|
|
| |
BOOK
REVIEW
Expose on the end of an
era
After the New
Economy by Doug Henwood
Reviewed
by Standard Schaefer
 With the Nasdaq up about 40
percent since the beginning of the year, boosterism and
ballyhoo are back. The very ideas that drove the bubble
- financial deregulation, monetarism, and reduced public
sector spending - are being repackaged as solutions to
the problems they caused in the first place.
Fortunately, Doug Henwood, premier muckraker on matters
economic, has returned as well. In After the New
Economy, Henwood does not simply dismiss the bubble
as the madness of crowds, but as the inevitable end to
an era whose policies have not worked.
Divided
into five sections, the book's basic approach is to
present the work of the most famous promoters and their
equally high-profile critics on such issues as the
alleged novelty of the era, the diminished status of
labor, vast income disparities, dominant myths of
globalization and the role of the financial sector in
the economy.
In doing so, he produces a solid
introduction to each of these themes, stirring in humor
and anecdotes, while never compromising his rigor. Duly
covering the requisite references to official economics,
he also makes use of Jean Baudrillard, The Ramones,
Herman Melville's The Confidence-Man, and Gordon
Gekko. But After the New Economy is not a
pretentious, postmodern pastiche. It is a masterful
expose of the guiding ideology behind both left- and
right-wing pundits.
Henwood takes apart various
statistics to make issues clearer as he goes into
greater depth. There is much to learn about statistical
imprecision, the ideological blind spots in certain
numbers, and their tendency to de-emphasize the wealth
of those on the top. Henwood's explanation of
productivity figures, for example, is not a broad attack
on the illusion of technological innovation but is a
return to the issue of real working conditions instead.
While technology changed the lives of workers, the
change was not for the better. Even Alan Greenspan
admits as much.
A careful look at the Fed
chairman's testimony reveals devotion toward keeping
wages low (and thus inflation) by increasing worker
anxiety. This occurred while productivity was being
explained by technological innovation and new management
techniques that were alleged to motivate workers. Among
them was the so-called "democratization of wealth" from
employee stock options. Henwood notes that they never
affected more than 7 percent of all workers in
California and even fewer elsewhere.
The truth
is that the tech boom did not create more leisure time.
It frequently forced workers to increase hours, often
without overtime pay, just to keep their earnings at the
national average. This, coupled with the fact that
capital gains do not turn up in income figures, means
inequality during the era was dramatically
under-reported.
In truth, it was the finance
sector that really benefited. Freer of entanglements
than they had been since the 1920s, brokerage firms and
financiers made money taking stocks to market, sometimes
twice. When IPOs (initial public offerings) failed,
companies were taken off the market (again for a fee)
and brought back when the outlook looked brighter. While
the financial industry itself was interested in making
as many companies public as possible without regard to
viability, men such as Richard Grasso, the now-ousted
chairman of the New York Stock Exchange, were being
compensated, not for brilliant stewardship in promoting
market capitalism, but for looking the other way while
the thievery escalated.
Wall Street overcame its
usual shortsighted tendency to seek quick earnings and
replaced it with even greater shorter-sightedness. The
pursuit of instant capital gains, rather than true
earnings, particularly on the part of investment banks,
fueled speculation and increased corporate debt. While
Henwood does not mention how capital gains tax rates
lower than the rate on ordinary income fueled the
speculation, he is great on the Fed's role. He also
explains that tax cuts were hardly a boon to the middle
class. They led Americans to pay more for insurance,
healthcare and tuition than people in other highly
developed countries.
Regarding the ballyhoo that
the US had evolved out of traditional business cycles,
it is particularly gratifying to read his analysis of
the sacred, sober minded theories of "legitimate"
economists like Simon Kuznet. Kuznet argued that
inequality would decrease in a mature economy. Henwood
turns this around and shows that the rise in inequality
was in essence a clue that a bubble was afoot.
One of Henwood's most urgent themes is how
little the field of economics has to say about finance.
Here readers of his Wall Street will find echoes:
the parasitic effect of the finance sector; the
inefficiency of markets to turn "financial" capital into
direct, productive investment; the way these markets
decouple from the real economy and exacerbate
instability. Wall Street has long hidden the difference
between "capital" invested in the financial markets and
spending on actual capital equipment.
Henwood
reveals the myth of a "post-industrial" society and the
inevitable low-wage tendency of a service economy. His
description of how the International Monetary Fund (IMF)
exacerbated the Asian crisis by forcing countries to
raise interest rates is quick primer on the dangers of
capital flight, all the more a threat in a high-tech
world where transactions occur almost instantaneously.
Henwood is at his rhetorical best when he shows
how Alan Greenspan's efforts to keep wages low sound
shockingly reminiscent of the Marxist Michael Kalecki.
Particularly insightful is the explanation about how the
Fed came to be such an effective tool for class warfare,
especially his characterization of chairman Paul
Volcker's reign.
Henwood wisely places this
discussion next to the one on the repeal of the
Glass-Steagall Act, which led to the wave of corporate
crime this era is now famous for. But his discussion of
pensions is a little skimpy. Union pensions were
regularly shanghaied for speculation by corporations and
obligations were often met by citing the portfolio's
paper-only gains. Corporations will have to make up
contributions out of their future profits. That means
they will put more pressure on their workforce, possibly
even slashing it.
