Wednesday, 26 October 2011

BANKS AND THE STATE: National or International Capitalism?

On 26 October 2011, the police in Atlanta, assisted by SWAT teams, arrested a number of protesters part of the anti-Wall Street movement that is now a national grass roots movement. On the same day, the international bank lobby negotiated a deal with EU on the debtor nations and on recapitalizing the banks that will have to write off a percentage of the Greek debt. Markets cheered and lit up the boards with green lights!

On the same day, Rajat Gupta, former Goldman Sachs executive, was to appear in federal court in New York as part of a large hedge fund insider trading case also linked to former hedge fund fraudster Raj Rajaratnam who was convicted of insider trading.The FBI and the US attorney's office is not commenting, but it is unlikely that Gupta will escape a minimum security prison term.

To the casual observer, these two individuals that the justice system caught, and a few others here and there, demonstrate that the system works, therefore, the anti-Wall Street protesters should go back home and start looking for work instead of demonstrating in city parks and streets. The system works, because 'a few bad apples' are never far from the reach of the law, while the system is above the law!

A closer look at the role of banks in the political economy and the impact of that role in modern society reveals that the social contract is a trust rooted in welfare finance capitalism, something very far from what any one contemplating the theory of a democratic society would have envisioned. Big banks keep their profits and grow bigger during expanding economic cycles, but they are too big for the state to allow to fall when contracting economic cycles take place.

Therefore, big banks operate risk free with taxpayer support, receiving government money to recapitalize, engage in buyout mergers, etc., and imposing their interests that are above all other interests. What type of capitalism is this when the banks enjoy all the benefits and none of the risks of the 'free market'? What kind of capitalism is this when the banks impose upon nations, upon the entire world, policies intended to serve the narrow interests of finance capital that the political economy has identified with 'the national interest?'

The question is how do smaller debtor nations nations deal with the powerful lobbying muscle of banks? Certainly the US, Japan, Germany and all of the strong capitalist countries have no problem keeping the banks in check. Surplus countries regardless of their size have nothing to worry about either, as long as they run a surplus, but watch out once they sustain a deficit owing to complex factor ranging from expensive weapons purchases to political corruption involving public works contracts - ageless issues from the time of Egypt and the Suez Canal project to the present. But amid the era of globalization when banks are imposing their hegemony over the political economy, what leverage does the state with a weak fiscal structure have?

One answer within the market economy, an answer that has been around and tested well in the past two centuries is national capitalism - and a inward-oriented economic growth program - as a counterweight to international capitalism that dominates the key sectors of national economies and reduces the national economy into a quasi-protectorate. The international cartels cannot survive within the context of the national economy, and their host nations need to find markets for them globally so that they can continue the process of capital accumulation. Germany, Japan and the US, for example, cannot survive in the absence of selling the surplus products and services around the world.

But does the same hold true for nations that do not have international cartels, mostly debtor nations like Argentina of a decade ago, or southern Europe today? That they have a hand full of international businesses - from telecommunications to shipping - does mean that their economies need to survive on export growth strategy at the expense of shrinking the domestic market, it does not mean that the state is powerless from forging a solution toward national capitalism, just as Argentina did a decade ago to lessen the suffering of IMF-imposed austerity that was driving almost half of the population into poverty?

The phenomenon of the 'supranational' state power exercised today complicates the case for national capitalism as a method to defend against international capital that swallows everything from the local supermarket to the local electronics store. In the case of the stronger EU nations over the weaker nations the supranational state works with multiple mechanisms ranging from monetary to fiscal and trade policy measures. In the case of the US, the supranational state works through international organizations, among them the IMF that imposes austerity measures whose ultimate goal is absolute and unmitigated economic contracting and impoverishment of a large segment of the middle class and workers.

The weak state structure, regardless of whether a nation enjoys a surplus or deficit, entails that the international cartels organized behind international organizations with a supranational institutional front can easily impose their interests to the detriment of the rest of society. Given that mainstream political parties, from conservative to Euro-Socialist are committed to the same model of a finance-capital-dominated global economy, and given that the mainstream political parties have co-opted most essential institutions from church to trade unions, there is not much room for dissent, even for the kind of dissent that proposes national capitalism vs. international capitalism dominated by finance capital.

Even when one points to examples where national capitalism has succeeded, at least to a degree in helping to stimulate sustainable economic development - China, India, Russia, Brazil, Argentina - it is still very difficult to have those in power - political and economic - consider the possibility of a policy mix that takes a strong dose of national capitalism and inward-oriented growth strategies into account. Why does this take place, why do they wear blinders, given that they are fairly intelligent?

Is it because the media has brainwashed people into believing that international capitalism, which is responsible for the current global recession and to a large degree for the public debt crises, has no alternative - is there no other God but the one that large international banks worship because that is the one and only God that promises deliverance? Has faith in the 'one and only system' become detrimental to people seeking salvation from the higher power of big banks?

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