 Hello and welcome. I'm Lynne Freese, producer of Global Political Economy, or GPE News Talks. This is a report on a conversation with Prabhat Patnekk on why capitalism is going to be finding it very difficult to come to terms with a post-COVID-19 world. Prabhat Patnekk is a professor emeritus of economics at Jawaharlal Nehru University in Udali. An eminent and prolific economist, Patnekk's published work includes books like The Value of Money and Accumulation and Stability under Capitalism. In a forthcoming book titled Capital and Imperialism to be released in February, co-authors Prabhat Patnekk and Utsa Patnekk will publish their comprehensive survey of capitalism's colonialist roots and uncertain future. We go now to our conversation with professor Prabhat Patnekk. Prabhat, what I want to get at in this conversation is why the working population is being pushed to acute distress and unemployment and insecurity. You've long argued that capitalism throughout the entire era of globalization under neoliberalism has been characterized by a conflict between the interests of finance and working people. And with COVID-19, this is intensifying. So we're going to be talking about that and let's start with one of the main pillars of neoliberal policy, the withdrawal of the state from demand management. Yes, I mean, I think the main aspect of the current neoliberal policy is the globalization of finance. Under the Bretton Wood system, countries impose capital controls. In fact, you know, if European countries had very strict capital controls, capital could not come in and go out as it wished. And therefore, these capital controls included also financial controls. Now, one thing which has happened, which is, I think, the crux of the current neoliberal globalization is the removal of capital controls and therefore the freedom of finance to move around globally. Now, if finance moves around globally, but we have nation states, in that case, the nation states lose their autonomy. They have to do what finance wants them to do. Otherwise, finance would, in fact, flow out in the country causing bankruptcy of that particular. They forever have to be very careful that they do nothing to offend finance. Now, for any state intervention in raising demand, it is important that state expenditure be financed either through a fiscal deficit or by taxing the rich or taxing the capital. Either of these are disliked by finance and therefore in a world in which finance has the upper hand, the state simply lacks the instruments through which it can actually intervene in raising the level of aggregate demand. And that is exactly what is happening. Namely, that fiscal policy for raising aggregate demand is out. The only thing the state is allowed to do is to use monetary policy. But monetary policy is an extremely blunt instrument that predictably has not been made successful, which is why the capitalist countries have been caught in a protracted crisis starting from 2008 itself. You basically say that to view the neoliberal state as withdrawing in favor of the market is misleading, that the state is acting in accordance with the demands of international finance capital and the domestic corporate financial oligarchy integrated with it. And it's promoting rather than restraining the spontaneity of the capitalist system. Is that right? That's right. You see, basically the conclusion which people have come to in the 1930s, depression, for instance, Keynes argued that capitalism save in exceptional circumstances is saddled with mass unemployment, that it's, it's tendencies are to generate mass unemployment. That's because of the fact that it is essentially a flawed system in which there is a lack of coordination between whatever is required as investment to keep the level of demand up. And of course, what people actually see, so there is a tendency for there to be an overproduction because demand is not enough. Keynes thought that you could actually overcome this anarchy of the system through state intervention. But the point is that that is something which really requires I mean, the state, if you like, is an external agency that intervenes in the spontaneity of capitalism in the autonomous behavior of capitalism, you actually introduce an outside agency, which acts to bring about certain social objectives. And Keynes did it because he wanted to preserve capitalism against the socialist threat. He had seen the Bolshevik revolution. And he was clearly aware that if the state, if capitalist countries continue to have the kind of unemployment that they had seen in the 1930s, then of course socialism would triumph. So what he wanted is to keep socialism in check by changing capitalism, by overcoming its spontaneity, by introducing the state as an external, rational agent that actually introduces measures that ensure that social objectives are met, like, like full the Keynes' vision, imagine that the state would overwrite the behavior of the system. But if it is the case that the state itself is now dominated by the predilections of finance, the state cannot do anything if finance doesn't like it, then the state has got subordinated under the spontaneity of the system. You actually have a reversal of the situation from what Keynes had visualized, what had transpired in the capitalism for the couple of decades after the Second World War and what's transpired up. In government policy in the 1950s and 60s, labor parties pretty much backed labor, the working class. But since Reagan and Thatcher, it doesn't much matter which political party is in power. Governments on both sides of the aisle back neoliberal policy. You know, one of the things is that as long as you're caught in this web of globalized finance, you have to do what they want you to do. Tomorrow, for instance, even if you had the most extreme left government you can imagine, but that kept the country inside this movement of globalized finance, then that left government also would be adopting policies exactly similar to what the parties or the labor or don't even there would be adopting. Therefore, the point is whether you are within this vortex of globalized finance or whether you take the country out of it. Look at Greece, for instance, cities that came to power on a certain platform, but in fact, it didn't do anything different from what the others were doing. So as long