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Labor and the Imperialism of Finance

William K. Tabb is professor of Economics at Queens College and of PoIitical Science at the Graduate Center at the City University of New York.

Organized labor has always privileged collective struggle at the point of production, judging it to be capital’s most vulnerable point. Denying employers the labor power needed for the production of surplus value strikes at the reproduction and expansion of capital, the accumulation process which is the core of the system.

Here, I shall argue that labor and the larger progressive movement need to give far more attention to the emergent international finance regime now under construction, as well as the political demands which need to be part of an alternative conception of how globalization can work. At the heart of such an analysis must be an understanding of the logic of finance capital and an alternative working-class-oriented framework for the social control of capital.

Increasingly, it is monetary globalization, the cross border movements of capital (in the form of loans and equity, as well as direct investment, the value of currencies, and resultant pressure of balance of payments difficulties) which set the terms that dominate the wage bargain and the regulation of work at diverse locations. I will connect the growing importance of finance capital and its ability to force industrial restructurings (which can have dire consequence for workers everywhere) to the deflationary pattern increasingly evident on a global scale.

The Background

In the fall of 1998, two-fifths of the world economy was in recession, including almost all of the so-called “developing world.” China, for example, seemed poised on a precipice. It announced that over two-thirds of its key manufacturing industries were in oversupply, inventories out of hand, and prices and profits continuing to fall. In the months since then, there has been some improvement, but no real change in the structural weakness of these economies and, of course, we can note in passing the travails of Russia, Brazil, and Indonesia. So far, the United States has been the beneficiary of these problems. Consumer prices have gone down for many products and inflation is absent, thanks (in part) to low-cost imports, although the mushrooming U.S. balance of payments deficit is hardly sustainable for long at present levels. The stock market has gone up 30 percent a year for the last three years while productivity grows by three percent—an unsustainable situation. Some fear that the United States is where Japan was a decade ago before its bubble economy deflated. They note that Japan (after a decade of stagnation and countless failed efforts to stimulate growth) has been unable to cope with its severe overcapacity.

In the United States, the distribution of benefits has been incredibly uneven. Workers’ real earnings in 1998 (though, at long last, rising) were still three percent lower than in 1989, while over these years, the average chief executive’s compensation doubled. We also know that for some groups the situation is far worse. Half of all black kids in the United States grow up in poverty, for example. Richard Freeman’s warning in the Harvard Business Review, where he reviewed the depressing figures on declining average weekly earnings for U.S. workers and growing inequality, famously asked if we are heading toward an “apartheid economy.”

Such tendencies are visible throughout the world, which suggests that there is tension between international economic integration and the possibilities for progressive politics. Some observers argue that there is nothing officials can do except get out of the way of inexorable trends. Others have seen integrated capital markets reflecting deliberate policy choices of state actors, and thus reversible. A related debate is between those who understand the state itself to have become obsolete and others who see its continued importance but having a different set of priorities (i.e., as a supporter of international openness rather than as provider of social protections for citizens). A third area of dispute is the degree to which world financial markets operate along lines of the free market ideal of perfect competition, versus the extent to which the financial system is characterized by hierarchy rather than anarchy (with London and New York as the dominant centers, and their large financial institutions colluding with the regulatory authorities that exercise power over other market participants). But the hegemonic position of finance has been politically constructed and is hardly the simple product of blind market forces. The social costs of this arrangement are severe and potentially catastrophic. Here, I want to make the connections between the international financial regime, which has been encouraged by Anglo-American capital from the late nineteenth century, and the broader power of capital in the class struggle.

Since the end of the postwar period (the late 1960s or early 1970s, and with greater intensity since the 1980s), the pressure for financial deregulation has grown stronger. The international financial institutions (IFIs)—most importantly, the International Monetary Fund (IMF) and the World Bank—have focused with singular intensity on neoliberal goals that erode the political weight of National Keynesianism, social democracy, and socialism. New financial institutions reflect this changed emphasis. The European Central Bank’s mandate is solely price stability, for example, with not even rhetorical support for growth and employment, which is assigned by law in the United States to the Federal Reserve. The Euro, the Maastricht convergence criteria, and newer attempts at international institution reformation (such as the proposed Multilateral Agreement on Investment [MAI]) are all premised on this logic. International governance becomes the conduit for the greater dominance of finance capital.

