Section 5: Making American Capitalism Global

Section 5: Making American Capitalism Global

“American Superpower … Postwar Capitalism … American Hubris … Cheaper … Great Divergence … Instability”
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Summaries

  • Making American Capitalism Global > American Superpower > The United States as Superpower
  • Making American Capitalism Global > American Superpower > Eisenhower and the Military Industrial Complex
  • Making American Capitalism Global > Postwar Capitalism > Lyndon Baines Johnson and the Limits of Keynesianism
  • Making American Capitalism Global > American Hubris > Civil Rights and Consumption
  • Making American Capitalism Global > Cheaper > Return to Finance: Wall Street
  • Making American Capitalism Global > Great Divergence > Rising Inequality and Rising Assets
  • Making American Capitalism Global > Great Divergence > Luxury Goods
  • Making American Capitalism Global > Instability > Panic of 2008

Making American Capitalism Global > American Superpower > The United States as Superpower

  • So in 1945, many of the world’s great cities are literally smoking ruins.
  • World War II has been absolutely devastating, the worst war in human history.
  • The US is the world’s dominant economic power and one of its two standing military superpowers.
  • It’s so dominant economically that it produces 50% of all the industrial goods made in the world in 1944 and ’45.
  • It’s also an attempt to bring stability to a world that has been shaken in just two generations by the two biggest wars in human history.
  • It’s driven by fear a return to the chaos of the 1930s, a return of Nazis who, many argue, grew out of the disorder and lack of development in Germany after World War I. And so this whole project following World War II, of first the Bretton Woods International Monetary System and then the Marshall Plan in 1948 of redeveloping Europe, are based around this idea of bringing stability, the kind of corporate stability that America offered to the rest of the planet.
  • So instead of relying on gold as the fixed value for all the currencies the world, currencies were set into a fixed relationship with one another.
  • At the same time, the US is planning a series of packages of aid to Europe to try to get Europe on its feet again, to try to get the industrial economies of Western Europe in particular turning over and contributing to worldwide growth once again.
  • So the US proposes what comes to be known as the Marshall Plan, named after George Marshall, one of the main policy makers of the United States in World War II and after.
  • Also it brings along with it not just loans and grants, actual money, but the knowledge and the know-how to help to reconstruct the Western European economy at a more fundamental level.
  • We start to see the multinational firm that was not just about trading between countries, but really about producing in multiple countries all at once begin to take hold as an important part of the American and indeed the global economy.
  • By 1951, Western European economies have really recovered from the shock of World War II. In fact their level of production their collective GNP, if you will, is higher than that of 1938.
  • Their exports to the rest of the world will increase as well.
  • One of the American aims during the war was to bring an end to Western European empires ruling so much of the globe from their little corner of the world.
  • So nations like India, nations across Africa and throughout Asia step out onto the world stage as independent countries.
  • How do you develop an economy? And the answer is, you look to your own history.
  • You look to the [your] own history of capitalism, both in Europe and in the United States.
  • Because the very recipe for development that he and others tried to export will ultimately, on the one hand, be brought back to the US, but also will be abandoned by policymakers at places like the World Bank or the International Monetary Fund.
  • How’s it brought back to the US, in the meantime? Well, you see, in the 1960s, a collision between ideas of urban blight, especially after the riots beginning in 1965 and these ideas of development, so that the American city is now seen almost as a third world.
  • Once again, Western Europe, Japan, and soon other new economic powers are competing effectively with the US by the late 1950s and early 1960s.
  • Their ability to compete to sell products even in the United States to cut into that 50% of world industrial production rapidly is actually what puts the Bretton Woods System, that had been part of the US recipe for postwar stability, under immense strain by the early 1960s.

Making American Capitalism Global > American Superpower > Eisenhower and the Military Industrial Complex

  • Eisenhower warned about an unwarranted influence of a growing military-industrial complex and a new scientific, technological elite that would endanger our liberties or democratic processes.
  • We see this critique of the military and industry, of socialized risk and privatized profit, of corporations given undue governmental access.
  • On the right, we also see a new kind of critique, something that we associate with the cultural critiques of the new right; of a scientific, technological elite that had taken over the country; of surveillance technology; of atheistic values and alienation from the real America; of the end of small business and competition; and then, instead, the rise of a new corporate overlord.