as you're within this web of globalized finance, then you'll be more or less coerced into doing the things that finance wants you to do. Otherwise, there'll be a crisis. So the only way to checkmate the dictates of finance is if the country could be taken out of this web of finance through capital control, through a re-imposition of capital control, but that on the other hand is going to bring about great hardships in the transitional period because if finance does not come in, many countries have current account deficits and balance of payments. How do you meet those deficits? If you can't meet those deficits, and that was for instance, it is a problem. If you cannot meet those deficits, then you cannot really import from outside. If you can't import from outside, you'd have to have import controls. If you have input controls, then the standard of living of the domestic population would temporarily at least go down. So getting out of it is also very difficult, but on the other hand, if you don't get out of it, then you are caught in this web of globalized finance being exactly what every other government is doing. The Financial Times recently ran an editorial that radical reforms in reversing the policy direction of the last four decades need to be put on the table. In commenting on that FT editorial, you made the point that finance capital does not voluntarily make concessions. Well, you know, I mean obviously no matter what the Financial Times says, you'll have to persuade finance that it should allow governments to kind of, you know, put restrictions on its movements. The point is finance is not going to willingly sacrifice its ability to go all over the globe in search of profits because of the fact that some people believe this to be necessary for reviving capitalism. You know, in other words, finance would be looking after its own interests. Finance, you know, these are not altruistic bodies. Finance is not after all going to be looking after the interests of the supposed interests of workers or things of that kind in order to preserve the system. It should be interested in looking after its own interests. And that being the case, I believe there would be a lot of opposition. Can the state override this opposition? One possibility through which the state could do this. If it's globalized finance, suppose you had a globalized state, you had a global state, then matters would be different. And if you don't actually have a global state, you could have coordinated fiscal action among a lot of advanced country states. There's no talk even of that. I know that very recently the European Union has got some kind of a little agreement on this. But on the other hand, that has still been debated. It's not a major, it's not a major factor. It is something which is also done only in the conflict of globalism. But to get capitalism going, you'd require for instance a coordinated fiscal stimulus across many advanced countries and there's no talk of that. If we're talking about any given particular country, then that particular country can get out of the way of finance by putting controls on capital, particularly financial flows. And of course that would bring enormous transitional difficulties, hardship for the people, which no government is really daring to do. Which is why capitalism has now got a kind of structural crisis from which there is no easy exit. In times of financial crises, when government deficit spending was rolled out to preserve the financial system, it was followed by austerity to get the government budget deficit back down to the limits imposed by neoliberal policy. And that included cuts to healthcare, the consequences of which are being made all too clear with COVID-19. Talk more broadly on the situation with COVID-19. Well you know COVID-19 is coming in the context of a crisis of capitalism that was already there. COVID-19 of course has worsened the crisis in the sense that there is huge unemployment. Let's imagine tomorrow COVID-19 crisis gets over. If it gets over then two things would happen. The first thing that would happen is there would be no automatic recovery because after all even the COVID had worsened things. When COVID disappears, consumption might recover but recovery of consumption would not mean recovery of investment. Even if there had been no crisis in capitalism, a sheer shock of COVID-19 would have actually delayed recovery for a very long time. In other words it would have generated a crisis that would not have disappeared with the disappearance of COVID-19. But on the other hand since it is already the case that there was a crisis before COVID-19 in capitalism. Now that crisis would again come into its own so you would find that for both these reasons, namely recovery is problematic from such a shock anyway and additionally such a shock occurred in the midst of a crisis. Capitalism now is going to be finding it very difficult to come to terms with the post-COVID world. There are two possibilities which I see opening up, you know one possibility is for instance what people like financial times are talking about namely that look you have to restructure capitalism and this restructuring of capitalism going back on some of these policies the last four decades would require control on finance and how they're going to bring about I don't know but at least they are that is one possibility. The other possibility is that in the face of this protracted crisis there would be a tendency towards fascism where you actually try and control resentment, control resistance through sheer force and that is something that we see happening in a number of countries including my own. But the even authoritarian government seemed to be enthralled with global finance and so they too don't have the solution. Can you comment on that? You see one of the big differences between 1930s and now is that fascism in 1930s is one that at least got these countries out of the crisis and out of unemployment. Germany in 1933, Japan in 1931 they actually undertook large-scale military expenditures in order to generate demand and finance by borrowing in order to generate demand whereby you actually had near full employment as a matter of fact therefore there was a brief period between the coming out of the depression by these countries and the actual major start of the war when some of the fascist