Daniel Ankarloo, senior lecturer in social studies and economic history at Malmö College of Higher Learning, speaks with Patrik Vulkan about the increasingly profound financial crisis, the historic parallells to the current crises and possible political strategies for the left and the labour movement in Sweden.
Patrik Vulkan: What is the background to the current crisis?
Daniel Ankarloo: There are a number of coinciding factors, but basically this is a credit crisis. A credit bubble, or loan bubble, has been caused by speculations in future increases in value, primarily of real estate properties. Loans have been granted based on an assumed future increase in value, and, in the end, the value of the loans has become much higher than the value of the production in the real economy underlying these loans. Iceland is a typical example, where the value of the banks has been several times higher than the value of the country’s GNP.
The crisis is therefore merely an adjustment of the actual value of resources, such as real estate. The value of real estate is falling dramatically, and as a result those who have granted the credits, the banks in other words, are not getting their money back. Because of these credit losses, the banks no longer grant any loans, neither to private clients nor to other banks, and consequently the whole credit system has come to a halt, primarily in the US.
There are other factors that especially neoliberals will not hesitate to point out. First, the interest rate in the US was so low that it created a credit bubble. It became so inexpensive to borrow money that people then did so on a large scale. Second, certain laws and regulations forced the banks to lend money to low-income earners who did not have the means to pay back. There is some truth in these statements, but they fail to acknowledge the fact that capitalists and banks themselves have not been uninterested in lending money. On the contrary, they have made money in so doing.
According to basic national economic theory you can say that a low interest rate sharply raises the demand for loans, but lowers the supply of loans. In other words, the banks ought to be less inclined to grant loans when the interest rate is low. Instead, the banks have been very aggressive in their efforts to lend money. The reason is that in a bubble it is rational to speculate in a rise of real estate prices, because that is how banks make their profits when lending money. So, we have a credit and financial crisis that is now spreading through the whole economic system since the capitalist system depends on credit.
Some people wish instead to have a system and an economy free of interest, but they don’t grasp how the capitalist economy functions. A capitalist economy without a credit system will not work.
Vulkan: Is what’s happening now also a crisis of the system as such for capitalism?
Ankarloo: It depends what you mean. In a Marxist sense, the crisis is part of the system, but what is happening right now, when you temporarily try to solve the antagonisms of the crisis, is also part of how the system will recover. The lack of credits is now causing problems for the financial system as a whole, and the capitalist system is passing the crisis on to the working class, with unemployment and reduced wages as a consequence.
However, the crisis also means a purging of the capitalist system. The previous speculative values will be cleared away, and so the ground for a new accumulative cycle is prepared. It is a capitalist crisis but I don’t think it’s a crisis for capitalism that threatens the system as such. The crisis is an adjustment of speculative values in relation to real values.
Vulkan: Did the crisis come as a surprise?
Ankarloo: No, I don’t think it came as a surprise for anyone, really. The only people who are surprised each time are the economists, because crises such as this one don’t exist in their models and equations unless someone, let’s say the state, ”distorts” the market. There are still some right-wing economists who are trying to say that this crisis doesn’t prove that the market is not working, and that the regulating governments are to blame. But hardly anyone listens them anymore. If you look back, there were in fact financial analysts and economists who pointed out that the American system would not be able to keep on lending so much money to so many people, people who could not be expected to have the means to pay those loans back.
You should also remember that the US as a nation has both a gigantic foreign and domestic debt, and this situation is starting to look more and more alarming. No other country would have been able to accumulate such debts to the rest of the world. Therefore it’s not surprising that such a bubble would burst, even if it was hard to predict the exact moment for it to happen.
Vulkan: How should one look at the role played by the media? Until just recently an almost unanimous corps of financial journalists described the economic system as stable.
Ankarloo: This is an example of what I would call a market myth. There has always existed a general tale about the financial markets, loans and savings in shares claiming that these systems are sound and that it is safe to invest your money in shares to mortgage your house. Within the existing theoretical framework, this has always been a reasonable starting point, and once a bubble like this one starts to grow it’s very important to start speculating early on in the process if you want to make profits. So the system is rational, albeit in a perverse way, which a lot of right-wing debaters forget afterwards. And, there are always those who joined too late, the ones who borrowed money on overrated real estate values and who now see their values drop dramatically. These are the big losers.
