Inaugural Lecture Inaugural Lecture Helsinki Collegium for Helsinki Collegium for

Advanced StudiesAdvanced Studies

Stephen Gill Stephen Gill

Jane and Aatos Erkko Jane and Aatos Erkko Professor in Studies on Professor in Studies on Contemporary SocietyContemporary Society

30 September 2009, University of 30 September 2009, University of HelsinkiHelsinki

The Constitution of Global The Constitution of Global CapitalismCapitalism

1.1. Capitalism, the market and the Capitalism, the market and the economists; or: the Queen’s questioneconomists; or: the Queen’s question

2.2. Capitalism as a system of power: Seven Capitalism as a system of power: Seven constitutive features of global constitutive features of global capitalismcapitalism

3.3. New constitutionalism, the Rule of Law New constitutionalism, the Rule of Law and global politicsand global politics

4.4. Concluding reflections; or: can a Concluding reflections; or: can a leopard change his spots?leopard change his spots?

Part I: Part I:

Capitalism, the market and the Capitalism, the market and the economistseconomists

Or Or

The Queen’s QuestionThe Queen’s Question

The Queen of England visits LSEThe Queen of England visits LSE

Queen Queen Elizabeth II Elizabeth II visited the visited the London School London School of Economics of Economics in November in November 2008, to open 2008, to open its new buildingits new building

The Queen was shown charts on The Queen was shown charts on the financial and economic crisisthe financial and economic crisis

The Queen’s QuestionThe Queen’s Question

Queen asked, “If these things were so Queen asked, “If these things were so large, how come everyone missed large, how come everyone missed them?” [Daily Telegraph 26 July 2009] them?” [Daily Telegraph 26 July 2009]

Prof Luis Garicano replied : “At every Prof Luis Garicano replied : “At every stage, someone was relying on stage, someone was relying on somebody else and everyone thought somebody else and everyone thought they were doing the right thing.” they were doing the right thing.”

The Queen described it as “awful”. The Queen described it as “awful”.

The British Academy answers the The British Academy answers the QueenQueen

In 2009 British Academy “experts In 2009 British Academy “experts from business, the City, its from business, the City, its regulators, academia and regulators, academia and government” send an open letter government” send an open letter to reply to the Queen:to reply to the Queen:

They concluded that it "was They concluded that it "was principally a failure of the principally a failure of the collective imagination of many collective imagination of many bright people, both in this bright people, both in this country and internationally, to country and internationally, to understand the risks to the understand the risks to the system as a whole." system as a whole."

And what about the most powerful And what about the most powerful US economists?US economists?

Some saw it coming but were ignored or Some saw it coming but were ignored or marginalized.marginalized.

E.g. 2005, at a special conference of key policy E.g. 2005, at a special conference of key policy makers and economists in honour of Alan makers and economists in honour of Alan Greenspan’s tenure at USFR, a warning that Greenspan’s tenure at USFR, a warning that the US financial system was taking on the US financial system was taking on potentially dangerous levels of risk was potentially dangerous levels of risk was dismissed by those present.dismissed by those present.

Obama’s economic Czar, Larry Summers Obama’s economic Czar, Larry Summers dismissed such warnings as “misguided.”dismissed such warnings as “misguided.”

The conventional wisdom: The conventional wisdom: IMF IMF Global Financial Stability Global Financial Stability

ReportReport, April 2006, April 2006

1.1. The ‘dispersion of credit risk by banks to a The ‘dispersion of credit risk by banks to a broader and more diverse set of investors, broader and more diverse set of investors, rather than warehousing such risk on their rather than warehousing such risk on their balance sheets, has helped to make the balance sheets, has helped to make the banking and overall financial system more banking and overall financial system more resilient’. resilient’.

2.2. This has helped to “mitigate and absorb This has helped to “mitigate and absorb shocks to the financial system” with the shocks to the financial system” with the result that “improved resilience may be seen result that “improved resilience may be seen in fewer bank failures and more consistent in fewer bank failures and more consistent credit provision”. credit provision”.

PAUL KRUGMAN: : How Did How Did Economists Get It So Wrong? Economists Get It So Wrong?