The class recomposition of recent decades has reinforced these developments. In what has been called the third world, local elites no longer pursue state-led nation development strategies, but welcome their new role as regional agents of international capital, and work to integrate their economies into globalized networks. In the advanced countries, too, the growth of information-communications sectors—tied to the globalization process—changes the consciousness of many technical professional workers. The attack on public pension provision and the growing commitment by better-paid workers (who have seen their retirement nest eggs grow in mutual fund portfolios) have given them a significant material interest in speculative investments tied to rapid restructuring.

At the level of macroeconomic policy, the unreasonable focus on inflation stems from the influence of financial markets. The banks and financiers do not like inflation because it devalues their bond holdings in real terms. They prefer a redistributive growth in which subsidies flow from working-class taxpayers (who are geographically less mobile) toward capital, which has substantial mobility and demands incentives to relocate or to stay put. The growing power of financial markets thus has serious consequences, a drop in effective taxation of capital and on the rich, combined with falling real wages for working people and lower social-welfare spending.

The pressure of financial markets to raise returns leads not simply to the closure of unprofitable operations but also to the sale of units that make lower-than-average profits. The number of direct employees of Fortune 500 companies has declined precipitously as a result of relentless pruning, contracting out, and a greater use of part-time and other contingent employees. It is by abrogating implicit (and even written) contracts, stripping of assets, and using debt in place of equity that returns to owners have been enhanced. The growing use of stock options has made the singleminded pursuit of profit for owners coincide with incentives of top executives. The pressure on corporate executives who tried to defend their traditional prerogatives came from institutional investors, corporate raiders, and restructuring buyout advisers. Companies that do not aggressively maximize shareholder value have been taken over by those willing to throw out the old managers and downsize the workforce. The momentum has been relentless and hardly limited to restoring past profit margins. It has been about maximizing returns to owners, regardless of the impact on workers and communities.

The world economy currently depends on a peculiar and unsustainable mathematics of capital flows. The top tier of U.S. consumers spends lavishly, in significant measure because of the wealth effect of rising equity prices. Working-class consumers go deeper into debt. Spending has been exceeding income—an unsustainable pattern. The U.S. imports the equivalent of three percent of our gross domestic product (GDP). Global excess capacity means bargains for U.S. shoppers, and foreign money pours into U.S. financial markets seeking secure returns. Global crisis forced the Fed to keep U.S. domestic interest rates low, fueling stock market expansion—a situation which reminds many of the political economy of Japan a decade earlier (if not the United States itself in the late 1920s). Wall Street worries that recent interest-rate increases will bring their decade-long party to an end. If it does, the one-sided nature of the expansion will be brought into stark relief. Surely the United States cannot continue to consume beyond its means forever, and run balance of payments deficits the size of the current one.

Of course, the international system has long had problems with financial crises. They are not new to our time. The problem is experienced both as uncontrolled capital movements (which destabilize economies) and as the difficulty of developing adjustment mechanisms. The problem can be understood in the framework of the Mundell-Fleming model, which shows that governments, their economic policymakers, central bankers, and treasury officials cannot simultaneously maintain monetary policy independence, a stable exchange rate, and unrestricted capital movements. Two of these three are possible—not all simultaneously. Free capital flows and stable exchange rates can be achieved by allowing interest rates to move in line with external pressures. It is possible (by controlling capital movements) to have exchange rate stability and to control domestic interest rates and, of course, if exchange rates are allowed to adjust to market forces, then capital mobility and monetary autonomy are possible.

Fiscal policy (taxation and government spending) is also captive to international monetary pressures, because flexible exchange rates and capital flows can make such policies ineffective. An open economy, subservient to market forces, reduces state economic policy independence and forces decisionmakers to adjust rather than to lead and constrain markets. If they attempt activism without national controls (and in the absence of an international governance structure which places social purpose ahead of profit maximization), market pressures can be destabilizing and regressively redistributional. Of course, this is a matter of degree. Public pressure on governments can be important. The greater the class consciousness of working people, the harder it will be for amoral capital to prevail. But without controls and social regulation of what is fast becoming (in Keynes’ words, describing an analogous situation in the interwar years) “a parliament of banks,” we will continue to face the need for painful adjustments and costly bailouts of financial speculators.

Inflation and Deflation

Today’s issue is not inflation but deflation. Yet, while there has been little sign of inflation since the early 1980s, when Reagan-Volker policies raised interest rates (and unemployment) while cutting taxes for the corporate rich, we have seen—for the last two decades—monetarists of different stripes continue to press for the elimination of inflation. The evidence does not, in fact, show that inflation is harmful to growth.

