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‘Markets aren’t free, they are highly regulated’

German philosopher Joseph Vogl talks to the Herald in Buenos Aires last month.
German philosopher Joseph Vogl talks to the Herald in Buenos Aires last month.
German philosopher Joseph Vogl talks to the Herald in Buenos Aires last month.
By Fermín Koop
Herald Staff

German philosopher Joseph Vogl talks to the Herald about privatization, inequality

German philosopher Joseph Vogl has written on literature, culture and media but in the last few years he has focused his research on the origin of the financial order and the expansion of markets. He wrote The Sovereignty Effect and the The Specter of Capital, calling for a demystification of the traditional conception of financial markets.

In a short visit to Buenos Aires, Vogl, who teaches at Princeton University, met with the Herald and said markets have absorbed sovereign power from governments, creating a dependency that can’t be called democratic. At the same time, he criticized the privatization of state companies, which shouldn’t be left in the hands of the market.

You mentioned in your books the interdependencies between politics and economics. How would you characterize the relationship between the two?

There’s a very close symbiosis between politics and economics. The development of modern states and financial markets is closely linked together, they evolve together.

You also describe the development of the central banks until now. To what extent are they an example of the interaction between politics and economics?

Throughout history, central banks are built as institutions just at the verge between the state and financial markets. They are hybrids of the two. They are often private enterprises with public tasks. They have a certain function within the government but are closely linked to the dynamics of the financial economy.

Within the financial markets, political and economic principles also work together and to talk about that interaction you use the term “regulative capitalism”. How would you describe it?

Financial markets understood as free markets don’t exist. Markets are highly regulated by a set of institutions and rules with an international dimension such as the IMF and arbitration panels. There’s a growing network of institutions that rules market excesses. They aren’t free, they are highly regulated.

But that regulation wasn’t able to avoid the recent HSBC tax evasion scheme from happening. Are there breaches in the regulation?

The fact that financial markets are closely linked to public institutions makes it really easy for corruption to set in and leads to the creation of monopolies. Governments face a certain dependency on financial markets. The politics over the last 30 years show more and more power has been transferred into financial markets.

Can it be changed?

Financial markets absorbed a lot of sovereign power. There’s a power shift from government institutions to the market. This creates a dependency that can no longer be defined as democratic. The fact that financial markets were the creditor of last resort in countries like Greece made it impossible for them to have a debt haircut.

Argentina has frequently questioned the role of financial institutions such as the World Bank and the IMF for, most of the time, suggesting implementing austerity policies. Do you agree with that criticism?

In Latin America there was some hope to create the Banco del Sur, but now probably that hope is gone. It’s a great idea to get rid of these kind of austerity programmes of the financial markets. The IMF has now slowly begun to change its policies.

How can governments regain the power lost to financial markets?

We must broaden the rules and the possibilities for the state to invest in times of crisis. There’s a class struggle now between financial markets and democracies.

Could governments have avoided giving bailouts to banks considering the global economic crisis is still going on?

This happened because of the privatization of health care and pension funds. It was a sort of blackmailing. If they didn’t pay private investors, pension funds of many districts would have collapsed. But is a situation that you can revert. Chile made a big mistake to privatize many areas controlled by the state. When privatizing universities, health care and pension funds, the life of the people is delegated to market risk.

Was Argentina right then to nationalize many companies?

It was a good decision. There are some public goods that shouldn’t be privatized such as water and health care. They shouldn’t be left in the hands of the market.

As Argentina faces elections, many economists are claiming austerity policies need to be implemented due to the country’s high fiscal deficit, which the current government claims necessary to boost consumption. Who is right here? Can austerity be avoided?

If you implement austerity policies, you must be aware that markets will react. Before doing that, you must deal with investors and the market. A lot of Latin American societies are close to being transformed into consumer societies. Macri hopes to to the same with Argentina by reducing the role of the state. Chile is the most extreme case where there’s no public education, health care or pension funds.

Could Argentina become a more unequal society if it follows that path?

Yes, these are programmes that lead to a growing inequality. Markets take a leading role and wages are lowered.

Is a devaluation necessary in Argentina?

Argentina had to end the link between the peso and the dollar in 2002 because it was the condition to restart the economy, especially regarding exports. But implementing these policies has consequences. You can’t do it without having some security measures. Argentina can’t just go back to the markets to rebuild the economy, that has consequences. A certain degree of protectionism is needed to strengthen the economy, if not you would have the same situation as 2001.

What consequences would it have for Argentina to go back to the markets?

Financial markets are instruments used to transform societies and companies into more profitable objects. They are not interested in investments and giving credits, they are interested in changing companies into bank-like firms. This situation must be turned around, even if it causes a political conflict. The relationship between Argentina and the financial markets is the perfect example of this situation.

You have questioned the lack of responses of the global economy to the current economic crisis. Why it hasn’t been able to provide a solution?

It found some solutions but they aren’t the best ones. There’s an economic theory that markets tend to create an equilibrium if you liberate them from any restrictions. But that’s completely false, it fails to realize that crises are a regular phenomenon in financial markets.

At what stage of the crisis are we in now?

We are at an interesting one. There’s a multiplication of heterodox opinions regarding the crisis in economic sciences. The main stream liberalism is fought from different sides. At the same time, there are new political struggles. There are more questions and problems than solutions and answers regarding the crisis.

The recent Trans Pacific Partnership (TPP) deal comes as the same time the European Union is negotiating free trade agreements with the United States and Mercosur. What consequences could these deals have on the economy?

There’s a global movement against these kinds of treaties. People began to realize that the interests of big companies involved in these deals aren’t the same as those small ones. The idea of these kinds of deals come from US and European business clubs. It’s a consortium of government representatives and big business. Free trade for large companies doesn’t mean free trade for small ones.

@ferminkoop

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