hankyoreh

Immanuel Wallerstein (left)

Interviewed by Lee Su-hoon, reported by Ryu Yi-geun

emeritus professor at Yale University and Lee Su-hoon

Lee: You have said, “In the next 50 years, the world will be entering into a serious economic turbulence, and, afterwards, capitalism will face a huge crisis, like the Great Depression.” People say this crisis is due to Wall Street greed, and the real estate bubble etc. How would you analyze the crisis?

Wallerstein: I haven’t changed my views since 5 years ago. Basically, as I see it, we have been in a structural crisis of the capitalist world economy since the 1970s, and it will continue. And it won’t be fully resolved until maybe 2040 or 2050. It’s hard to predict the exact date. But this crisis will take long time to resolve. What that means is that, at the moment, the world system is bifurcated. One sure thing is that the system we’re in now is in such trouble that it cannot survive, that it is so far from equilibrium and it can’t get back to equilibrium. But where it will go is totally uncertain, because, as I say, it is bifurcated, which means, technically, that there are two alternative ways of resolving an equation, which is not the normal phenomenon.

And in layperson language, it just means that the future world system or systems (because we don’t know if there will be a single one) that will emerge at the end of this process can be at least two different fundamental varieties. So which one we will have can’t be predicted, because it will be a consequence of the infinity of nano-actions, by the infinity of nano-actors, presented in the infinity of nano-moments, and no one can put that together. But it will happen. So here we are, in the middle of it. It means it is chaotic, as they say. What does it mean to say, “It’s chaotic”? It means that fluctuations are enormous and therefore the uncertainties are very short range. It means that a person who would predict the relationship in one year, of the yen, the dollar, the euro, and the pound will be a very brave person. There’s no way of knowing it. But in fact, entrepreneurs have to know that. They have to have the minimum stability. Otherwise they risk enormous losses. It freezes them, makes them very hesitant to engage in any kind of investments and so forth, which is one of the things we see now around the world. And that’s why such enormous unemployment has resulted. And it’s also why governments are in such financial trouble, because without this further production, there’s no tax revenue, and without the tax revenue, governments get squeezed. And here, we have more unemployment, which puts a greater strain on the government. This is practically every country in the world. The governments have less money, with which they have demands to spend more. But that’s, of course, impossible: you can’t have less and spend more. And so they come up with all kinds of solutions. None of them seems to work. That’s where we are today.

Lee: And many European countries are experiencing fiscal crisis, more or less, a moratorium, and trying to get aid from the EU and ECB (European Central Bank).　

Wallerstein: Europeans have a very basic problem. They have 9 currencies, at least, and 17 countries share the euro. But there is no federal government. That’s a very tricky situation because what that means is that the governments cannot fiddle with their own currency. One of the ways that governments try to handle difficulties is to increase the value of the currency, or decrease the value of the currency. Decrease the value of the currency, you can sell more; but if you increase the value of the currency, you can buy more. This is not an option to countries in the Euro Zone, because no country has its own currency. So there they are and faced the same problems as everybody else. That is to say, the increased demands - because increased unemployment increases demands on the government. At the same time, the government has decreased revenue because there are no jobs.

Their only option (Greece, Spain, Portugal, or Ireland) is to get assistance in some way or other, some kind of solidarity money. Then they run into reluctance on the part of the wealthier countries to “bail out” the poorer countries. This leaves out of the picture the fact that the single greatest beneficiary of the Euro Zone is, in fact, Germany. And it’s the one who is making the most fuss about the fact that it doesn’t want to help other countries, unless they do X, Y, or Z, which actually makes the situation worse, not better. That’s the problem of the Euro Zone. It’s the same problem faced by everybody else, with an extra twist of the fact that individual countries can’t manipulate their own currencies. But the basic problem of the Euro Zone is no different from the basic problem of the U.S., or of Russia, or of Egypt, or you name it, because the same problem is occurring everywhere, which is “squeeze.”

Lee: Here in Korea, experts and media present two different arguments. Ireland, Greece, and others, those countries spend too much money on welfare. That is one line of argument. The other line of argument is the contagion effect because of the ease of migration in Euro Zone.