Inflation below 40 percent a year has no discernable effects on economic growth. Working people are better off with some inflation and full employment. In that case, their real incomes after inflation have tended to go up. Indeed, the pursuit of lower inflation now threatens global deflation, which has consequences that need to be better understood. Deflation, a drop in the general price level, makes it more difficult for debtors, including countries and corporations, to pay back debt, which is fixed in nominal terms. When this debt is in a foreign currency, as is usual in the global periphery, depreciation of the national currency makes it even more difficult to pay debts.

Globalization, as it has proceeded, has reversed price movements, and while it is too early to say that future historians will find IMF efforts to impose austerity to have created a dangerous deflationary situation, there is mounting evidence that this is becoming the case. The logic of financial hegemony has been to reduce government expenditures and state intervention through privatization and contracting out, and to do away with capital controls. The demand for greater transparency and free trade reflects a superstitious belief in an idealized market mechanism that automatically achieves optimal external and internal equilibria, as in the textbook utopias of neoclassical economists. Orthodox policies once again, as before the Great Depression and the advent of Keynes, assert that interventionism by governments concerned about creating jobs and adequate living standards will do more harm than good. It all has a familiar ring.

It is important to distinguish between two very different types of deflation. The good kind comes from technological change, which lowers the cost of production. Computers, for example, get cheaper and more efficient over time, which spreads their adaption. Cost declines but sales go up. The speed of the product cycle in a number of areas has such characteristics. A second, and very different type of deflation, results from inadequate demand. Bad deflation results from excess capacity, growing inventories, rising unemployment, falling incomes, and lower consumption, which together cycle downward and can result in depression. Overcapacity intensifies competition, leading to lower profits, plant closings, and more job loss. As consumer confidence weakens, workers (even those not losing their jobs) grow pessimistic, and companies see no reason to invest in the face of excess capacity and a bleak outlook.

Economies can stagnate, as Japan’s has done for a decade now. There are limits to how long a country (even one as rich as Japan) can go on this way. The excess capacity (in everything from semiconductors to steel) leads producers to lower prices, but consumers expect still-lower ones and so are in no hurry to buy. In an aging society, retirement worries compound lower present consumption. While all nations try to increase exports, most restrict imports. (The exception to this rule is the United States, the consumer of last resort for a world substantially in recession.)

If markets responded instantly, falling prices might not be a problem. People would have more disposable income and simply spend the money on other goods and services, creating employment for those released from jobs lost to technological progress. But when wages are held down by repressive state policies and (given the anarchy of production) profits are directed to unnecessary new capacity, overinvestment arises. Policies which subsidize capital at the expense of collective and individual consumption intensify the sectoral imbalance between ability to produce and capacity to absorb output. The overexpansion of credit for both producers and consumers, which helped foster rapid growth, becomes a severe problem when growth ceases. The speculative bubbles that have affected Mexico and other Latin American countries and much of East Asia are a phenomenon of this sort. Blaming “crony capitalism” rather than capitalism itself is misplacing causation. Tulipomanias (escalation of the price of tulip bulbs in the Netherlands in the 1600s, which resulted in governmental regulation of the tulip trade) and the like have a long history, suggesting the need for social control of investment rather than continued faith in “efficient” capital markets.

The question of whether unrestrained markets unleash forces which can bring on global crisis and worldwide depression seems less abstract than it once did. But even short of any such meltdown, if enough people are victimized by unrestrained market forces, a legitimacy crisis can develop.

In the years following the rise of workers’ movements in the industrial core, the Bolshevik Revolution, the Great Depression, and the Second World War, the working class gained power and unrestricted freedom for capital lost favor. Modern liberalism fostered socially responsible stakeholder capitalism, corporatism, and social democracy. The firm’s relation to its workers came to be seen in longer relational terms as the collective power of unionized workers was felt. Layoffs of core workers were discouraged and, if deemed necessary, were coupled with promise of rehiring when feasible—under the threat of union action. Productivity-conditioned increases in compensation were considered the norm, at least in the highly organized sectors of the economy.

As militancy receded in the Cold War years, class cooperation seemed at first to pay off—not only for capital but also for the more organized sectors of labor. With recovery from the war and the emergence of the NICs (Newly Industrialized Countries), intensified competition, and increasingly transnational capital with global reach, export-oriented development came to be the dominant model of development. Innovations in communications and transportation allowed economies of scale (tied to the high cost of research and development, brand recognition, and the sales effort in major markets) to amortize cost. Transnational capital no longer needed the pretense of social partnership.

