by Michael Roberts
The Greeks are now in a so-called four-month breathing space, an
extension of the existing ‘bailout’ programme agreed by the previous
Conservative-led government with the Troika (the EU Commission, the ECB
and the IMF). Of course, this breathing space is already narrow and
closing. The Greek economy continues to suffocate (see my post https://thenextrecession.wordpress.com/2015/03/03/greece-breaking-illusions/).
An interview with Costas Lapavitsas
But there is an opportunity to consider the way out for the Greek people
when the four months are up. That’s what makes the recent interview in
Jacobin with Syriza MP and Marxist economist, Costas Lapavitsas, a
leading member of the Left Platform within Syriza, so interesting. (https://www.jacobinmag.com/2015/03/lapavitsas-varoufakis-grexit-syriza/).
Costas pulls no punches and spells it out like he sees it, taking no
prisoners from the reformist left as represented by current finance
minister Yanis Varoufakis or what he calls the ‘ultra-left’ of the KKE
communists and Antarsya (as well as unnamed impractical Marxists). Previously based at the SOAS college in London, Lapavitsas is not a
member of Syriza (although he was elected on the party list) and is a
newcomer to parliamentary politics. However, he has been a socialist
activist for most of his life and is known for his incisive and
challenging theoretical work on the political economy of money, credit
and financialization (see my post, https://thenextrecession.wordpress.com/2013/11/12/the-informal-empire-finance-and-the-mono-cause-of-the-anglo-saxons/).
Lapavitsas has also worked with the Research on Money and Finance
group in London to produce concrete analyses of the origins and
trajectory of the European crisis and, most recently, published together
with the German neo-Keynesian economist Heiner Flassbeck a kind of
manifesto proposing a radical break from the euro.
It’s a long and thorough interview, excellently conducted by
Sebastian Budgen, so I’ll just concentrate my comments on what I thought
was key to understanding the state of the Greek capitalist economy and
the policy objectives and alternatives open to Syriza and the Greek
people. This post is still very long!
Lapavitsas criticises the position adopted by the Syriza leadership
in its negotiations for an extension of the bailout. For him, what was
wrong was not that Varoufakis and Tsipras did not stick to the Syriza
aim of cancelling or renegotiating the debt, but that they capitulated
to the Troika on this because they were not prepared to exit the euro. “Syriza
will attempt to lift austerity, reduce the debt — restructure or write
off the debt — and change the balance of social, economic, and political
forces in Greece and Europe more generally without breaking out of the
monetary union and without coming into all-around conflict with the
European Union. That’s clearly what this government signals.”
For Lapavitsas, it is impossible to end austerity and stay in the euro – and that is what is wrong with Varoufakis’ position. “The
government went into negotiations with an approach which, as I’ve
already said, was critical to its composition, to creating it, which is
that we can go into the negotiating room and we can demand and fight for
significant changes, including the lifting of austerity and the writing
off of debt, while remaining firmly within the confines of the monetary
union.”
Lapavitsas is right to say that whether we consider Varoufakis a
Marxist or not is unimportant (at this point in the interview, reference
is made to my own analysis of Varoufakis’ views – see my post, https://thenextrecession.wordpress.com/2015/02/10/yanis-varoufakis-more-erratic-than-marxist/. As Lapavitsas, puts it, Varoufakis is a heterodox economist who has rightly “rejected neoclassical economics”, but he has never been “a man of the Left, revolutionary left”
and was at one time an adviser to reformist George Papandreou.
Lapavitsas is right on this: labels are not important: the correct
analysis and policy prescriptions are what matters. And what is clear is
that Varoufakis owes more to Keynes than Marx.
Keynes or Marx?
Now here comes the really interesting bit. Lapavitsas goes on: “Let
me come clean on this. Keynes and Keynesianism, unfortunately, remain
the most powerful tools we’ve got, even as Marxists, for dealing with
issues of policy in the here and now. The Marxist tradition is very
powerful in dealing with the medium-term and longer-term questions and
understanding the class dimensions and social dimensions of economics
and society in general, of course. There’s no comparison in these
realms. But, for dealing with policy in the here and now, unfortunately,
Keynes and Keynesianism remain a very important set of ideas, concepts,
and tools even for Marxists. That’s the reality. …. I’ve also
associated myself with Keynesians, openly and explicitly so. If you
showed me another way of doing things, I’d be delighted. But I can
assure you, after many decades of working on Marxist economic theory,
that there isn’t at the moment.”
