Interview with Iranian TV
November 5 2008
1//What are the factors behind the survival of the capitalist system?
I do not think there is one “capitalist system” in the world. The term derives from capital which is the deployment of money to create projects and employ people who work for wages. Beyond that it can manifest itself in very different ways and very different strategies. The communist understanding of capitalism is articulated best by Carl Marx but I believe this to be too simplistic and his deterministic aspects of history seem too absolute. He also ignored that humans have needs and aspirations that are spiritual and religious and in other ways beyond simply material.
As for the capitalist systems of today, there are really no strictly capitalist systems in the way the US Republican party speaks about: leaving things to the free markets without government interference. In fact the US exported some forms of capitalism that would never be contemplated inside the US itself. The US system already includes many things that could be termed socialist. For example, public schools, public hospitals, public postal system, social security, public road systems, public funding of higher education, public research and development funding, among others. In Europe we find similar attributes of European capitalism. There are some variations. For example France has a very different system than England in many ways. Both have a single payer publicly funded health care system (which the US does not have but maybe Obama can implement). Those public institutions are what makes Western countries do well, not the free markets. The system feeds on itself and kept going for many years interrupted by downturns like we see today (but I think it is coming to an end as this crisis is more structural than previous crises). Many countries (Russia, Iran, Venezuela, China) are calling for reevaluation of the capitalist systems not only because it is destructive to individuals in those countries (because of excessive materialism, ups and downs in prosperity etc) but also because it is destructive to other countries. The International Monetary Fund and World Bank have caused significant problems and dedevelopment in poor countries by loaning them money at high interest rates to develop projects that the countries do not need (e.g. dams and high speed roads). When these countries fail to meet their payments, the rich countries take over the natural resources of those poor countries (a process dubbed “privatization”.
2//What are the factors behind the periodical crisis in the Capitalist system? (after every rosy economy there is a recession)
The negative aspects of the structure of the world capitalist system described above revolves around the way capital is raised and deployed. Unfettered Greed for more return on investments puts money ahead of people. By nature this leads to excesses. For example using private money in a banking system that is based on interest bearing securities creates a run for the places with highest returns and a real disinterest in long term development. It becomes short term financial greed and financial derivatives and betting on markets gets out of hand (through hedge funds etc). In investing, people go for higher returns and a herd mentality develops. For example, if stocks give 8% for one year while bonds give 5% then people flock to the stocks which itself leads to even higher prices and the second year may give 10%. After a while this creates a “bubble” (inflated prices of a certain asset class) and these bubbles invariably break because of their own weight creating tough times (recessions etc). These are the source of the problems that manifest themselves in things like the collapse of the Savings and Loan Credit Institutions in the 1980s and today’s “credit crunch” and collapse of many banks. It is this cyclical psychological euphoria followed by depression of the investors motivated by material greed that is inherently associated with totally free markets. The Capitalist systems in Europe and North America ameliorate this with government interventions.
3// The current financial crises have been dubbed as the biggest financial crisis in the past 8 decades in the world's Capitalist system. What are the root causes of this crisis?
The current financial meltdown started with home mortgages. The greed factor exhibited itself in lending for home mortgages for individuals that could not possibly make the payments long term. As house prices started falling and the value of the purchasing power of the US dollar declined, many homeowners began defaulting. Those who sold them the loans (fraudulently) usually bundled these mortgages and sold them to other financial institutions. Many of these financial institutions lured investors by making their balance sheets look good on paper. The problem is that even the executives of these companies had no clue about the real value of these bundled mortgages. These institutions even borrowed money to buy the bundled mortgages sometimes at many folds the value of the underlying mortgages. It became a pyramid scheme with hundreds of billions of dollars of a financial house of cards. When that began to unravel, it uncovered many other holes in the system. The Capitalist systems in Europe and North America ameliorated previous problems in the financial marketplace (the cyclical downturns) with government interventions. They tried to do the same in this case too (the US with over $700 billion “rescue package”). It seems to be failing. I believe that is because of two things:
a) The humongous nature of the problem this time (in the trillions)
b) The fact that the US government has a $700 billion deficit in its annual budget and over $9 trillion in government debts.
The largest contributor to the second factor is the US war economy. The Iraq war alone is estimated to cost $3 trillion. Behind this crisis is thus many factors but they all can be traced to a disastrous foreign policy that put Israel’s interest ahead of |US public interests.