Ironically, it was U.S. oligopolistic industries that first faced the crisis of globalized production. Resultant deindustrialization and restructuring, and the growing importance of information-oriented industries, brought erosion to traditional sectors, in which organized labor had been strong. New sectors were not, for the most part, successfully unionized. What we know as deindustrialization (and later, corporate downsizing) was driven by finance capital seeking to impose radical restructuring as a way of extracting surplus by redistributing adjustment costs. The increased importance of the chief financial officer, an accounting mentality, and institutional investors were, in part, a reaction to rapid inflation—from the late 1960s—which the United States unleashed on the world. While this inflationary momentum is a complicated story, it resulted from the oligopolistic structure of postwar U.S. industry, with its comfortable cost plus pricing compounded by efforts to fight the unpopular Vietnam War without raising taxes. The hegemony of the state allowed U.S. presidents to force adjustment onto others.

Pre-Keynesian Orthodoxy

After the hiatus of the postwar era, in which National Keynesianism dominated, we have returned to earlier orthodoxies. The National Keynesian model was born of recognition that unregulated market capitalism was dangerous. The Great Depression and its costs were all too obvious to a postwar generation intent on using government to stimulate equitable growth. National Keynesianism had different forms in different places. In Latin America, populist regimes pursued import substitution industrialization under a political alliance in which industrial elites needed the support of urban workers against the ruling landed oligarchies. In Western Europe, capitalism had been discredited by the collapse of the 1920s and 1930s, and capitalists in many countries discredited by their collaboration with fascist regimes. Labor and the left came out of the war with high prestige and organized strength, so that social democratic corporatist governance structures developed out of the material needs and the constellation of class forces. National champions were protected and subsidized, capital controls retained. In Japan, and later in other nations of East Asia, a corporatism without labor emerged under more authoritarian political conditions to pursue state-led development.

The postwar era came to an end for reasons too complex to be discussed fully here, but transnational corporations (first, U.S.-based multinationals, and then those of other countries), along with international banks and other large financial institutions, sought freedom to invest and worked to undermine statist restrictions. Developments lowering the cost of information processing and transfer assisted in this task. Telecom and asset management innovations continue to push these developments forward. The material interests of these leading transnational firms were advanced by the IFIs, which used economic crises (often unleashed by destabilizing capital movements into and out of national economies) to advance the interests of transnational capital. In doing so, they reprised pre-Keynesian orthodoxies. This becomes clear when we recall the similar prescriptions of the international bankers of the interwar years.

The important international gatherings of the interwar years, such as the Genoa Conference of 1922 (when international financial questions were considered) called for an end to “futile and mischievous” exchange controls, demanded greater independence for central banks, and less political interference in international banking. Commission members were, of course, leading figures from the world of finance, representing the major powers whose bankers (often these same representatives) dominated global finance. The Finance Commission at the Genoa Conference was chaired, for example, by the British Chancellor of the Exchequer. This approach (that free competition is always the best policy) has always represented the view of the strongest market participants. They have little concern for what has variously been called social cost, adjustment costs, and distributional costs, which they have seen as inevitable and unavoidable. They have written economic history in support of their views and interests.

The idea, for example, that the gold standard worked automatically and efficiently to create a smoothly adjusting international financial order over a large part of the nineteenth century (a key element of this story) has been shown to be inaccurate. The gold standard as the basis for Western European international monetary affairs came into effect only in the 1870s, and didn’t spread to the greater part of the world until the century’s end. It also depended on very specific economic and political circumstances, which could not easily be recreated once the working class came to be represented by its own political parties. Once workers understood (and were in a position to act on) the tradeoff between employment and balance of payments, convertibility became politically costly to ruling elites.

Furthermore, as interimperialist rivalries grew and British hegemony declined, the financial cooperation necessary to make the system work began to disappear. Painful adjustment for the benefit of others was made more difficult by growing working-class political power and the diminished ability of the British to get their way internationally. The Great Depression even more dramatically eroded the power of financial orthodoxy and the material interests it represented. At the end of the Second World War, few held illusions about self-correcting market mechanisms. But, as I have said, with the decline of the left in its various forms, finance capital regained its hegemony from social democratic Keynesianism.