So it seems that Marxist economics is less than useful for the
immediate problems of the Greek people. As Sebastian Budgen puts it,
Lapavitsas wants to make “a distinction between Marxism as an analytic tool and Keynesianism as a policy tool”. Costas spells it out: “Marxism
is about overturning capitalism and heading towards socialism. It has
always been about that, and it will remain about that. Keynesianism is
not about that. It’s about improving capitalism and even rescuing it
from itself. That’s exactly right. However, when it comes to issues of
policy such as fiscal policy, exchange-rate policy, banking policy, and
so on — issues on which the Marxist left must necessarily position
itself if it is to do serious politics rather than denouncing the world
from small rooms — then you will rapidly discover that, like it or not,
the concepts that Keynes used, the concepts that Keynesianism has worked
with, play an indispensable role in working out strategy, which remains
Marxist. That’s the point I’m making. Unfortunately, there is no other
way. And the sooner that Marxists realize that, the more relevant and
realistic their own positions will become.”
So Keynes is realistic and relevant to policy and Marxist economics
is not? Now is this right? Is Marxist economics just an analytical tool
or a long-term strategy for socialism but irrelevant or at least less
relevant to the immediate tasks of government trying to repair a broken
economy than the Keynesian categories of devaluation, public spending
and monetary policy?
I find that surprising coming from a Marxist. The Syriza government
now has the opportunity to campaign among the Greek people and implement
socialist measures to replace Greek ‘big capital’ with a domestic
economy controlled by the common weal. Instead, it seems both the wings
of Syriza want to adopt Keynesian solutions (only); except one wing
wants to do it within the euro (Tsipras/Varoufakis), while the other
says that is impossible and wants to do it outside the euro (Left
Platform).
Now I’m not opposed to using Keynesian prescriptions as part of any
socialist measures for Greece: e.g. progressive taxation, government
spending, labour rights, minimum wage (not sure the latter are even
Keynesian). But such measures must be part of a programme to replace
capitalism, not try to make it work – in or out of the euro.
Grexit?
Lapavitsas is clear about his alternative: “the obvious solution for
Greece right now, when I look at it as a political economist, the
optimal solution, would be a negotiated exit. Not necessarily a
contested exit, but a negotiated exit.” This would involve a 50%
write-off the debt owed to the EU and protection of the new Greek
currency (devalued by just 20%) with liquidity from the ECB. Lapavitsas reckons that this policy might even get support from
Germans wanting to get rid of Greece from the Eurozone. As he says: “Schäuble
is on record, or at least Greek ministers are on record, stating that
Schäuble offered an aided exit to the Greeks already back in 2011. I can
see, from the perspective of the German power structure, why they might
be tempted by this idea” And the IMF probably would support a debt
restructuring. Devaluation would not have to be more than 20% because
Greek labour costs have dropped so much already.
Lapavitsas poses the ‘success’ of the Argentine debt restructuring
and devaluation of the peso in 2001 again as the example to follow. “I
hasten to add that in the case of Argentina (though by no means would I
suggest that Argentina is a shining beacon for the Left), it is
much-maligned and much-misunderstood. What was obtained in that country
after default and exit was vastly better than what held before and
vastly better than what would have happened had the country continued
along the same path, for working people. Let us stress that: for working
people. If you look at it in terms of employment and in terms of
income, there’s just no comparison.”
Well, I’m not convinced. In a joint paper with G Carchedi we showed
that the recovery in real incomes in Argentina after the 2001 crisis was
more to do with the debt default and the recovery in profitability of
Argentine capital (see pp 108-9, The long roots of the present crisis). And the apparent success of the Argentine case was shortlived at best (see my post, https://thenextrecession.wordpress.com/2014/02/03/argentina-paul-krugman-and-the-great-recession/).
The breathing space created for Argentina by breaking the dollar peg
does not seem to have restored the Argentine economy to stable growth.
After a few years of a commodity-export led boom, the Argentine economy
is back in crisis, despite Keynesian policies adopted by the government.
There has been a 6% fall in per capita GDP since 2011.
Even if the Troika were to agree to such a ‘negotiated exit’, which
is a moot point; and even if the new Greek drachma only depreciated by
20% (extremely unlikely), the Greek economy would still be on its knees,
unable to restore living standards for the majority. Devaluation and
rising prices would eat into any gains made from cheaper exports.
Lapavitsas seems to recognise this: “Wages must rise, but even if
they rise, you’re not going to go back to where you were. It’s just not
feasible at the moment. We need a growth strategy for that.” Exactly.
Why stop there?
Whether Grexit was negotiated or not, as Lapavitsas says, the government
would have to act to control capital flows (not illegal even within the
euro). And the banks would have to be nationalised. “Re-denomination
would create a problem for the banks, and bank nationalization would
obviously be immediately necessary. But bank nationalization is clearly a
vital step for the Greek economy right now because the private banking
system, or the banking system generally, has failed. So we’re not doing
anything particularly shocking.”