Making American Capitalism Global > Postwar Capitalism > Lyndon Baines Johnson and the Limits of Keynesianism

  • He wants to in so doing create what he calls a Great Society, a society that provides a hand up, not a handout for every single poor person and indeed for every individual in that society.
  • Johnson’s Great Society idea founders on the rocks of 1960s crises, the whole proliferation of crises- economic crises, domestic, cultural and political crises focused around issues like the Civil Rights Movement, and of course, the crises created both at home and abroad by the Vietnam War, and by his attempt to spend heavily on the Vietnam War, but also on his domestic Great Society programs.
  • Looking back to the period before that day in early 1968 when he does that, many have seen the pre-1968 period of the Keynesian consensus as a kind of golden age of American capitalism, a managed capitalism, a capitalism that distributes the rewards of its innovation and of hard work much more successfully than the kinds that came before and the kinds that came after.
  • So the US economy, particularly the industrial sector, has the ability to find export markets all around the world much more easily than it will have after about 1960, when Japan and Western Europe in particular start to become very competitive with the US and with US products.
  • It’s prosperity that is conditioned on a political consensus of white working class Americans and others that essentially leaves out African Americans from many of its greatest gains, many of its greatest opportunities.
  • African Americans in the North are voting for the Democrats, but they’re not seeing the same benefits as white Democrats are seeing from labor unions and from government programs and so on and so forth.
  • So it’s something that leaves people out and maybe could not have given those other white Americans so much if it had given the same thing to African Americans.
  • Most of the people who work in American factories and who are members of labor unions in the 1950s are born in the United States.

Making American Capitalism Global > American Hubris > Civil Rights and Consumption

  • The American apartheid of Jim Crow was still very much alive and well in the 1950s, as part of both the larger system of racial segregation and control, as well as American capitalism.
  • Insofar as the ways in which white supremacy was rendered natural through the everyday practices of racial segregation in consumption, so too did the focus of consumption as a place to resist that white supremacy make possible part of the Civil Rights Movement.
  • So then when people sit down at a counter and demand- well, not demand, but simply ask, offer money in exchange for pie and coffee, it’s not just about pie and coffee.
  • So just as tea becomes a way to articulate a certain kind of politics during the American Revolution, so too do forms of consumption become a way to articulate freedom during the civil rights revolution.
  • In some sense, this kind of civil rights consumer revolution was very conservative.
  • The most natural way to be American is to spend money.
  • On the other hand, there was white supremacy, the other great theme in American history.
  • So through this, there was a confrontation between, on the one hand, the freedom of consumer capitalism and the oppression of white supremacy made real, made tangible, at these lunch counters.
  • In most of the South, it was impossible for most African Americans to actually get sit-down service at the counters at places like Woolworth’s or other kinds of restaurants.
  • So they are caught in this contradiction between the white racial order and the desire to make profits.
  • It’s a social revolution, and we can’t have it painlessly.
  • In places where white retailers did resist, like in Birmingham, Alabama, there were multi-pronged protest movements and boycotts.
  • In cities across the South, college students, religious leaders, and working-class African Americans united to claim what was theirs under the logic of consumer capitalism, under the logic of the free enterprise system.
  • Just like in the American Revolution, this became a way to articulate the everyday politics of civil rights, a way to bring people together who had been segregated on buses, had been segregated at the lunch counter, had been segregated at their jobs, together in this common experience.