Wallerstein: Let’s deal with the two arguments. The first is “Greece is in trouble, because it has spent too much on welfare.” But that’s exactly what the Republican Party in the States says about the U.S.: the U.S. government is in trouble because it spends too much on welfare. That’s the same argument made all around the world. Not a special argument for Greece. The reaction of more conservative forces around the world to this crisis is to say, “cut back on welfare,” meaning “reduce government expenditures.” But if you cut back on welfare, you also cut back on the purchasing power of people. So you create a less effective demand. For example, a person who has got a factory that produces shirts or something like that, has fewer customers. So that doesn’t seem to be a solution to the problem. To me, it seems to make the problem worse. Anyways, the point is that it is not a special problem of Greece, or of Spain, or of Portugal. It’s a problem everywhere.

Now, the contagion effect. What happens is, because governments are squeezed, they need to borrow money. And borrowing money depends on a market. People lend money more easily if they think there’s a likelihood that they are going to get repaid. So yes, there is a contagion effect within Europe: Greece got into trouble, Portugal and Ireland got into trouble, and Spain and Italy got into trouble. And now France is now getting into trouble, and then Netherlands and Germany itself is getting into trouble. It is because the contagion effect is, in part, created by the rating agencies that are not a neutral phenomenon, but also it’s very real. But the contagion effect goes from Europe collectively to the U.S., and from Europe collectively to the rest of the world. So the contagion effect is the process of people being frozen. That is to say, when they see the things going wrong in such a bad way, they say “well, it may go wrong in the next place, and therefore what should we do? Well, let’s not lend the money” or “let’s demand higher interest rates.” If we do lend the money, demanding higher interest rates, they have even less money to spend on other things. That’s exactly the worldwide problem. So again, I don’t see that as a especially European problem. Europe’s problem, at the moment, is whether the forces that say “all the European countries would in fact do better, if there was no Euro,” would somehow abolish the Euro and everybody go back to their separate currencies. And there is a certain move in that direction, both from the right wing and from some people on the left.

On the left in Europe, they haven’t liked the fact that Brussels, insofar as it operates and has influence, has a very strong neo-liberal bias. And they say, (that’s what they say in some Scandinavian countries and even in France) “we would do better if we were liberated from the control of Brussels,” as opposed to what is still the majority point of view, which is that the Euro strengthens our position vis-a-vis the rest of the world, and most specifically, vis-a-vis the United States.

There is a political struggle going on right now. There’s no question. I tend to believe that, in general, one has to separate geopolitical pressures and realities from political rhetoric. Political rhetoric is a response generally to an immediate political circumstance in a country.

If Chancellor Merkel in Germany says certain things, one of the reasons why she says that is not because she believes it, but because, in the next election, which may be very soon, she feels she would gain or lose votes. That same thing is true for Obama. The same thing is true, I am sure, to the president of Korea. Politicians have to worry about the next election. That doesn’t mean (a) they really mean what they say, and (b) what they say matters. I’m not sure that it matters very much. Although in a very volatile situation, stupidity can carry the day. In general, what happens is the consequence of geopolitical pressures. So I think the pressure to keep Euro, the plus value of that, in terms of geopolitics, is much greater than the pressure to go back to individual currencies.

Chancellor Merkel is saying to people around Europe, “make me do it; and then I will have the political possibility of persuading the German politicians and electorates to go along.” I think that Europe will agree with some increased federalism, although they won’t call it federalism because that’s a word they don’t like. But increased power at the center and therefore increased money flows, after all. In a country like the U.S., Mississippi can’t go bankrupt because the federal government can re-direct money there. And that’s what Europe needs. That’s what the people who are shouting for “solidarity” are really talking about.

If you ask me to predict, I think that the likelihood, in 3 years from now, that we will not only see a Euro but a strengthened Euro, is much greater than the opposite. And some kind of mechanism that will enable less emphasis on prosperity and more emphasis on getting money back, flowing again, is the only short-term solution to European problems, as is short-term solution to the U.S. problems.

Lee: I want to add something to your analysis of the Euro Zone situation. You mentioned Scandinavian countries, who are strongest in terms of welfare. They are spending most on welfare and taxing highest. But those countries have not had the crisis, even though some argue that welfare populism is totally not right.

Wallerstein: Yes, it’s clear. They can be shown at many levels. Of course, there are five different Nordic countries, and situations are slightly different from each, including for those who are in the Euro Zone and those who are not, and those who are in NATO and those who are not. But in general, you are quite right that all those five Nordic countries still are quite strong welfare states and still have relatively high rates of taxation.