But media, the financial journalists, are not the determining factor here, even though they haven’t done their job properly. Media have always claimed that the credit- and loaning system is ”robust”, at least in the long run. They haven’t been the ones sounding the alarm. They have not pointed out that this could not go on, on the contrary. But I’m not sure it’s the journalists who have had an effect on the investment decisions or had an impact on the decisions to grant these loans. For the poor in the US it has all really been about having a place to live, and for more active investors and speculators it has been a way of making money. And so they have, which a lot of people are now forgetting .
Vulkan: Can you see any historical parallells to what is happening right now?
Ankarloo: Well, there are similarities as well as differences. There are historical parallells in the sense that this is a classic crisis of speculation where banks are suffering huge credit losses, which in turn will cause the economic system as a whole to come to a halt. We’ve also seen major currency fluctuations around the world, with the Swedish crown growing weaker and the dollar growing stronger. That is a historical parallel to the crisis in the 1990s for example. But there are certain things about the present crisis that are interesting, and different, and which actually worry me a bit. It’s a fact that during the crisis of the 1930s the US was a net lender in the world economy. This is no longer the case. A lot of the world’s external debts are placed in the US today and they will now take on new huge debts. This is the only country that can do this, not because it’s a financial superpower, but because it’s a military superpower. The only way for the US to compensate for these massive external debts is to simply say no to any other country that would claim its money back, and back this “no” up with military means. So, I’m a bit worried that there will be a growing militarisation of the US administration and foreign policy. On top of that, there is another problem in that the financial sector today is infinitely bigger than it was back in the 1930s.
If you look at Sweden it’s interesting because the parallells are a bit different here. This is really a global version of the crisis that Sweden experienced in the 1990s. There are similarities: The Swedish tax, loan and interest system made it attractive to borrow money prior to the crisis of the 1990s, and you could basically do so for free. The difference is that today the Swedish banks haven’t been lending in the same way and they are still making big profits. On top of that, Sweden has a gigantic surplus both in the trade balance and, above all, in public savings. It’s both interesting and bizarre that our minister of finance says that we can relax because Sweden has such a surplus of public savings that we are well equipped to meet the crisis. This is interesting because neoliberals have spent the last twenty years telling us about our large deficit in public savings and the need to do something about it.
So, there are parallells but differences, too. If you look at the US-American situation, the difference is that they start with a very big debt, both an external and a national debt, which they didn’t have in the 1930s. Sweden is also in a somewhat different situation because we have a large positive trade balance and big public net assets, which we didn’t have in the 1990s. The surpluses will now diminish somewhat, possibly in the pension system, but the margins are still sufficient to avoid a major budget deficit. What will hit Sweden though is massive unemployment, which we are seeing right now, and the historical parallel is obvious: this is exactly what we saw in the 1930s and 1990s.
Vulkan: This leads us to the following question: How will this affect Swedish capital and the Swedish working class?
Ankarloo: What’s serious is how it will affect the Swedish working class. If you look at the crisis as a way to temporarily and fairly quickly readjust the system to a new wave of accumulation and killing of dead capital, i.e. hyped values, then the working class will always be the class that bears the cost in terms of increased unemployment and a subsequent cut of wages, just like in the 1990s. So, although from a labour market point of view the crisis of the 1990s has never ended, there will be a new crisis which is going to be as serious as the latest one, and perhaps even worse in terms of unemployment. It will hit hard and create mass unemployment for the Swedish working class.
The question is how this will affect Swedish capital in general. Swedish companies have been showing declining profits as globalisation has made them more dependent on the results of speculation and less on the results of their actual production. Annual reports show major fluctuations in the earnings of large companies. The values on the stock market and speculative values are going down, while the values from the companies’ actual operations have not yet been affected as much. However, the situation differs a great deal between different companies. It’s quite possible that we will see an increased concentration of capital in Sweden after this crisis, which is a general prediction that one can make based on Marxist theory.
