Tightening the Corset of Casino Capitalism
Interview with Prof. Rudolf Hickel, University of Bremen
[This interview originally published in: Ausblick 1/99 is translated from the German on the World Wide Web.]
More than $1.2 trillion move daily in foreign exchange trading. Five percent involve normal trading conditions. The remaining 95 percent are very speculative with partly disastrous consequences for economics and businesses. Economics professor Rudolf Hickel from the University of Bremen spoke about these effects of "casino capitalism" and possible counter-measures.
AUSBLICK: Incredible amounts of capital circle around the globe daily, always seeking the highest possible profits. These movements have nothing to do with the real economy, the production and trade of goods. What are the effects of this "vagabond capital" or the globalization of the financial and capital markets?
Rudolf Hickel: The term globalization describing financial- and global markets is often used with goods and services. Here I will speak of an internationalization with regional centers of gravity, for example "Euroland". Unrestrained globalization marks the capital- and financial markets. Speculation on the stock markets in this or that currency is central. The economist Keynes described this development in 1936 and coined the term "casino capitalism". What characterizes casino capitalism? Profits are no longer invested in businesses or economies but set out on the search for the fastest possible yields. What is new is now the far-reaching liberalization of the capital markets and the tremendous speed of trade through the revolution in the communication industry. By mouse click, I buy in the morning in Tokyo and a few minutes later in Frankfurt or Malaysia. In other words, I can get into or out of trade practically everywhere and at any time through the liberalization of financial markets. Investing one's capital where the greatest profits can be realized in the short-term usually with high speculative risk has become lucrative. These funds are lacking where economically necessary investments are imperative.
AUSBLICK: What does this chase for fast money mean for businesses and for politics?
Rudolf Hickel: The global financial system has become something like a worldwide "financial police" punishing progressive policy. For example, let us assume that Germany would take some kind of alternative way. The international financial markets would quickly punish this as cynics argue. Capital leaves the country all of a sudden. The influence of economics on politics is joined with globalization. The effects on individual businesses are similar. As an example, a business with longer term material investments gains a profit of eight percent. Excellent, one could say. However fund managers then appear and urge a profit of 15 or 20 percent. Who establishes this? This expectation defined on the money market or stock exchange is created by international speculation. Businesses are driven into increasingly frantic, short-term profit maximization with all the negative consequences for employees: job destruction, dismantling of the social standard, industrial safety and, and, and.
AUSBLICK: The ball rolls ever faster. The danger exists that it will fall from the gaming table. Vagabond capital has long been a risk for the world economy. The economic crisis in south-east Asia was a first indication. What must be done in your opinion to minimize this economic and financial risk?
Rudolf Hickel: The withdrawal of the overly hasty liberalization of the capital markets in the world is crucial. Mechanisms must be introduced to moderate the worst effects. For example, you spoke of south-east Asia. Enormous amounts of capital from Germany and other countries flowed into the expanding markets in southeast Asia as short-term investments in search of fast and high profits. The countries took the funds and put them in long-term investments. Seen economically, if one of these states now gets a cold, capital is withdrawn more quickly than it came. A pneumonia then very quickly arises out of the cold. This means a true long-term economic development program is not possible in these countries. Speculation occurs after the development dynamic is recognized. What can be done against this? One possibility would be that capital investors must leave their funds in a country for at least five years. Such a measure would increase calculability or sustainability. Adversaries object that capital will not come. I regard this as weak or threadbare. The pressure to seek an investment somewhere is high. Investors will not be kept away by little restrictions. Thus the restriction of liberalization would be a first step. The second is a worldwide control of the banks. A large part of the crisis in Japan and south-east Asia can be referred back to the fact that Japan does not have a rational banking system. If one bank threatens to go into a tailspin, it drags along all the others. A decisive role comes to the so-called "G7 states" (the seven largest economic nations of the world, including the US, Japan and Germany). The G7 states could insist that the International Monetary Fund (IMF) only help states which build a rational bank control system. Within the shortest time, we could be nearer this goal.
The exchange rate system would be the next point. Three great currencies exist in the world: the dollar, the yen and the Euro. If some of the central banks agree on firm target zones, the currency speculation could be stopped. The example of the eleven Euro-currencies shows that this is possible. When the exchange rates were fixed in May 2000, many including myself presumed a currency- and economic crisis in the union. This did not happen. All the central banks steadfastly defended the rates of exchange. The greatest speculator could do nothing against such a concerted policy. The problem is that the US is not ready to follow this path.
Many things are changing. A high problem consciousness was clear among many participants at the world economic forum in Davos several weeks ago. There is a growing need for regulation. Perhaps a few corset strings can be tightened in casino capitalism.