Lee: Yes, the fiscal problem in Europe is a worldwide problem actually. When you look into specific countries, there are differences. In some countries, corruption is more severe than in others.

Wallerstein: Let’s stop at corruption. I think that corruption is most severe in the U.S., Great Britain, France, and Germany, not in these famous cases all around the world. It’s peanuts, compared to real corruption. We have scandals all the time in the U.S., France, and Britain. When you have these scandals, you suddenly discover we are dealing with trillions of dollars. When you have a scandal, in Burma or Iraq, for instance, we’re dealing with millions, not even billions.

So corruption is a very ethnocentric weapon. The countries of the North tend to say that the countries of the South are immoral because they are corrupt. They don’t say we are immoral because we are corrupt. Corruption is generic in our system. It’s generic, because, if you have a system, in which the primary goal is an endless accumulation of capital, corruption is just a rent that the people who are located in the right place take from the endless accumulation of capital. To say “they shouldn’t” is a nice moral position, but it is rhetoric, because they will to the degree they can. Since public opinion doesn‘t like to see the corruption. And maybe, one or two people will get sent to prison for relatively short terms, but basically nothing much is done about the corruption. When was the last time that one of those corrupt people was really sent to a real prison for a real length of time and that they really had to pay back all the money he stashed away? It just doesn’t happen.

Lee: When I was listening to Obama’s nomination speech, I could list up what he was presenting as prescriptions to salvage the U.S. from the difficult times: creating more jobs in the manufacturing sector, rebuilding the middle class, emphasizing education, cutting taxes on the rich, new energy policy, decreasing imports from overseas, and welfare including medical care, which has always been a big issue in the U.S. elections. But I was surprised that South Korean Democratic presidential candidates were saying the same things. Of course, there is the unique situation of Korea: the division of the peninsula, and so the peace issue and the nuclear issue are important. Except that, the socioeconomic programs and policies were more or less identical. This led me to think if South Korea is socio-economically like the U.S. About 20 years ago, South Korea was hailed as a model for the third worlds, for it has achieved the economic growth with equality, relatively speaking. So after the crises of 1997 and 2008, South Korea turned out to be very much like the U.S., and so the policy prescriptions are almost identical in the two countries, I think.

Wallerstein: Well, I don’t disagree. Within the wealthier countries of the world, South Korea is not at the top, but it’s not badly off, at least. The division of opinions on welfare looks to be between conservatives and people on the left. But I think it may be actually more widespread than that. When one looks into the role of government in the poorer countries of the world, there’s still the issue of how much of a welfare state they have. One of the things that neo-liberalism as a movement since the 1980s has prescribed to the countries of the South is “oh you have all these economic troubles. You want to borrow money from us? Then you must reduce the welfare state because these are wasted expenditures.” So they are acting as the conservative forces vs. the local government, which is acting as a more left force. And it’s the same kind of debate.

Do you remember the so-called “Asian debt crisis” of the 1997? All of a sudden, a whole series of countries in East and South-East Asia got into immediate economic trouble. That is to say, money flowed out of the country. Governments found themselves in trouble and they looked around and some of them said, “lend us money.” And some governments said they were told usually “lend you money? Yes, provided you do this and that.” The one country that refused to borrow money in those terms was Malaysia. And Malaysia rebounded the fastest, by not doing this at all. When Indonesia did it, it brought about the fall of Suharto. And I’d like to quote this. There is a very famous upbeat piece by Henry Kissinger, a noted right-winger. He wrote after the fall of Suharto, in effect, “how can you (the IMF and U.S. government) be so stupid? You prescribe things to Suharto government which leads to their fall and puts a government to their left. It’s more important having Suharto remain in power than not giving them money. You didn’t understand your priorities. The priority is geopolitical, and not economic.” So he reprimanded them for doing what they were doing for 10 to 20 years in a country that mattered less than Indonesia.

Korea was in between, in terms of the way it responded. It did better than the countries that gave in to the IMF completely, but not as well as Malaysia. So one of the things one learns from that, and later from what happened in Argentina, is that these countries have more geopolitical power than they give themselves credit for and are able to stand up for agencies like the IMF better than that. Of course, the IMF and World Bank learned their lessons. And they started talking about poverty programs. Suddenly their language changed as a result of the Asian debt crisis, because they realized what Kissinger was telling them: they have got to be more politically astute; they can’t be narrowly economic with their prescriptions.　

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