Following a crisis, large capital emerges stronger than small capital. I’ve also heard and seen indications from some writers that large capital like the Wallenberg trust will sit still and wait to buy cheap shares and cheap companies when values go down, which would lead to a further concentration of power.
What Swedish capital is doing right now is of course trying to pass on as much of the cost of the crisis as possible to the working class and the taxpayers. This is what all the bailouts are about: to save capital and transfer the costs to the working class. This is classic and has clear historical parallells. What you could say, at an ideological level, which may be more important to us, is that capitalism and capital are entering a new phase. I call it a new phase of neoliberalism. I’m not claiming that neoliberalism as such is dead. The neoliberal ideological arguments in favour of capitalism are now being abandoned by capital itself, because they are becoming irrelevant. The idea that the free market adjusts itself is irrelevant to Swedish capital and to capital at large, as they now want the state to act in order to protect them. So, I think we will see different arguments and rhetoric from capital than we did in the 1980s and 1990s. Neoliberalism is entering a phase in which it turns to the state to salvage what it can from earlier privatisation. Not a lot of people think of this as left wing, and primarily the liberal left claims that it is now becoming evident that the state is necessary for capital and that capital is becoming aware of this. That is quite possible, but what capital is saying is that the state should regulate the banking systems; they are not saying that we should bring what has already been privatised back into the public sector. It’s interesting that everyone is talking about the crisis and how the state has become so necessary, but no one says that we could actually re-socialise the school system – or re-employ people in the public sector, for example.
So, capital has a strategy for regulating what needs to be regulated at the same time as those sectors that have already been deregulated and privatised are left intact. They’re simply trying to protect the neoliberalisation that has already taken place.
Vulkan: Is it also possible to see what capital’s possibilities and strategies are in the long run, or how capital intends to take advantage of the situation?
Ankarloo: Yes, both. What capital is doing right now is really only something that is shortsighted that will have long-term consequences. They are interested in – and this is the tragedy – what the whole political system is interested in: saving the system. There is a lot of left wing rhetoric about how we are now trying to save the rich at the expense of the poor, or saving profits for the banks. I think it runs deeper than this. What they are trying to achieve is to save the system as such, because the free market and the market system, i.e. capitalism needs to be saved from itself on a regular basis. That is the main historical parallel to the 1930s and postwar politics.
There are some advantages for the working class in those politics, but one must not forget that the whole purpose of postwar policy was to save the system from itself. Capital, and capitalism as a system, entered a long era of expansion until the 1970s. Capitalism won’t enter a similar era of expansion after this crisis. I don’t think that is what worries capital, though. The question is rather: How can we save the working of the system as such? That’s why they promote the idea of “the state having to save the credit systems”. Capital’s main long-term strategy is still to increase the power of capital relative to the working class in the overall class struggle, and for a long time they have been very successful. What might worry capital is whether the crisis will turn into a criticism of the system itself or shift the balance of forces within the class struggle. That’s why they don’t mind getting the state involved, although some debaters worry about, and by all means want to avoid, socialism reappearing on the agenda and the working class raising radical demands on the system level. Unfortunately, they don’t have to be particularly worried about this for the time being.
Vulkan: It would be interesting to look at the opportunities for, and strategies of, the working class and the left.
Ankarloo: It’s a question of potential. What would the working class be able to do? What’s the strategy? The problem is that the Swedish labour movement has become extremely weakened by twenty to twenty-five years of class cooperation, and hasn’t really worked out an alternative or programme by which to counter the crisis. Funnily enough, the Swedish left and labour movement, the official labour movement in LO (the Swedish Trade Union Confederation) and SAP (the Swedish Social-Democratic Party), reacts with the same perspective as capital: How can we save the system from disaster? This is because the left, and the social democrats, realise that if the credit system collapses, the consequences will be much worse than if it doesn’t. They therefore see themselves compelled to support the bailouts. What you could say separates the left from the right, is that although they both moralise over the system, there are those who moralise over individual capitalists and call them greedy, while some, who may have a slightly better understanding of the situation on the left, say: “There you have it, the free market doesn’t work.”