Historic Parallels

In the last years of the 1990s, we see a situation not unlike that of the latter years of the 1920s. Today, there is fear that the Fed will continue to raise interest rates and spook Wall Street speculators. In 1927, a stampeding bull market, not unlike the one we see today, led the New York Fed to raise its discount rate. The higher interest rate was also designed to keep its gold reserves, which forced up interest rates elsewhere, damaging the credit-worthiness of heavily indebted countries. Capital short nations tried to export their way out of crisis, protectionism increased, debt service burdens became heavier, defaults grew and the financial system fell apart. Calls for austerity, as the one purportedly “realistic” solution, made matters worse. Peripheral economies with inadequate reserves suspended payments as capital flight worsened. Stability at the center came to be undermined. U.S. industrial production fell 48 percent between 1929 and 1932, as the speculative bubble collapsed.

Then, as now, countries wishing to maintain their commitment to the rules of the international payments system could not reduce interest rates to stimulate domestic growth (without encouraging capital flight) unless they suspended convertibility. In earlier episodes it had been taken for granted that countries would accept high domestic costs of austerity and follow the rules of the game. But in the 1930s and, of course, today (when speculators had reason to think that a government might expand domestic credit, allowing the exchange rate to depreciate), they would sell its currency to avoid the capital losses. In the 1930s, the intensity of speculation against a currency depended on perceptions of its commitment to hold its gold standard valuation. Things are hardly different in the post-Bretton Woods era of committed pegs and floating rates for those who cannot or choose not to attempt them. That Brazil pegged its currency to the dollar and not gold is secondary to the essential congruence of the forces at work then and now.

Then, as now, these dilemmas were most painful in countries with weak banking systems. Then, as now, the fear that central banks might be prepared to bail out the banking system, even if it meant depreciating the currency, produced further liquidation of reserves as speculators fled the currency, seeking to avoid capital losses consequent to depreciation. This meant central banks could not inject liquidity unless they were prepared to enforce capital controls, which expert opinion in the financial centers said they should not do.

Today, the IMF and the U.S. Treasury demand that countries maintain convertibility despite the cost to the economies involved. In 1947, when the United States insisted that the British restore convertibility, a prostrate United Kingdom had no choice. This turned out to be a disaster for the British. Today, the United States also insists that high interest rates are the solution, so creditors do not take losses and convertibility is maintained no matter how this is painful to nations with balance of payment crises. This bleeding the patient, which has been likened to the use of leeches in the eighteenth century, is likewise weakening rather than restoring patients to health. In the interwar period in Europe, it led to the rise of fascism. After the horrors of the Second World War, the United States changed course and offered the Marshall Plan to stimulate growth. The cause, however, was the fact that austerity would have led to communist electoral victories and perhaps a change in economic system in countries like France, Italy, and Germany.

As it became politically feasible, the United States insisted on convertibility and open financial markets, which the Europeans and Japanese did not want to adopt. The 1960s and 1970s can be seen as decades during which, despite some strong efforts (especially by France under De Gaulle, and later third world demands for a New International Economic Order), the United States was able to continue to impose world financial and trade regimes to its liking over all opposition. The United States and the United Kingdom colluded to bring down the Bretton Woods regulatory framework. It was the initiatives of these two nations that produced the Euromarkets and unleashed a process of competitive deregulation. The dismantling of capital controls was designed to forestall the U.S.’s relative economic and military decline. The United States has forced unwilling countries to open their financial markets using the threat of excluding their exports from the U.S. consumer market. The latest manifestation of the harm that can be done by such forced financial-market opening is the East Asian crisis. The agencies in charge of restoring financial stability, especially the IMF, are seen as mediating on behalf of U.S. financial interests. Not all criticism of this regime comes from the left. Some of the strongest criticism of the IMF comes from the free market political right, which sees the IMF as creating moral hazard problems by guaranteeing insurance against loss. It encourages speculators to take on greater risk than they otherwise would. The free market economists who oppose the role of the IFIs believe that markets can discipline investors and governments better than the IFIs, by rewarding sound practices and punishing irresponsible ones. Right-wing populists object to the one world government aspect of the growing power of these international agencies, which they see as undermining U.S. sovereignty and placing burdens on American taxpayers. The blind spot of the radical right is to think that these international agencies (tosay nothing of the black helicopters) are the tools of some shadowy world government rather than of their own state and treasury departments. By separating government (bad) from free enterprise (good), they fail to see the interpenetration of U.S.-based transnational capital and the emergent international state apparatuses. By idealizing competition and demonizing the state, they misrepresent both the nature of the economy and the class nature of the state.