So why stop there? Why not propose the replacement of ‘big capital’
with public ownership and workers control and a plan for growth?
Apparently, that is something for the future, the medium-term, not now. “I
am very skeptical, though, about this in the context of Greece right
now… These are medium-term questions. These are questions that one
should knuckle down and begin to confront once the problem of debt,
fiscal pressure, and the monetary union have been resolved.” But can the latter be resolved without the former?
Costas spells it out: “I don’t think that Syriza should come out
with a broad and wide nationalization program right now. What is
necessary is to nationalize the banks, of course. And to make sure that
energy privatizations stop, electricity in particular. That stops. And
privatization of other key assets stops. To put a growth and
recovery strategy in place immediately outside of the euro, and then to
have a medium-term development plan.”
This last sentence is key for me (that’s why I have emboldened it).
If I were Costas, I’d be advocating within Syriza now for just such a
broad and wide programme to replace capitalism. For me, the Marxist
analysis of Greek capitalism leads to the policy prescription for its
replacement now, in or out of the euro. But for Costas, a Marxist
analysis is fine, but the policy prescriptions should be Keynesian –
because the latter is more practical?
And yet Lapavitsas recognises in the interview at one point that the
problem for the Greek economy has not been being in the euro as such but
the weakness of Greek capitalism, translated into its lack of
competitiveness: “the emphasis on the service sector means that
Greece has become uncompetitive internationally because services are
well-known for being not particularly competitive”.
As Frances Coppola spelt out in a recent blog post (http://coppolacomment.blogspot.co.uk/2015/03/greeces-real-problem.html), “Greece’s
problem has been competitiveness for a very long time. It has run a
large and persistent trade deficit for the last half-century.”
She goes on: “Greece’s debt overhang seriously impedes recovery,
But it is not just public sector debt. The real problem is that both the
public AND private sectors are over-indebted.” Post-Keynesian economist Steve Keen has recently pointed out, “While
Greece certainly had its own specific problems—especially with its
current account—in general, its apparent boom before the crisis and the
crisis itself had much the same cause as in the rest of the OECD: a
private debt bubble that burst in 2008. Private debt grew rapidly before
the crisis—on average by more than 10% of GDP per year.” Since
during that time the government deficit did not grow, the private sector
deficit was funded by external capital inflows. In other words, the
private sector borrowed from foreigners to fund domestic investment
spending, resulting in a worsening external balance.
Coppola sums it up: “the story of the Greek crisis is not really
one of fiscal profligacy resulting in a “sudden stop”. It is one of
PRIVATE sector profligacy fuelled by rising external debt, itself
resulting from (or caused by) falling competitiveness.”
Greek capitalism failed. It failed to invest, particularly in the
productive sectors of the economy. Foreign investment and capital
dominated the Greek economy and left Greece in the lurch at the first
sign of trouble (see the paper by Stavros Mavroudeas, 2015_001-libre).
Second-rate economics
Can we explain and measure that weakness? Well, the Marxist way is to look
at the movement and level of Greek corporate profitability. This has
been abysmal.
And along with it, comes the low level of investment in productive
sectors of the economy. Greek economic growth prior to the Great
Recession was increasingly founded on speculation in property and
construction, and on relying on foreign investment and euro subsidies.
The ultimate cause of the Greek crisis was falling and low
profitability and the proximate cause was the huge increase in
fictitious capital to compensate that eventually imploded in the Great
Recession.
But apparently, according to Lapavitsas, this Marxist analysis is
nonsense.
And Costas wants to tell Jacobin readers this is so in no
uncertain terms: “The Marxist left in particular, over the last
couple of decades, has unfortunately regressed in terms of its ability
to analyze the political economy of modern capitalism. It has imbibed
and absorbed a kind of second-rate economics that basically thinks and
believes that Marxism and the Marxist analysis of capitalism pretty much
can be condensed into the tendency of the rate of profit to fall. For
many people in Europe and elsewhere, Marxist political economy pretty
much amounts to interpreting everything in terms of the proportion of
profits — or what you measure as profits — in relation to GDP. That
ratio, for some of these people, tells you everything you need to know
about the past, present, and the future of capitalism. That’s not Karl
Marx, of course, and that’s not what the great Marxists did. There are
people who today try to interpret what is happening in Europe according
to the tendency of the rate of profit to fall. That’s nonsense. Manifest
nonsense. It doesn’t serve any interests or any purposes. It doesn’t
help anyone. Greece is not in a crisis because of the tendency of the
rate of profit to fall. The tendency of the rate of profit to fall is
important, but what is happening in Greece is not a periodic crisis
caused by falling profit rates. The tendency of the rate of profit to
fall is important, but it is terrible economics and a fetish. You cannot
condense everything to the tendency of the rate of profit to fall.
