Interview with Doug Henwood

Finance and Economy After the Dotcom Crash

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 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 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.

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