governments actually became quite popular because they had got the countries out of the depression and the horrors of the war still had not visited them. But on the other hand today you cannot do that because that time when the government's finance military expenditures they did so by borrowing which means by fiscal deficit, they had large fiscal deficit dramatically. But on the other hand today finance is globalized whose days it was national finance is globalized and it doesn't like fiscal deficits it can very easily leave the country which is why the governments cannot even undertake larger military expenditures by fiscal deficits and therefore they really have no way of coming out of the crisis and therefore the fascism of today would be much more negative in the sense that they would only be using coercive methods to keep popular discontent in chair without providing any solution to the crisis that we know. Commenting on the US stock market boom on the back of US Federal Reserve crisis management you said a stock market boom in a real economy crisis represents the supreme triumph of finance. Talk more about the use of monetary policy and asset price inflation under neoliberalism. Yes in fact because state expenditure would not be undertaken and at the same time you find that the usual monetary policy levers for generating investment don't really work. The only thing that is available to these governments is to use monetary policy to generate an asset price bubble. Now in the past the dot com bubble had an impact on the real economy and they believe that if you can generate a stock market bubble then this would have some impact on the real economy. Why does an asset price bubble have an impact on the real economy? If you are someone who holds one of these assets whose prices have gone through the ceiling then you feel your wealth here. When you feel your wealth here then you go and spend something. On the other hand if you feel your wealth here for instance if the financial asset price increases then it is easier for you to borrow you know because after all the interest rate is the other side of the price of let's say the bond. If bond price is the high then the interest rate is low. It reduces the cost of borrowing and if it reduces the cost of borrowing again you can borrow and spend more. But the point is that if investment is curtailed because there is insufficient real demand a reduction in the cost of borrowing would not help. If it is the case that the wealth effect on consumption you know I mean for instance even if people may feel wealthy they may know that look this wealth is illusory tomorrow I'm going to find myself without any kind of you know without this wealth. In that case they would not necessarily spend more on consumption. The very fact that asset price bubbles work in the past in generating real demand reduces their capacity to work as effectively in future because of the fact that they have collapsed because the collapse of the bubble makes people much more cherry of actually taking the bubble as seriously in future as they had taken it in the past. But it seems to me that that is the only way in which capitalism can continue trying to offset the crisis. That is the only way which is available to the various governments and which is which is sanctioned by globalized finance and so that is what they're going to try. I think unemployment and so on would continue to remain high. I think the unutilized capacities would continue. I think inequalities would become even more pronounced and so on and all the tendencies which we have been seeing over the last decade taking in a half are tendencies which are going to continue become become. Earlier in the conversation we talked about how the hegemony of finance has prevailed even over labor governments including European social democrats UK labor US democrats and and so on. What's your prognosis going forward? Because in the present situation there is a growth of authoritarian fascist tendencies. There would also be a growth within these social democratic labor and democratic party of a left tendency. So a left wing tendency is also going to grow is going to manifest itself and that left wing tendency if it gathers the courage to break with the hegemony of finance and if it can actually mobilize substantial segments of working class around itself and of the general population can really find a way out. That way out while initially it would not be a socialist way out because actually they would be coming out of the capitalist system can actually lead over time to going beyond capitalism. You also said however that the same process of neoliberal globalization that's unleashed the spontaneity of the capitalist system also results in in febling resistance against it. Yeah you know for instance usual trade union kind of struggles which are confined within nation states are struggles which have become increasingly in fee. Obviously if a trade union demands higher wages in that case capital shifts to some other country unless you have international trade union unless globalization of capital is accompanied by globalization of working class struggles isn't necessarily the case of the working class struggle inside any particular economy gets in fee and that's what we are seeing. I mean historically trade union struggles were very powerful and written had very powerful trade union struggles but on the other hand now under the globalization trade union struggles I mean extremely unique for you know and and this is true everywhere the trade union movement is is suffering drastically everywhere. Now on the other hand to the extent for instance that let's say there are growth of fascist tendencies this growth of fascist tendencies would mean that the working class can actually come out with a political agenda of binding with democratic elements in all other classes in order to raise different resistance against fascism and if you can raise the resistance against fascism you can do so only by also having an alternative economic agenda so it's possible to actually build coalitions to build alliances in order to overcome the current conjunctions. We have to leave it there many thanks to our guest professor Prabhat Patnaik who joined us from New Delhi India and from Geneva Switzerland thank you for joining us in this episode of GPE News Docs