Henry C.K. Liu: Supranational Globalization vs Nation State Sovereignty

Henry C.K. Liu’s bio at HuffPo:

“Henry C.K. Liu is an independent commentator on culture, economics and politics. Born in Hong Kong and educated at Harvard University in architecture and urban design, Liu developed an interest in economics and international relations while pursuing interdisciplinary work on urban and regional development as a professor at UCLA, Harvard and Columbia universities. He was a planning/ development advisor to the late Winthrop Rockefeller, governor of Arkansas, and has received a national urban design award. Liu is currently the chairperson of a New York-based private investment group, a contributor to Asia Times Online and a visiting professor of global development at the University of Missouri at Kansas City. He is an occasional advisor on economic policy to several governments of emerging economies. Liu coined the term “dollar hegemony” to explain that the dollar, a fiat currency since 1971 and the major reserve currency internationally, distorts global trade and finance. Liu is a critic of central banking. He also calls for the use of sovereign credit in lieu of foreign capital for financing domestic development in developing countries. Liu has also been vocal in his critique of Chinese economic policy, which he argues includes imbalances that result in severe income disparity and environmental neglect. In a series of articles in Asia Times Online, Liu proposed the establishment of the Organization of Labor-Intensive Exporting Countries (OLEC), an international cartel, to restore the balance of market power between capital and labor in the globalized economy.”

 

Liu’s website will attest to the breadth of his socio-global-economic interests and in-depth writing, which I will admit to having read but a tiny fraction of.  So what do I know? I know his views are heterodox, and where to find him, should the need arise. I know his economic views favor the 99%. I know I will post more excerpts pointing to the Unreal Politik of Rip-off.

 

 

Supranational Globalization vs Nation State Sovereignty 

As the eurozone sovereign debt crisis unfolds, an unspoken political undercurrent is turning a complex yet narrow restructuring negotiation between sovereign government debtors and transnational bank creditors in a regional sovereign debt crisis into a broad political confrontation of supranational globalization versus nation state sovereignty in the economic ecosystem and financial infrastructure of the existent neoliberal economic world order.

On a more fundamental level, the global credit crisis of 2008 that began in the US, followed by the European sovereign debt crisis of 2011 as a collateral development of it, are raising questions on the viability of neoliberal market capitalism that had ascended to universal status as the economic/financial system of choice since the end of the Cold War. After the dissolution of the USSR, Europeworked to correct its division between capitalistic democracy and socialist central planning since the end of WWII. Led by a reunitedGermany at the end of the Cold War, many influential Europeans began to work for the integration of Europe to form a single common market with a common currency in the form of the euro introduced in 1999.

The Flawed System of Globalized Low-Wage Market Capitalism 

Europe, similar to other participants in globalized neoliberal trade, fell into the trap of a cross-border financial regime propelled by debt capitalism, the initial phase of which appeared to be a new wonder express train to easy prosperity through financial manipulation. Low wages achieved through cross-border wage arbitrage provided extraordinary returns on capital. Low-wage workers were allowed to keep consuming beyond their wage income by easy consumer credit to absorb the overcapacity from overinvestment funded by high return on capital. All went swimmingly until the debt bubble burst in mid 2007 in New York, the world capital of a new game called structured finance.

Structured finance involves the pooling of financial assets with long-term revue streams into a hierarchal structure of prioritized claims, known as tranches, of gradations of risk to issue structured securities for sale to investors of varying appetite for risk with compensatory returns. The unbundling of risk with structured securitization expanded the market for risk by allowing investors to selected tranches to fit their investment objectives and by wide redistribution of risk from particular investors to systemic market risk, under-pricing risk for any particular exposure, thus encouraging speculative investment.   Structured finance can lead to increases in the aggregate value of a pool of financial assets by under-pricing unit risk through the shift of part of the risk to the global financial system.

With the emergence of cross-border wage arbitrage, and the globalization of finance, the US financial sector gained control of the US economy, transforming finance from a sector that served the industrial economy to a dominant position of a profit center, replaced industrial capitalism in which full employment is a necessary objective, with finance capitalism in which structural unemployment is a necessary objective to prevent inflation. Money can actually be made by management decision to lay off employees. 

Increasingly, globalized market capitalism, with free trade and financial innovation as its partners in crime, is being exposed by unfolding events as the defective system that has produced unsustainable financial imbalances that resulted in recurring global crises of excessive debt and deficient demand. Monetarism as practiced by contemporary central banking has provided the theoretical anchor for growing dependence on debt as the necessary stimulant and facilitator of financial expansion, confusing unsustainable market expansion fueled by debt as economic growth that would produce sustainable prosperity. 

Deregulated market capitalism operating with loose accommodating central bank monetary policies has produced extreme disparity of income and wealth in the name of necessary capital formation both among competitive trading nations and among competitive market participants within nations that have adopted market economy as the only path to economic growth. The flawed theories of monetarism rely on persistent structural unemployment (above 6%) as the prime effective way to maintain price stability unnatural and elusive in business cycles. 

The excessive concentration of capital in a few hands has led to deregulated cross-border movement of predatory capital to maximize return by depressing workers’ wages world wide via cross-border wage arbitrage, generating investment gluts that produce industrial overcapacity out of balance with stagnant aggregate demand due to low wage levels in all trading economies. Neoliberal trade no longer operates according to Richardian comparative advantage, but is based on absolute advantage of capital over labor system wide. 