““Economists were seduced by the vision of a Economists were seduced by the vision of a perfect, frictionless market system” which perfect, frictionless market system” which made them “blind to the possibility of made them “blind to the possibility of catastrophic failures in a market economy”catastrophic failures in a market economy”

Since 2007 $13 trillion in US wealth lost. Since 2007 $13 trillion in US wealth lost. Official unemployment rose by over 6 million Official unemployment rose by over 6 million to highest level since 1940. Collapse has huge to highest level since 1940. Collapse has huge negative effects on rest of the world.negative effects on rest of the world.

October 2008: Greenspan admits he is in a October 2008: Greenspan admits he is in a state of “shocked disbelief,” because, as he state of “shocked disbelief,” because, as he put it, “the whole intellectual edifice” had put it, “the whole intellectual edifice” had “collapsed.”“collapsed.”

““Modern economics”& the futureModern economics”& the future Krugman: what do the two schools of Krugman: what do the two schools of

“modern economics” have to offer as “modern economics” have to offer as guidance for the future? guidance for the future?

1.1. ““Saltwater” economists are neo-Keynesians Saltwater” economists are neo-Keynesians at “coastal” universities. e.g. MIT, Harvard, at “coastal” universities. e.g. MIT, Harvard, Princeton. They argue that macroeconomic Princeton. They argue that macroeconomic intervention and regulation is needed to intervention and regulation is needed to correct market instability.correct market instability.

2.2. ““Freshwater” economists’ habitat is inland, Freshwater” economists’ habitat is inland, e.g. adjacent to the Great Lakes. They hold e.g. adjacent to the Great Lakes. They hold that the market is not the problem; it should that the market is not the problem; it should be allowed to operate free of government be allowed to operate free of government intervention.intervention.

Notes on a failed paradigmNotes on a failed paradigm1.1. Both schools are part of dominant neo-Both schools are part of dominant neo-

liberal paradigm which has focused liberal paradigm which has focused relatively unquestioningly on promoting relatively unquestioningly on promoting GDP growth, liberalizing trade and GDP growth, liberalizing trade and investment and the deregulation of investment and the deregulation of labour markets and the financial sector. labour markets and the financial sector.

2.2. This paradigm has served to bolster This paradigm has served to bolster consumerism and financial interests, consumerism and financial interests, fuelling the global crisis of accumulation fuelling the global crisis of accumulation and the wider organic crisis.and the wider organic crisis.

Notes on a failed paradigm – 2Notes on a failed paradigm – 2

3.3. The dominant paradigm is neither The dominant paradigm is neither “objective” nor “scientific”. It is built on “objective” nor “scientific”. It is built on abstract assumptions & mathematical abstract assumptions & mathematical models that do not deal with the real models that do not deal with the real economy, but a fictitious and hypothetical economy, but a fictitious and hypothetical one, devoid of social content. one, devoid of social content.

4.4. These economists still hold positions of These economists still hold positions of authority and power; presumably teaching authority and power; presumably teaching new economists the same failed paradigm. new economists the same failed paradigm.

Part II: Capitalism as a system of Part II: Capitalism as a system of powerpower

Seven constitutive features of Seven constitutive features of capitalismcapitalism

Market system or capitalist system?Market system or capitalist system?1.1. Galbraith: when economists Galbraith: when economists

substituted the “free market” for substituted the “free market” for “capitalism” they removed wealth “capitalism” they removed wealth from their analysis and from their analysis and substituted “the admirably substituted “the admirably impersonal role of market forces”. impersonal role of market forces”.

2.2. ““It would be hard to think of a It would be hard to think of a change in terminology more in the change in terminology more in the interest of those to whom money interest of those to whom money accords power.”accords power.”

John Kenneth Galbraith, “Free John Kenneth Galbraith, “Free Market Fraud” Market Fraud” The ProgressiveThe Progressive, , January 1999. January 1999.

Global inequality & global powerGlobal inequality & global power

December 28, 2006: December 28, 2006: Financial TimesFinancial Times asks how, asks how, without reading Marx’s without reading Marx’s CapitalCapital, could one , could one possibly explain how the world’s richest 2% of possibly explain how the world’s richest 2% of people now owned more than 50% of the people now owned more than 50% of the world's global assets. world's global assets.

In fact the top 1% owned 40% of total global In fact the top 1% owned 40% of total global assets – 37 million wealthy people.assets – 37 million wealthy people.