Making American Capitalism Global > Cheaper > Return to Finance: Wall Street

  • If the postwar era had been defined by manufacturing, the era after 1970 is defined by finance as well as insurance and real estate.
  • What makes this happen is the end of the Bretton Woods system, a shift from an era of corporate and national stability to an air of volatility and uncertainty, both in currency markets around the world and the economy at home.
  • The problem was that as Europe rebuilt, the value of the currencies in Europe and also in Japan to the dollar were changing.
  • In the next two years, the global financial system and the American financial system was remade.
  • Take the venerable bond rating agency, Standard and Poor’s.
  • So none of this world in which we live today in which we have to know about bonds and stocks for our 401(k)s existed.
  • In the aftermath of the conglomerate craze, in the ’70s and ’80s, investment banks take on a new centrality.
  • So financial practices that are at the margin of American finance in the 1950s and ’60s, that are the province of wheelers and dealers in Texas, now are at the center of Wall Street practices.
  • All these old white-shoe firms bound by social convention and propriety, begin to look for an edge, begin to look for a cut of all of this action that mergers and acquisition, M&A action, that is driving Wall Street profit.
  • So investment bankers and bond raters and everybody wanted to have something to put that money into.
  • When those bonds and stocks could be sold, money was made.
  • Investment banks were also part of a broad process, in which finance became an end in itself, a source of profit in and of itself, rather than as a way to help manufacturing.
  • Manufacturing began to decline in profitability with the rise of globalization and containerization.
  • Take General Electric, a company that we think of as making light bulbs.
  • In the early 1960s, they begin to offer revolving credit to their customers, as a way to promote the buying of their appliances and other kinds of goods.
  • Throughout the 1960s, this division of General Electric, the General Electric Credit Corporation, that offers credit to customers grows at 17% a year.
  • By the 1970s and ’80s, General Electric transforms itself from a company that makes things to a company that begins to be a financial company as well.
  • Finance is not the way to promote General Electric manufacturing.
  • Finance is a way for General Electric to make money.
  • So we can’t think of finance and manufacturing as separate things.
  • In understanding the shift of profitability from manufacturing to finance, even as that shift in profitability did not lead to long-term productivity, did not lead to job growth, did not lead to wage growth, we can understand what all of this means in an era of stagnating wages and rising inequality after 1970.

Making American Capitalism Global > Great Divergence > Rising Inequality and Rising Assets

  • African Americans, who were excluded from all those FHA loans and mortgages and all those new jobs in suburbia, were feeling the effects of being excluded from the mainstream of American economic life.
  • In the mid 1960s, to the late 1960s, there were a succession of rebellions or riots that people had in the middle of cities, protesting against the way in which African Americans had been excluded from the American dream.
  • The congressional response to these riots was manifold, but in simply put terms, there was a decision whether or not to promote economic development in terms of businesses and jobs in the cities or, on the other hand, to promote access to credit that had been denied since the 1930s with the racist FHA laws.
  • Congress came down on the side of credit, and in 1968, they passed the Housing Act, which creates a program to promote home ownership in inner city America, called the Section 235 program.
  • To provide capital for this program, Congress looked back to the 1920s, to a financial instrument that had long fallen out of favor- and indeed, been regulated out of existence- the mortgage bond, now known as the mortgage backed security; a way to sell groups of mortgages in a bond form on capital markets; something that directly led to the Great Depression in the form of the crisis of the mortgage markets, as we talked about before.
  • The securitized mortgages- first in federally insured mortgages, and then through Freddie Mac and all kinds of mortgages- created a period of extremely cheap home borrowing.
  • So a lot home prices to begin to rise in the 1970s, accelerating in the ’80s and ’90s. Now, what’s interesting about this period is that while it is a period of rising asset value- not only in houses, but in the 1980s, in stocks- it’s a period of extreme wage stagnation.
  • Now, during the ’70s and ’80s, there was a continued rise in household income, especially because more and more American women were entering the workforce.
  • After the 1990s, this had basically stabilized, and there was nowhere else to go, especially as the American family began to look less like a nuclear family of the post-war, and more like it is today.
  • Visa and MasterCard became ever more widespread in American society.
  • It allows credit cards to be treated like home mortgages- for those credit card balances to be turned into a bond and sold on capital markets.
  • Securitization makes possible a massive expansion of consumer debt in the 1990s, and it seems like Americans are able to pay this back.

