The financial crisis could also be a good beginning in a new social order
By Saskia Sassen
[This article is translated from the German on the World Wide Web. Saskia Sassen, 60, teaches sociology at Columbia University in New York. She was famous for her analyses of globalization and international migration. She recently published "Paradox of the National."]
Since 1980 one of the noteworthy things of our time is that we work with extremely complex financial instruments to the end of a primitive accumulation.
After outsourcing hundreds of thousands of jobs to low wage countries, corporations began creating the most complex organizational formats with enormously expensive and talented experts. They did this to buy workers at the lowest price possible. In an insidious way, the millions of saved cents were transformed into shareholder profits.
Speaking figuratively, financial management was and is intent on siphoning off the meager savings of small households by developing credit card financing and - far more seriously - giving everyone the prospect of owning their own home. Loans should be given to as many owners of credit cards and owners of mortgages as possible. Whether the debtor could pay the mortgage or credit card bill was secondary. The loans integrated in securities are independent of individual persons.
Billions upon billions of profits were made this way from low-income households. In the US, 10 to 12 million households will not be able to pay their mortgages in the next four years. Under existing conditions, they will lose their homes.
Only "de-financializing" our economies or shriveling the financial markets is left for alighting from this capitalist system. That is the great challenge.
The indebtedness of the US is higher today than during the depression in the 1930s. In 1929 it amounted to 150 percent of the gross domestic product (GDP) and 260 percent in 1932. In September 2008, it had soared to a gigantic $62 trillion. This is greater than the GDP of all the countries of the world combined. This sum is currently estimated at $54 trillion. Outstanding derivatives amount to the inconceivable sum of $640 trillion, 14-times the GDP of the world.
According to current estimates, 50 million people worldwide are unemployed. Two billion people live in pitiless bone-numbing poverty. Along with creating many jobs, we set the goal of providing these people with food and roofs over their heads.
The central question is: will the financial crisis encourage the transition to a new social order? This crisis could help us concentrate on the work that is really socially indispensable: providing people with living space, ensuring the drinking water supply, making buildings climate-friendly, developing a sustainable agriculture and giving health insurance to everyone. If we invest in these imperatives, everyone who wants work will have a job.
History teaches that a market economy driven by profit maximization will not lead us to reformulate our goals in this sense. But history has also shown that a certain mixture of good functioning markets and a strong welfare state has led to the best results. Consider Scandinavia. Although injustice increases even in Scandinavian societies, the governments there do not let their people simply fall.
Imagine if work were understood as activity that is really necessary. The economic sphere would be radically different than the high financial world. In addition, we could save much money. As one example, the current debate in Western Europe and the US about rescuing the financial world only seems to consider financial solutions with many trillions of dollars or euros. To strengthen our labor markets, we "only" need billions.
This is true for a huge country like the US. In 2007, 26 percent of the 599,693 bridges in the US were rated as dilapidated. Repairing them would cost around $20 billion. Instead we pump $8 trillion into our banks without warding off the financial crisis. With a mediocre infrastructure as in the US, costs for its reconditioning are in the billions, not the trillions.
If Barack Obama would now repair the degenerate infrastructure like the education system and health care, his words and deeds would match. But how he could nominate Larry Summers and Timothy Geithner as his two economic czars is incomprehensible. As head of the NY Fed, Geithner must have seen the crisis coming long ago. For example, he could have been occupied with the rapid growth of shadow-banking, the bank transactions that do not appear on any balance sheet. These transactions amount to 70 percent of the global financial system. The Financial Times has started investigations.
Now is the moment to take radically new ways. Obviously everyone must be able to contract debts, whether a firm, individual household or country. But the debts cannot be on this level. The banking system must be regulated and more jobs must be created.
For several decades, the world has had the technology to stamp out sicknesses affecting millions of people worldwide. We also have the capacity to produce enough food for everyone. However instead of utilizing these resources, the opposite is the case. Millions of persons die in avoidable sicknesses and even more starve to death. While poverty earlier meant owning a drop of land and ensuring one's basic needs, poverty today means owning nothing but one's body. Poverty has radically intensified in both the poor South and rich industrial countries. We face increased inequality with a new global class of the super-rich and the increasing impoverishment of the former middle class. The swelling of the financial markets over the last thirty years has massively aggravated the negative effects inherent in the logic of profit maximization.
SASKIA SASSEN IN "THE NATION":
"An Economic Platform That Is Ours" - March 25, 2009