Low wages provide excess profit to yield destabilizing high return on capital that eventually leads to over-investment to cause industrial overcapacity which cannot be absorbed by low-wage consumer demand. To complete the downward cycle of overblown financial market expansion that obstructs optimum economic growth because excessively high return on capital undercuts wages needed to support demand, central bank monetarism supplies massive liquidity to the financial market to fuel unsustainable consumer debt to mask the imbalance between high return on capital and low wage levels.  This is the fundamental cause of the global debt crisis that imploded first in the US in mid 2007 and spread to the European sovereign debt crisis of 2011.

 

Popular Discontent and Populist Politics

Vocal and violent mass demonstrations have been breaking out in the financially weak southern countries in the eurozone, particularly in Greece where the sovereign debt crisis is the most immediately critical. In the US where the Great Recession of 2008 is entering its third year, with unemployment expected to remain intolerably high for several more years, the Occupy Wall Street (OSW) protest movement of the victimized 99% of the population is picking up momentum and support beyond Wall Street and theUS to many other countries around the world. The visible target is the financial sector known as Wall Street, but the real target is the structural unfairness of finance capitalism to the working class of the world.  Popular discontent is ushering in a new age of populist politics.

A Debt Crisis Cannot Be Cured by More Debt

The European sovereign debt crisis, a financial disaster of excessive debt unsustainable by low wages, cannot be cured merely by financial bailouts from supranational institutions taking on more debt with sovereign guarantee to fund distressed sovereign debt, or by merely recapitalizing the distressed banking system with new money created ex nihilo (out of thin air) by expanded central bank balance sheets. The crisis has been caused by the dysfunctional monetary rules of finance capitalism and cannot be solved by rescue packages conceived under the same dysfunctional monetary rules merely to buy time until the same crisis explodes again at bigger scale.

The Need for an Income Policy

The fundamental long-term solution to the European sovereign debt crisis has to come from government commitment to a new income policy of rising wages to restore the balance between greatly expanded productive capacity from over investment and stagnant aggregate demand caused by low wages through global downward wage arbitrage.

Yet all the proposed rescue packages thus far are based on a dead-end strategy of pushing already low wages even lower through austere fiscal policy to pay off high levels of sovereign debt that had come into existence to mask imbalances created by decades of insufficient wage income for the average worker, the bulk of the population that the OWS protest movement identified as the 99% who are deprive of their fair share of the fruit of their labor by cross-border wage arbitrage that led to a debt-infested economy.

Fiscal Austerity that Pushes Down Wages Exacerbated the Debt Crisis 

Fiscal austerity by governments of the poorer countries as demanded by the governments of the richer economies in the eurozone will only deepen the debt crisis rather than solving it. What the richer economies fails to understand is that their export to the common market within the eurozone will shrink unless all the economies in the zone have robust purchasing power through an income policy of decent wages.

The Need for a new Symbiotic Relationship between Capital and Labor 

This sovereign debt crisis in Europe has morphed into a political crisis that will require a political solution to reconstitute a symbiotic relationship between capital and labor, away from the current exploitative relationship of capital over labor. Income disparity and wealth concentration are the causes of the debt crisis

Solution Cannot Come From One-Size-Fit-All Measures

The crisis has already claimed the fall of two coalition governments in the eurozone: Greece and Italy. It is not clear if the replacement governments can deal more effectively with the domestic socio-economic problems associated with rescue proposals hammered together by creditor governments in other capitals.

For more than two years, the overall economy of the eurozone, which is really a composite of national economies of very different shapes, characters, history and culture, has been incapacitated by a fatal malaise an externally imposed one-size-fit-all supranational monetary policy and standardized fiscal criteria on the separate domestic economies in different constituent nation states linked by a monetary union without a fiscal union. The disparity between different national economies of member states in the eurozone and in the European Union is wide and structural.

For example, national attitude toward inflation is diametrically opposite between Germans and Italians. The more advanced northern economies do not need, nor do they want the same expansionary monetary policy and fiscal permissiveness for optimum economic growth as the poorer economies of the southern countries.  Yet these separate national economies are artificially linked to a common currency with a rigid unified monetary policy controlled by a supranational constitution that dictates rules of acceptable fiscal behavior for all eurozone member states.

The European sovereign debt crisis manifests itself in distinctly different problems that overlaps and exacerbate each other. The PIIGS (Portugal, Ireland, Italy, Greece and Spain) are facing crises of excessive debt, both sovereign and private debt, brought about by an abrupt and sharp decline in economic growth rates caused by catastrophic external monetary events from across the Atlantic. This contraction in the PIIGS economies transmits a crisis of liquidity, possibly even solvency, to threaten the banking system in the European Union, regulated and supervised by a supranational European Central Bank (ECB).

Leading the pack of deficits hawks, German Chancellor Angela Merkel unveiled plans in June 2010 for €80 billion ($107 billion) in budget cuts over the next four years — a package she hoped would bring by 2013 Germany’s structural fiscal deficit within the European Union’s Stability and Growth Pact (SGP) limits of 3% of GDP. This tight fiscal policy in the midst of a sharp economic contraction caused by financial events in the US has the effect of dragging the entire eurozone into the abyss of debt deflation with an extended period of economic stagnation, not to mention social unrest and political instability. The economic impact of the proposed austerity program will neutralize the stimulus programs. — Henry C.K. Liu: Supranational Gobalization vs Nation State Sovereignty

  • FreeBSD

    so the eurozone was a mistake, then.