Making American Capitalism Global > Great Divergence > Luxury Goods

  • What we see in the 1980s and ’90s is the rise of incredibly logoed luxury goods for the very first time, something that is expensive, but also intended for more middle class, indeed even for working class audiences, something that also gives rise to a trade in so-called fake bags, fake luxury goods.
  • So there emerges a dual economy in which people begin to spend a lot of money on luxury goods and spend everything else at discounters, like Kmart and Walmart.
  • What is truly interesting about these new luxury goods is that they are not unique.
  • Then came the 1960s and the Jet Age and ushered in a whole new era of travel.
  • George Vuitton realized things were changing in the 1960s when a fellow fashion designer, Yves Saint Laurent, introduced his first ready-to-wear line, something that was produced not for individual clients but for stores and retails produced at large.
  • ” And that’s what made it possible to have this new kind of luxury, the creation of a new class of elites that were global in perspective, buying French luggage in America or Japan, but also wanting to display this wealth in a new ostentatious fashion.
  • Dapper Dan, named for the old Pomade product, was a store owner and tailor in Harlem who, like disco and hip-hop DJs took the cultural products of others, like Louis Vuitton, and remixed them, although in his case it was a remixing of fashion not of sound.
  • Dapper Dan would go downtown and get high-end designer luxury items, like that of Louis Vuitton, and then cut out the logos, taking strips of leather and sewing them into custom-made jackets uptown.
  • Ironically, these were more bespoke, more luxury, more in line with what Louis Vuitton when he came to Paris was trying to create than any of those stores downtown.
  • This question of real and fake, not quality, is at the center of thinking about luxury in the late 20th century, and it’s most exemplified by the way in which people buy real and fake COACH handbags today.
  • COACH, founded in 1941 as a small leather workshop, it produced private label wallets and belts for department stores.
  • Now today, of course, we associate COACH with the more aristocratic look of a horse and coach, but this isn’t where the name comes from originally.
  • By the 1980s, they’re selling $20 million a year in these bags, and he retires, selling the company, oddly enough, to Sara Lee.
  • What could these two companies possibly have in common? And the answer is, according to Sara Lee’s executives, is they are both forms of affordable luxury, a way to indulge oneself, to splurge, to reward oneself from a hard day’s labor.
  • The irony of all of this is that the luxury brands that we associate with the ’80s, like COACH or Brooks Brothers or other kinds of stores, begin to have massive outlet stores that are separate from the post-war malls.
  • By the ’80s and ’90s, they are producing not the original kinds of goods, which are of a higher quality in fact, knockoffs, knockoffs that they sell themselves, for a lower-cost versions of Brooks Brothers suits, lower-cost versions of COACH bags.
  • These are different products and they’re labeled so on the labels inside the bags than the ones available in higher price stores in the cities.
  • So this question of real and fake comes back to really questions of quality and brand, questions of, how do I sell things at a high margin to people who perhaps can’t afford it? Hermes doesn’t sell lower-price bags.
  • It’s this play between real and fake that really defines the luxury consumer economy of the late 20th century.