That’s just bad Marxism and bad economics.”
For Costas, it is not the weakness of Greek capitalism, as analysed
by a Marxist analysis of profitability, that is the problem; it is the
financial sector and the monetary union – it is very simple. “If we
approach the crisis of the eurozone purely as a monetary thing, from the
perspective of monetary theory, it would take you five minutes to
resolve it. It is perfect obvious, perfectly simple. It’s actually
almost trivial. As a monetary theory problem, it’s trivial. And in fact,
it didn’t take me longer than a weekend back in 2010, when I first
began to deal with the numbers, for it to become obvious. It’s a matter
of a monetary union that is badly structured and that has evolved very
badly in the course of its own lifetime and therefore is unsustainable.
And that, to someone who is trained in monetary theory, and who
understands money and finance, would be clearer and easier to see than
to others who have worked in other areas of economics and of political
economy.”
It’s a shame that we ‘second rate’ Marxist economists with no
training in monetary theory and who don’t understand money and finance
(this cannot apply to me, I think, as I have worked in investment
banking for 30 years – but maybe) fail to see that the problem for
Greece is not its weak capitalist economy and its lack of profitability
and investment. The problem is monetary union and the euro.
A Greek NEP
Costas wants to get Greece’s vast array of small businesses back functioning to provide jobs and incomes. “Small and medium enterprises will come to life immediately if there was a devaluation”. It’s what he calls a NEP for Greece. He argues that “econometric
studies I’ve seen confirm it — little doubt that small and medium
enterprises will allow a return of Greece to a reasonable productive
state within a very short period of time, a couple of years. That would
also generate the capital and the savings for the medium term strategy.”
Actually, there is a lot of evidence that Greece’s heavy dependence
on small businesses has kept its productivity and investment low. But
nobody should be opposed to supporting small businesses and Marxist
economics does not imply that the government should nationalise
everything that moves. But why draw back from taking over the
‘commanding heights’ of the economy and the oligarchs that own them?
The Keynesian ‘multiplier’, supposedly a measure of the likely boost
to growth and incomes from public spending, does not work unless
profitability is restored, as Carchedi and I have shown in our paper on
the ‘Marxist multiplier’ (https://thenextrecession.wordpress.com/2012/06/13/keynes-the-profits-equation-and-the-marxist-multiplier/.)
So should Greeks wait until Keynesian policies have ‘generated the
capital and savings’ for the ‘medium-term’ socialist strategy. Yet, as
Lapavitsas says “there are vast unused resources in Greece. Capital
is not short in that regard. Capital has far more than cash in the bank.
We have to think as Marxists here. Capital is a relation. There are
vast unused resources across the country!” Yes, so a domestic plan
for investment and growth based on the public ownership of big capital
and integration of the banking sector and the major industries of
shipping, pharma, agriculture etc could utilise these wasted resources
of skilled labour and finance.
Lapavitsas says that “The Left in Europe over the last few years
has gone on an incredible trip. It is as if it has lost its critical
senses. It has imagined that the process of European integration through
the EU and the process of forming the European Monetary Union [EMU] is
somehow internationalism in the way in which we on the Left understand
internationalism. The Left at long last must begin to table ideas about
genuine internationalism in Europe that reject these forms of capitalist
integration. Not improve them. Reject them. That’s the real radical
outlook for the Left, and that is what it should do.”
I’m not sure which ‘Left’ Costas is referring too here. But Marxist
economics agrees that the EU and EMU do not offer real internationalism
for labour. These are organs of capital, especially big capital; and
they have exacerbated the uneven development of capitalism in Europe
(see my unpublished paper, Euro crisis is a crisis of capitalism).
That said, Greek capitalism is in no position to turn things round with
its own currency. Greek capital will be saddled with huge euro debts
following devaluation and it won’t be able to export enough to stop the
Greek economy dropping (further) into an abyss and taking its people
with it. Grexit also means not just leaving the euro but also the EU and
without any reciprocal trade arrangements that Switzerland has, for
example.
Costas Lapavitsas and Yanis Varoufakis are economists who have become
politicians and are now in the frontline of the fight by Syriza to
restore the living standards and rights of the Greek people in the face
of an onslaught from European capital. It ain’t easy – it’s certainly
easier to criticise from well behind the lines. But if they read this, I
hope they take it in the spirit of best intentions.
The issue for Syriza and the Greek labour movement in June is not
whether to break with the euro as such, but to break with capitalist
policies and implement socialist measures to reverse austerity and
launch a pan-European campaign for change.
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