From Socialist Review, Joseph Choonara interviews Ssocialist theorist David Harvey:
In this context you have talked about mechanisms such as a
"spatial fix" in which surplus capital is shifted abroad rather than
accumulated at home. Would you see the growth of the financial system
as another type of "fix"?
If you move towards a spatial fix you need a sophisticated
financial system to achieve it. To the degree that a spatial fix was
being sought after the 1970s, capitalism required a set of
international financial institutions that would facilitate the flow of
funds to China, India, Mexico or wherever. So the new financial
architecture that emerged from the 1970s onwards was, in part, to
facilitate ease of capital movement around the world.
But then the financialisation that occurred became an end in
itself. You start to find new markets emerging in the 1990s in currency
derivatives, interest rate swaps, etc. They grew from almost nothing in
1990 to about three times the output of the global economy in 2006.
The explosion of credit that accompanied this also helped capitalists to hold down wages.
There were many aspects to the crisis of the late 1960s and
early 1970s but one fundamental aspect was the power of labour, and
breaking the power of labour became terribly important. This was partly
done by migration policies, by outsourcing and offshoring, and also by
the political attacks by Ronald Reagan, Margaret Thatcher and others.
By 1985 the power of labour had effectively been broken.
Ever since the 1970s we've been in a situation of what I'd call
wage repression in which real wages didn't really rise at all. But that
led to problems in the market. If you restrict wages you have a problem
with aggregate demand. One way that problem was solved was by giving
working people credit cards and allowing them to go into debt.
Household debt in the US has tripled in the last 20 years or so.
Again a key role was played by financial institutions. The best
example I can think of is financial institutions lending money to
builders and developers to construct housing, say around San Diego,
then facing the problem of who is going to buy this stuff. The
financial institutions then lend to working class people so they can
buy the houses. After a while there aren't enough "respectable" working
class people to lend to, so they start to lend to those with very low
credit ratings, which led to the emergence of subprime over the past
five or six years.
The financial institutions have been operating on both sides -
the production and the consumption of housing. They brought the whole
of the population into a serious state of indebtedness. Now at some
point or other, if indebtedness rises to a level that is no longer
consistent with income, the thing is going to break down. That's what
we're seeing right now.
The bubbles in asset values also concealed some of the problems.
When asset values are rising everybody thinks they are better
off. A person who bought a house in 2000 for maybe $300,000 saw its
price rise to maybe $500,000 four years later. If they cashed out they
were $200,000 richer. Everyone starts to be in that position, not just
corporations. So, yes, it conceals what the nature of the problem is.
If there is enough collective expectation that the housing market is
going to go up forever, you get the kind of asset bubble that goes on
and on - until now.
Personally I was expecting a crash in the housing market in
2003. It didn't happen. I kept thinking to myself, am I crazy? It
didn't happen in 2004 and I thought, am I even crazier? By 2005 things
were getting ridiculous. In the end even I started to believe we were
in a different world and that I'd been wrong. Then in 2006 things
started crumbling and I realised I'd been right.
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