Making American Capitalism Global > Instability > Panic of 2008

  • So the stagflation of the 1970s had convinced many in the United States and elsewhere that Keynesian management of the economy, including a lot of regulation, was simply not effective and that a new model would have to be found.
  • This explains a lot of the shift to the idea that if we free up the market, eliminate regulation, let the market regulate itself that everything would be fine.
  • Those are quite simply first of all, a reduction or an absence of regulation in financial markets, second, the emergence of new kinds of financial products, innovative ways to link investors and buyers together, and then finally, new era thinking, which is the idea that this time is different.
  • In financial panics, you can see a different kind of mentality than you normally see in markets.
  • In normal markets, when the price of a good goes up, demand goes down.
  • This is what we see again, and again, and again.
  • We see the features of all this new era thinking, these new technologies in the 1980s with the rising of something called structured finance, the ability not just to turn mortgages into bonds, but to combine bonds and derivatives and options in all kinds of new ways that were never possible in the 1920s.
  • So one of the things that we hear in the 1980s- we’ll hear it later of course- but one of the things that we hear is that this in fact, all of these innovations actually make markets safer and less likely to collapse.
  • So what we see is Black Monday in 1987, the first massive crash in the stock market in that entire generation.
  • Another development that’s happening in the 1980s and that happens in the 1990s is that all around the world, more and more people are getting involved in financial markets, often in a very direct way.
  • As barriers are knocked down, in part because of the actions of the IMF and other international agencies that are promoting structural adjustment and promoting more access to the markets of these different countries, they’re getting linked by the access of their citizens to financial markets in other countries, by the access of people in the United States and investors around the Western world to the currency markets and other markets of those countries.
  • So what we see is the rise of these sovereign wealth funds, these oil barons of both the post Soviet economy and of the Middle East, as well as the privatization of all these resources of the 1960s and ’70s being invested in the American stock market.
  • So you have on the one hand, this massive influx of capital that brings a relationship between all these different stock markets and economies that had never been before.
  • In this run up to 2000, basically, you see the rise of these new hedge funds, especially long term capital management, which is run by the best and the brightest, people who think that they can balance all these different economies against one another to eliminate risk and create return without any possibility of collapse.
  • Then that’s followed, in turn, by what’s essentially the collapse of the new Russian financial economy between 1998 and 1999.
  • They all build up until 2000 where you have the collapse of what, until then, had been a real boom in tech stocks, both in the Dow Jones market, the traditional Wall Street stock index, and the NASDAQ, which is a new tech based one.
  • There was a belief that the internet, whatever that was, would be able to produce a wild new economy and that something really had changed, again this new era thinking.
  • So capital from around the world moved to the US stock market.
  • They say, wasn’t it ridiculous to think that the internet would produce a new economy in 1999 the way that we were thinking back then when we were all buying NASDAQ stocks? And of course, we know now that the internet did, in many ways, produce a new kind of economy.
  • House prices, they say, are protected by a whole array of financial innovations that spreads out risk through all kinds of bonds and insurance and derivatives.
  • That means it’s there one point of access to the mass of leverage that is now available from the burgeoning capital markets of the late 20th Century.
  • The real estate industry revs up and creates new opportunities for individuals to borrow so that those mortgages can then be sold off into the markets.
  • So we see over at the 2000s, this tremendous explosion in the amount of capital surging into the American mortgage market, not just from the US but from around the world.
  • The stock market is doing well, in part because these giant Wall Street firms, like Goldman Sachs and Lehman Brothers are selling so many of these mortgage-backed securities.
  • Employment is rising, especially in areas that are associated with the housing boom, whether we’re talking about construction or the massive industry that erupts around the country to convince people to get more mortgages, to get them qualified for mortgages, and so on and so forth.
  • So people are able to borrow against their houses and use that money either to meet current expenses or, as people who thought they were very clever did, speculate buying new houses.
  • Soon enough after that eruption really reaches full tide house prices start to creep downward, especially in some of the markets that are newest and most speculative.
  • That in turn, starts to put pressure on the value of all of these mortgage-backed securities and on the investments that financial firms and others have made in the expansion of the national housing market.
  • What happens is that, unlike in most of American history, in which prices in New York are different than prices in Texas, because this is a national market and the connections are in finance, things begin to fall apart everywhere all at once.
  • So what you see is this total unraveling of the mortgage markets, which then leads to a collapse in the stock market.
  • There’s a lot of criticism about the way that the other financial firms and the investors in Bear Stearns really make out quite well despite the fact that Bear Stearns itself has engaged in all kinds of questionable practices and unwise investments.
  • So this belief in markets, this belief in the failure of private firms in the advance of capitalism begins to strike at the heart of capitalism itself on Wall Street.
  • All of a sudden, as market after market starts to collapse, domino after domino starts to fall, you see them saying, wait a minute.
  • Presidential candidates, government officials, Federal Reserve officials are racing all over the place trying to stop the contagion in the markets.
  • The question is, will the government be able to contain it? And will policies change in the wake of this financial collapse? And in the aftermath of the crisis, there begin to be a questioning of beliefs that had been seen as pure truths, religious truths, for almost 40 years.
  • So these new kinds of critical movements, like Occupy, in some sense were not particularly successful because they focused on the financial industry, rather than the real industry of goods and services.
  • At the level of the government and the ways in which citizens understand the government, what we see is a long period of uncertainty, of questioning, and of some people trying to reassert that the old truths are still true.
  • As the new Obama administration moves to create, what it hopes will be, a new, new deal, it starts to encounter all kinds of opposition and all kinds of protests.
  • What here is a structural problem, a structural problem of inequality of people in the middle not being paid for 40 years and that money accreting at the top and being invested in financial products that create bubbles and collapses, but produce no value and no jobs in the end.
  • People still celebrate a stock market, in which the real gains primarily accrete to the top layer of the economy, to primarily go to those 1% that the Occupy Movement was protesting.

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