The bottom 50% (approx 3.3 billion people) The bottom 50% (approx 3.3 billion people) collectively owned less than 1% of total wealthcollectively owned less than 1% of total wealth

The World Distribution of Household Wealth, by , by James B. Davies et al (UNU-WIDER December James B. Davies et al (UNU-WIDER December 2006)2006)

Where the wealthiest live, 2000Where the wealthiest live, 2000

Distribution of world GDP 1990Distribution of world GDP 1990

UN UN Human Human Development Development ReportReport 1992 1992

Richest 20% Richest 20% had 82.7% of had 82.7% of world income; world income; poorest 20% poorest 20% had 1.4%had 1.4%

Seven constitutive features of Seven constitutive features of global capitalism: 1-3global capitalism: 1-3

1.1. Restoration of political power of capital and Restoration of political power of capital and the plutocracy -- reminiscent of the 1920s; the plutocracy -- reminiscent of the 1920s; extreme inequality of income, wealth & life extreme inequality of income, wealth & life chances is obverse of wealth of plutocracy. chances is obverse of wealth of plutocracy.

2.2. Disciplinary neo-liberalism extends power of Disciplinary neo-liberalism extends power of capital and market discipline in social life; capital and market discipline in social life; extension of markets is accompanied by extension of markets is accompanied by rising exploitation of labour and nature; rising exploitation of labour and nature;

3.3. Acceleration in dispossession of producers of Acceleration in dispossession of producers of their means to subsistence – enlarges the their means to subsistence – enlarges the size of the global proletariat “free” to sell its size of the global proletariat “free” to sell its labour to capital.labour to capital.

Seven constitutive features of Seven constitutive features of global capitalism: 4-5global capitalism: 4-5

4.4. New constitutionalism locks in private New constitutionalism locks in private property rights & subordination of the property rights & subordination of the state to capitalstate to capital

5.5. Privatization of profits and socialization Privatization of profits and socialization of the risks for corporations & the of the risks for corporations & the strong (e.g. bail outs). Increased strong (e.g. bail outs). Increased privatization of risk for the weak (small privatization of risk for the weak (small firms, workers), especially as social firms, workers), especially as social provisions provisions for social reproduction are for social reproduction are cut.cut.

Seven constitutive features of Seven constitutive features of global capitalism: 6-7global capitalism: 6-7

6.6. Capitalism is prone to two kinds of recurrent, Capitalism is prone to two kinds of recurrent, systemic crises of accumulation: (1) cycles systemic crises of accumulation: (1) cycles of overproduction/ under consumption & (2) of overproduction/ under consumption & (2) financial crises caused by cycles of credit financial crises caused by cycles of credit expansion and contraction -- especially in expansion and contraction -- especially in liberalized financial sectors. liberalized financial sectors.

7.7. Crises of accumulation are part of a wider Crises of accumulation are part of a wider “organic crisis. If 1- 6 continue it will deepen “organic crisis. If 1- 6 continue it will deepen the “global organic crisis” in the foreseeable the “global organic crisis” in the foreseeable future.future.

Part III: Part III:

New Constitutionalism, the liberal New Constitutionalism, the liberal Rule of Law and global politicsRule of Law and global politics

Three dimensions of new Three dimensions of new constitutionalism constitutionalism

1.1. Measures to reconfigure state apparatuses - Measures to reconfigure state apparatuses - via laws, treaties, constitutional & via laws, treaties, constitutional & institutional measures e.g. WTO, NAFTA, institutional measures e.g. WTO, NAFTA, bilateral measures; Maastricht.bilateral measures; Maastricht.

2.2. Measures to construct and extend liberal Measures to construct and extend liberal capitalist markets and the commodity form – capitalist markets and the commodity form – into new territories & new market sectors; into new territories & new market sectors; exploit new sources of labour supply; new exploit new sources of labour supply; new types of property rights, e.g. patents and types of property rights, e.g. patents and intellectual property rights over life-formsintellectual property rights over life-forms

3.3. Measures for dealing with crises and political Measures for dealing with crises and political challenges to disciplinary neo-liberalism.challenges to disciplinary neo-liberalism.

The global crisis & rising hungerThe global crisis & rising hunger

“ “Almost unnoticed behind the economic crisis, Almost unnoticed behind the economic crisis, a combination of lower growth, rising a combination of lower growth, rising unemployment and falling remittances together unemployment and falling remittances together with persistently high food prices has pushed with persistently high food prices has pushed the number of chronically hungry above 1bn the number of chronically hungry above 1bn for the first time”. for the first time”. Financial Times Financial Times April 6 2009.April 6 2009.