Now, if the situation is that critical for the working class, it still doesn’t necessarily mean: ”Okay, capital is going to hell, let’s take over Volvo.” Since socialism is not perceived as an immediate alternative at the moment, people in the labour movement and on the left must find strategies to deal with this crisis that make us stronger and better prepared for the class struggle that lies ahead. We must find a strategy that will make socialism appear as a possibility after this crisis. The crisis will be given a capitalist solution; it’s the only way it will be solved in the short term, within the next two or three years. The stock markets will eventually rise again. And if the working class is going to bear the brunt of this, which it probably will, we must have an immediate programme ready to ease that burden. So, what can the movement do?
If we look at things as they are right now in Gothenburg, Volvo is giving notice and laying off people which makes it necessary to put a programme in place about ”What will we do with the people becoming unemployed?” Let’s look at the differences between the reactions in Gothenburg and in Umeå. In Umeå they raised demands that everyone above sixty should receive severance pay until they reach the age of 65, which will cover their retirement. It’s a concrete demand: People will lose their jobs but in this way you make sure that the burden of unemployment stays low. I have suggested that everyone who is forced into unemployment should immediately be moved to retraining programmes. That’s how we put forward real demands. If indeed the public sector has such a large surplus then it should be put to use in an innovative and productive way. That is to say, the public sector should employ the people that Volvo is laying off.
Those are the kinds of real demands that should be made, including unemployment benefits of at least 90 %. The way LO is negotiating with SAP – “we want 80 %” – is just nonsense. We should get 90 %, the excess for the working class should be close to zero in this crisis. There should not be any “days without pay” either, not in unemployment benefits nor in the health insurance system. These are really just classic strategic demands to improve the position of the working class – and they should be put forward immediately.
The working class has an opportunity today, which is not brought about by the crisis itself, although the crisis will force the labour movement to become more radical and to raise these demands. What worries me is the fact that the leading cadres of the Swedish labour movement, the ones who should stand up for this, the union and the political leaders, are not thinking in these terms at all.
The radicalisation must therefore come from below in the form of the self-organisation of the labour movement. I still believe that the labour movement needs political parties and some form of political organisation, but as long as that leadership is not in place, this can only come from within the LO-collective itself. In some parts of the LO-unions, primarily at the local levels of, say, Transport, the wood industry, SEKO and so forth, there are signs of such ideas spreading.
Another aspect, which a politically conscious labour movement should push more strongly, is raising demands on the welfare sector, and for two reasons: firstly, because the welfare sector is beneficial to the working class both as consumers and producers, and unemployment would decrease in a constructive way if the public sector was to reemploy those who are laid off. Secondly, because the public sector is relatively immune from the kind of waves of speculation which are now affecting the private sector, and it is not dependent on exports.
The political sector could act in more innovative ways. The political left could put pressure on the state to reinstate protection in the social security system for the part of the working class that will be affected. They could also act in a more productive manner and carry out carefully prepared programmes to enable jobs that are lost in the private sector to be replaced by e-jobs within the public sector.
Hopefully, in the long run, this crisis will serve as a wake-up call to get people to reject the current class cooperation, something that will open people’s eyes to the limits of class cooperation, or simply the death of class cooperation as far as the Swedish working class goes. We’re not there yet, since all the left and the labour movement is presently doing is turning to class cooperation. I hope and believe that this crisis can induce parts of the labour movement actually to become more radical and wake up to the fact that the only class cooperation that exists is on “their” terms, not ours. We have nothing to gain from this.
This is what is really at hand right now. A socialist strategy in Sweden has to emerge by way of a growing class mobilisation. It can only happen through our everyday struggles, and the everyday struggles we can win at the moment are those that are fought to provide care centres, other social services and a social-security system. The owners of Volvo aren’t particularly worried that we will take over their factories, as long as we can’t even save the care centres that we have.
We need to develop strategies for offensive welfare politics and offensive labour-market politics, and the result we can hope to achieve is not to solve the capitalist crisis, but to emerge from this crisis in a much stronger position.
Vulkan: Thank you for the interview.
Translation into English: Emelie Cañadas
This text was previously published in the Gnistan. Swedish Journal of International Socialists, No. 29/2008 and in Socialist Debate, No. 4/2008.