The speculative bubble,
Henwood correctly asserts, was unique in one regard: as
assets inflated, they fueled unprecedented borrowing,
both among corporations and consumers. These loans were
collateralized on the basis of asset inflation, whereas
traditionally such loans would have been based on
income. It creates the threat of a debt crisis, all the
more serious given the deregulatory regime that created
freer capital flows.
Henwood's finance chapter
is a good political introduction to these issues. It is
even better on monetary policy. By focusing on
historical accounts of Margaret Thatcher's regime and
Paul Volcker's Fed, Henwood shows that money flows are
not politically neutral. He makes this unorthodox point
convincingly without mentioning currency valuations and
the balance of payments. Had he addressed these
admittedly arcane angles, he could have made the point
even more forcefully. Still, he has to be commended for
being able to trace the role of finance in the economy
at all since Nobel Prizes are given to those who have
obscured the connections.
Henwood's most
surprising chapter is the one on globalization. He
begins by gleefully examining the murkiness of the term.
However it is defined, Henwood explains, the claims for
it are hardly new. In essence, Henwood argues that
globalization is really only capitalism under another
name. What is surprising is that Henwood argues that
there is little evidence that capitalism is any more
capable of producing misery in its global form.
Any cursory look at the history of capitalism
reveals that it has always had global aims, as Henwood
knows. Likewise, its imperialistic impulses have always
needed new guises. Adam Smith himself pointed out that
the American colonies had become a drain on Mother
England. Henwood's contribution to the debate is that he
exposes the facile popularizers of globalization on both
the right and left. On the left, he reveals the cruel
Malthusian impulse of certain globalization critics who
prescribe forced population reductions.
He pulls
no punches with Ralph Nader either. To Henwood, Nader's
assertion that the North American Free Trade Agreement
(NAFTA) undermines US self-sufficiency is cockamamie.
America has never been self-sufficient and even if it
could be, what would be the relevancy? Trade's effect on
US hourly wages during the 1970s-1980s explains about 25
percent of the decline, sizable but not overwhelming.
But hourly wages in the US have risen since NAFTA. That
Henwood does not avoid evidence that runs counter to the
usual dogma of the left is a testament to his fairness.
He even includes evidence, though shaky, that
inequality is lower in countries that are more globally
integrated. On this point, he does not mention how
globalization tends to make nations convert their output
from serving the domestic market to serving export
interests. The benefits in such cases are often limited
to those along export routes, and so do not improve
conditions broadly. Benefits accrue in very small
sections, but raise total averages in ways that
underestimate the degree of dependency on a
client-state.
Henwood is a little dismissive
about dependency theories, but only to the extent that
they might serve one of his chief targets - those
anti-globalizers who naively argue for only local,
self-sustained, agriculture-based economies. Henwood's
strategy, is to give the benefit of the doubt to his
enemies' evidence, when doing so can allow him
credibility in exposing their utopian longings for a
pre-industrial world, and a nostalgia for the rural
past. Anti-globalization, Henwood wisely reiterates,
best not be anti-development.
To make this
point, however, he cites evidence that environmental
regulation is more common in countries when they broaden
their industrial base. This is sometimes true. But it
ignores the severe pollution in places such as Chile
that resulted from IMF privatization schemes and
financial deregulation. Henwood probably thinks that
most New Era flunkies think Chile is ancient history, so
best to focus on the now.
But the IMF's
increased power throughout the 1970s paved the way for
the New Era ballyhoo. It gave undue legitimization to
privatization, deregulation and the monetarism he
elsewhere criticizes. Had Henwood acknowledged the route
many countries take to broaden their industrial base, he
would also have had to acknowledge why environmental
regulation is more prevalent there. The situation is
usually pretty desperate by the time governments take
any action.
One could also quibble with his
declaration that multinational corporations often earn
less when they seek profits abroad. He does not account
fully for the notion that larger corporations tend to
have trouble maintaining breakneck growth rates due to
their sheer size.
Quibbling such as this does
not damage Henwood's larger point: both businessmen and
anti-globalizers tend to overestimate the profits going
abroad will produce. In other words, there is much to be
said for basic research and development and for more
efficiently designed capital equipment. Henwood is
reminding his opponents that keeping labor costs down is
not the single solution for higher profit. Economic
justice and technological progress can co-exist.
This sort of heterodoxy is designed to jostle
those on the left as well as those on the right. Henwood
correctly sees the need for the left to get their facts
straight if they are to stay properly focused. And he is
optimistic. He simply prefers his optimism to be
well-founded. Even in evaluating the optimism of his
comrades such as anti-capitalists Antonio Negri and
Michael Hardt, authors of Empire, Henwood is
cautious.
And with them, Henwood is even-handed.
He frankly discusses their de-emphasizing the role of
the nation-state, but offers them as a counterweight to
Luddism and localism. In doing so, he restores the terms
of the debate. National interest is inseparable from
international concerns. This engaged spirit coupled with
fairness will no doubt lend After the New Economy
staying power. He may even win over a few moderates, no
small accomplishment for someone who once made his New
Year's resolution to quote Marx more often.
After the New Economy by Doug Henwood,
New Press October 2003. ISBN: 1565847709; 256 pages.
US$24.95.
Standard Schaefer is a
freelance financial journalist in Pasadena, California.
(Copyright 2003 Asia Times Online Co, Ltd.
All rights reserved. Please contact content@atimes.com for
information on our sales and syndication
policies.)
|
| |
|
|
 |
|
| |
|
|
|
| |
|
|
|
|
|
