Marxists
have, with a few noble eceptions, paid little attention to finance. Also,
many Marxists think of finance as purely secondary or epiphenomenal, a
derivative or reflection of the real action in production, rather than being
something with a life of its own or something having any influence on
production. This seems especially wrong when you think about the role of
financial markets and institutions in arranging ownership; like I said
before, financial instruments are claims on other people's incomes, and
shares are certificates of ownership of the means of production. Why
Marxists should pay so little attention to these instruments of class
formation and power is a mystery to me; maybe they don't go too far beyond
the level of appearance, and sometimes it appears that finance is
epiphenomenal or parasitic. This neglect certainly can't be blamed on Marx
himself; while vol. 1 of Capital reads a bit like a goldbug's tract in
places, elsewhere - vol. 3 of Capital, Theories of Surplus Value, the
Grundrisse - Marx wrote some amazingly prescient and evocative things about
the credit system and the joint-stock company.
The problem I have with terms like "casino capitalism" is that it can imply
there's a nicer, non-casino capitalism we should or could somehow get back
to, and also implies that production itself is free from the speculative
motive. But for most industrial capitalists, the making of goods or
provision of services is just a means to the accumulation of money.
Expanding your hoard of money is what the whole system is all about.

GL: Third Way liberal-social democratic circles are still promoting
deregulation. What do you think of calls from ATTAC and similar movements to
regulate global finance, for instance through the introduction of the Tobin
tax (a micro tax on financial transactions)?

DH: It's better than nothing, but I think it's at once too little and too
much. Too little in the sense that just taxing transactions doesn't address
the relation of the financial markets to the assertion of ownership and
class power, and too much in the sense that capital regards any attack on
its freedom of movement as the political equivalent of revolution, and will
fight it accordingly. So I don't entirely see why you should take on such a
big battle for such a minor goal. In politics, which is all about
compromise, it doesn't make sense to start out already compromised; why not
make maximalist demands to start with, even if you're going to do little
more than win reforms?

GL: What would be a maximalist demand? Closure of futures markets? Cracking
down on dubious IPOs? How can the shareholder society be undermined, other
then see ordinary people being punished, losing their retirement funds?

DH: Well, there was the old Swedish approach, wage-earner funds, which got
quashed because Swedish capital didn't like the idea (and they were
considerably watered down between original conception and actual
implementation). Basically, these were pots of money funded through taxes on
corporate profits whose aim was to buy up outstanding shares and manage them
on behalf of the working class as a whole. What I'd like to see over the
long term is outside shareholders eliminated. They serve no useful social
function. I know that seems fanciful in today's political environment, but
you never get anywhere in life without making big demands to start with.
I'd also like to make the point that there's something illusory and
fetishistic about the very notion of retirement funds. Individuals or
families can save for a while, then draw down their savings, but societies
as a whole cannot. Today's retirees can't be sustained using yesterday's
savings - the money has to come from today. Effectively, today's stock
buyers are what fund today's stock sellers. Just like a public pension
system, a private one depends on the cross-generational transfer of funds
from workers to retirees.

GL: If, as you say, expanding your hoard of money is what the whole system
is all about, then were is expansion of the overall amount of assets border
to inflation? If the accumulation of capital is not related to anyway, with
capital a free floating signifier to say, then this is hardly a sustainable
model. I am not apocalypic in nature, and neither are you, I guess. What do
you think about a total crash of Wall Street? It seems so likely, if you
think about it, and has been predicted numerous times. Greenspan is said to
have a crash prevented from happening, for example in August 1998, during
the almost forgotten hedge fund crisis.

DH: It seems unsustainable, for sure, but it somehow manages to sustain
itself. Even with the Nasdaq so far off its peak, U.S. stocks remain
overvalued by historical standards. You're right that I'm not apocalyptic -
if anything, I'm the opposite, easily convinced the big bourgeoisie will
save itself from ruin one time after another. A crash is always possible,
but I think it's more likely we'll see a long period of weak stock markets
and below-average returns - after almost two decades of unprecedented
bullishness.

GL: Are Tom Peters, George Gilder or Kevin Kelly liable for what they have
about the unlimited potential of the New Economy? What do you think about
such calls, to bring intellectuals to court, because they pushed technology
stocks up? What type of intellectuals do we deal with in this case? Are they
responsible comparable to the progressive intellectuals in the West
supporting Stalin during the thirties? And do you find yourself liable for
what you write in your Left Business Observer newsletter? As the title says,
you are only "observing." Is it useful to push the discourse into the
direction of making everyone compliant?

DH: Not at all. In the cases of analysts who were making recommendations of
ludicrous stocks that their investment banking departments were
underwriting, I think there should be some liability - civil and criminal -
there. But as for shills and intellectuals (and with the likes of Gilder and
Peters, it's hard to tell which they were), I'm all for defending their
freedom to be ridiculous. If grownups are self-deluded enough to believe
them, what can I say? I'm something of a free-speech fundamentalist.

Henwood's homepage:
http://www.panix.com/~dhenwood/LBO_home.html

His e-mail address: dhenwood@panix.com

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