Liberal institutionalists who support the role of the IMF (if not its particular actions in every case) stress the need for surveillance by technocrats able to command the gathering of accurate and timely information that allows market participants to make informed decisions and prevents panic when collective action problems arise. When panic occurs, loans and guarantees from international financial institutions can calm markets. Once investors know their money will be there, they feel less need to pull their funds out. By encouraging creditors to act collectively in support of mutually beneficial workout programs, this view states, international agencies can limit the cost of resolving financial panics. This gives the countries involved the breathing room to deal with their problems. Liberal institutionalists believe markets overreact to incomplete information and to rumors, follow herd-like behavior, and can be unnecessarily punishing as expectations dramatically change. The liberal institutionalists argue that the IFIs allow the shifting of costs onto borrowers, and are advancing the interests of the United States, since so much of the funding extended and put at risk yields profit to U.S.-based financial institutions. They present IFIs as organizations run by technicians who are nonpolitical in their activities—a view which misrepresents the purpose of the agencies. Their purpose is, in fact, to reproduce an international financial regime that redistributes wealth to elites at the expense of the majority of citizens.

From a left position, the costs to U.S. taxpayers are less important than the support the IFIs give to finance capital to control the lives of people around the world and to deny democratic choice. The IFIs are the enforcers for finance capital. Moreover, the left challenges the current orthodoxy’s estimate of the actual benefits that such austerity programs are said to achieve. The claim that deregulated financial markets produce “correct” pricing of capital assets is an ideological assertion and numerous studies show it to be false. But the mainstream propaganda has been so effective that, for many people, it is hard to believe that the IMF solution, and neoliberalism more broadly, is not the “scientific” solution, or that there could be any alternative to the logic of the pure market. The socially costly, unnecessary, and wrongheaded policies forced on countries during the interwar years are once again dominant. One hopes that it does not take a similar painful learning experience to discredit them again. One reason for the unseemly haste to force new financial rules—that would enshrine the freedom of capital from political interference—is that a vast amount of learning has gone on: citizens everywhere are increasingly aware of the effects of the growing concentration and social irresponsibility of finance capital and transnational corporations generally.

The efficiency argument for financial globalization ignores distributional costs and the possible systemic disruption unregulated capital flows can cause, but it also denies the possibility of equitable and socially just policies. Once the neoliberal logic is accepted, all sorts of regulation (from minimum wages, the right of workers to bargain collectively instead of individually with employers, and public provision of health care) become impediments to the efficient functioning of markets. Indeed, the IFIs have forced the rollback of a host of government programs around the world. Arthur MacEwan, commenting on the enforcement of policies that hurt the working class in the name of efficiency, has written: “Considering the logic of the World Bank and IMF policy makers, one wonders how long it will be until they require that countries receiving their largesse abolish laws against slavery. Clearly such social interference with the market reduces efficiency.” Either social welfare is rolled back or the privileges of finance capital need to be restricted. Social control of capital is necessary for the greater freedom and well-being of working people.

Concretely, it is possible to envision capital controls. The argument that banks and hedge funds would simply go offshore to jurisdictions where regulation is minimal is not a strong one. If the United States said that it would not accept monetary transfers into its domestic banking system from banks and other financial institutions located in jurisdictions that do not regulate capital flows in strict fashion, these havens would quickly conform, or the footloose capital would soon leave them for zones where they were allowed access to U.S. markets. If the United States were to adopt such procedures, other nations would quickly fall into line. It is the political force needed to make governments regulate—not some natural economic one—that is relevant. Standstill provisons in loans, which would forbid creditors from pulling capital out individually until a negotiated recovery plan was in place, would remove the collective action problem which now leads to panic and uncontrolled capital flight. Changes in bankrupcty laws can be suggested, and so on. It is the unwillingness of capital to submit and the strength of the transnationals and their state allies and agents that is the issue. Again, the problems are political and not economic—if indeed we should make a separation between the two. The assertion that economic laws are binding is always an assertion of the hegemony of a certain type of economic reasoning, one with a political content.

I conclude, as I began, by asserting that in the current situation of increased globalization, the universalization of capital (a long-standing process but one which takes on specific meanings in our time), labor must have a position not simply on trade issues, organizing, and collective bargaining in the workplace, but a political position on capital controls and other legislation that would empower progressive politics by limiting the power of finance capital. Labor is being forced by history to learn to think in systemic terms. If it succeeds in doing so, it will be returning to its more radical traditions as well.