In fact we live in a world where half the world’s In fact we live in a world where half the world’s population suffers from malnutrition – 25% are population suffers from malnutrition – 25% are over-fed, many of whom over-weight and over-fed, many of whom over-weight and obese, with 25% underfed or starving.obese, with 25% underfed or starving.

Global food prices increasingly Global food prices increasingly determined by capitalist market forcesdetermined by capitalist market forces

1.1. US production of subsidized grain US production of subsidized grain export floods the world market in the export floods the world market in the 1990s & wipes out many small Third 1990s & wipes out many small Third world producers – e.g. Mexico after world producers – e.g. Mexico after NAFTA (1994) 1.17 million Mexicans NAFTA (1994) 1.17 million Mexicans are displaced from agriculture are displaced from agriculture following trade liberalization.following trade liberalization.

2.2. A “perfect storm”? No -- recent price A “perfect storm”? No -- recent price spike is mainly caused by man-made spike is mainly caused by man-made factors including: factors including:

a)a) Shift of US grain production to bio-Shift of US grain production to bio-fuels creates supply shortages.fuels creates supply shortages.

b)b) Global futures trading e.g. in Global futures trading e.g. in Chicago & New York markets, linked Chicago & New York markets, linked to speculation & rising food pricesto speculation & rising food prices

Global prices & food sovereigntyGlobal prices & food sovereignty

1.1. 2005-8, food prices 2005-8, food prices rise 83%; are still 60% higher 83%; are still 60% higher than in 2006. 37 nations experience intense food than in 2006. 37 nations experience intense food crises 2008; world-wide riots break out.crises 2008; world-wide riots break out.

2.2. Via Campesina, Landless Workers’ Movement in Via Campesina, Landless Workers’ Movement in Brazil (MST) Brazil (MST) & other grassroots peoples’ & other grassroots peoples’ organizations continue to press for organizations continue to press for food food sovereigntysovereignty & organic production. & organic production.

3.3. April 2009, 58 Third World governments agree to April 2009, 58 Third World governments agree to redirect agriculture to support small scale farmers, redirect agriculture to support small scale farmers, women, local knowledge; counter global warming.women, local knowledge; counter global warming.

4.4. Food security/food sovereignty issue helps cause Food security/food sovereignty issue helps cause breakdown of Doha talks extending the WTO; G20 breakdown of Doha talks extending the WTO; G20 offers $20 billion to help agricultural productivity. offers $20 billion to help agricultural productivity.

Part IV:Part IV:

Concluding reflections: Concluding reflections: or, can a leopard or, can a leopard

change his spots?change his spots?

Il Gattopardo (The Leopard)Il Gattopardo (The Leopard)

President Obama represents President Obama represents the possibility to restore the the possibility to restore the credibility of US ruling class credibility of US ruling class power by making minimum power by making minimum necessary concessions and necessary concessions and changes in policy.changes in policy.

Lampedusa’s novel, 1958: Lampedusa’s novel, 1958: As As Garibaldi’s revolutionaries Garibaldi’s revolutionaries invaded Sicily in 1860, the invaded Sicily in 1860, the aristocrat Prince Tancredi aristocrat Prince Tancredi observed:observed:

“ “Unless we take a hand now, Unless we take a hand now, they will force a republic on they will force a republic on us. If we want things to stay us. If we want things to stay as they are, things will have to as they are, things will have to change”change”

Towards an alternative paradigm of Towards an alternative paradigm of progress?progress?

1.1. We need a new debate on democratically planned We need a new debate on democratically planned solutions, tax regimes & ownership so as to create just solutions, tax regimes & ownership so as to create just & sustainable societies. & sustainable societies.

2.2. E.g. debate a new & democratic global constitutionalism E.g. debate a new & democratic global constitutionalism to guarantee three sets of substantive freedoms, rights to guarantee three sets of substantive freedoms, rights and conditions: and conditions:

a.a. human rightshuman rights (including freedom of conscience; of (including freedom of conscience; of expression; of association); expression; of association);

b.b. human securityhuman security (freedom from violence, discrimination (freedom from violence, discrimination and intolerance; rights to food, clean water and the and intolerance; rights to food, clean water and the means of livelihood) means of livelihood)

c.c. human developmenthuman development (rights to: non-alienating work, (rights to: non-alienating work, education, leisure, sports, art & music).education, leisure, sports, art & music).