How Globalized Capitalism Drives Worldwide Fear And Discontentment

Apr 11, 2018
Originally published on April 17, 2018 8:58 am
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TERRY GROSS, HOST:

This is FRESH AIR. I'm Terry Gross. Today, a lot of people throughout the West are angry that the good life is being stolen from them, writes my guest Robert Kuttner. He says, quote, "they're not quite sure whom to be angry at - immigrants, corporations, the government, politically correct liberals, the rich, the poor. The anger is unfocused but is increasingly articulated by a neo-fascist right," unquote.

Kuttner sees a connection between the rise of right-wing populism and the fall of a social contract that helped broad groups of people in Western democracies. He thinks a fundamental driver of this discontent is globalized capitalism. Kuttner's new book is called "Can Democracy Survive Global Capitalism?" We're going to talk about his book and about the threat of a trade war with China. Kuttner is co-founder and co-editor of the publication The American Prospect where he also writes a column. And he's a professor of public policy at Brandeis University.

Robert Kuttner, welcome back to FRESH AIR. So it's kind of interesting. The right and the left seem to maybe agree on one thing. They oppose globalism. Not everyone on the right, not everyone on the left, but there is a commonality there. Do they oppose it for the same reasons?

ROBERT KUTTNER: No, they oppose it for very different reasons. The progressive critique of globalization is very simple. It is a critique of the use of a certain kind of globalization to dismantle what used to be a manage form of capitalism that delivered broad prosperity. The democratic nation-state after World War II was able to regulate markets in the broad public interest so that ordinary people would have economic security and economic prosperity. Beginning in the '70s and '80s, trade deals were used to undermine the ability of governments to regulate banks. They were used to put cheap labor that had no labor standards into competition with labor in the United States and in Europe that benefited from protections. And so globalization was used to return to a more primitive version of raw capitalism. That's the progressive critique.

GROSS: But can I just interrupt there.

KUTTNER: Yes.

GROSS: So you mean, for instance, outsourcing - that corporations could either move to a place where labor was cheaper, where there were no unions. Or they could just, like, outsource part of their operation to those other markets where labor was cheaper. And that undermined workers, like, for instance...

KUTTNER: Yes.

GROSS: ...In the United States. Is that what you're saying?

KUTTNER: Well, it's...

GROSS: Is that part of what you're saying? (Laughter) Yeah.

KUTTNER: Yeah. It's part of what I'm saying. I think the other really important part has to do with banks - that if you look at what caused the 2008 financial collapse, it was the completely promiscuous deregulation of finance. And globalization played a very major part in that because if a bank operates in New York, and London or Geneva has fewer regulations - and you deregulate global banking - well, the bank can either move to London, or it can move certain products to London, or it can threaten to move to London. And all of that undermines the ability of the government to regulate finance. So...

GROSS: OK, so that's the left critique, right?

KUTTNER: Yep.

GROSS: What's the right-wing critique?

KUTTNER: The right-wing critique is more crudely nationalistic. Immigrants are flooding our borders, and we don't like them. And the globalists - the people who are promoting globalization - are the same people who are promoting transgender use of bathrooms. And they're the same people who are going to take away your guns. And they're the same people who disrespect your religion. And so it's a broad critique of an elite in which a lot of ordinary people have lost confidence.

GROSS: So I think a great illustration of this clash between the left and the right critique of globalism is when Steve Bannon contacted you and suggested that you interview him, which you did. What did he think you and he would have in common in your view of globalism?

KUTTNER: He had read a column I had written the day before on China.

GROSS: This was in August, by the way.

KUTTNER: Yes, last August. So Bannon had read a column I'd written on China which argued that even Trump, for all of his nationalism, was being very naive about China. And this was the story that Bannon had been trying to sell to Trump. And so he thought he saw a soul mate. Now, you have to take all of this with a grain of salt because Bannon has a titanic ego. And he's looking for allies all over the political spectrum. But be that as it may, he thought he saw an ally in me. And I guess China is the one point where there is a little bit more convergence than there is in any other area in that Bannon and progressives both feel that the American economy is being taken to the cleaners by China.

And the progressive critique goes something like this. In the '80s and '90s when China was a lot weaker and the West had a lot more leverage over China, there was a colossal amount of wishful thinking that went something like this. Inevitably, if we let China into the global economy, they will become more like us. They are more likely to evolve into a democracy. They are more likely to evolve into something like liberal capitalism. And therefore, let's just set a good example and let them in with very few conditions. Well, of course, that didn't happen. China has become more of a dictatorship, less of a democracy - fewer rights. And it's practicing the same kind of state capitalism that it always did, but it's a lot more powerful. So on that point, the Bannon kind of critique and the Bob Kuttner or liberal-Democrat critique converge.

GROSS: Can you explain China's trade practices that are considered - in the West - to be unfair?

KUTTNER: China has a whole development strategy that works very well for China. First thing it does is it subsidizes the creation of competitiveness in industry after industry after industry. The industries are either state-owned, or they're assisted by the state, or the state is a partner. And the banking system is the same. Well, obviously, if Chinese steel is heavily subsidized and American steel is not heavily subsidized, that's something other than free trade. That's not a level playing field. And what I find amusing but also appalling is the critique that says if you oppose the other guy's protectionism, that makes you a protectionist. So the first thing China does is that it subsidizes production.

The second thing it does is it either coerces the transfer of technology, or it steals the technology. And one of the few times that Barack Obama got tough on this - he had a top-level meeting with Chinese leadership and said you got to cut this out. And China was using the techniques of espionage not just to spy on the United States - countries do this militarily - but he was - China was using techniques of espionage to steal trade secrets. And this was damped down somewhat after that high-level meeting.

The third thing China does is it puts up barriers to imports of products from the West that would otherwise be competitive because it wants to shelter its own industry. Or it will say to Boeing or GE or Intel, you can come into our market but on our terms. You can only produce for export, not for domestic consumption. We want to leave that to our burgeoning domestic Chinese companies. And furthermore, you have to share trade secrets with a Chinese partner that we're going to give you, which a few years from now is going to take your technology and compete you out of business. Now, none of that is anything like a free market. And people of the Clinton era very wishfully thought that if we would just set a good example and let China in, they would evolve into a free market. Well, this has not happened.

GROSS: So there's also the Made in China 2025 campaign. What is that?

KUTTNER: Well, that's an effort to have Chinese industry be even more dominant. And there's one interesting statistic here. China invests almost half of its GDP. A typical country invests maybe 15 percent of its GDP. So China is on a wartime footing. The only thing comparable in the West was World War II where the United States invested a huge percentage of its GDP in a war buildup, but China is treating this like a war. And to that extent, Bannon's remarks are not hyperbole.

Now, we don't want to go to war with China. We don't even want to have a trade war with China. But we do want to have a very serious diplomatic offensive where instead of alienating Western Europe by randomly throwing tariffs at their steel and their aluminum, we want to work with Western Europe. And hopefully if a Democratic president gets elected in 2020, a Democratic president will pursue a more competent measured version of a China policy than Trump does via tweets and tariffs.

GROSS: So China joined the World Trade Organization in 2001. How has China's presence in the organization affected their economy and our economy?

KUTTNER: By becoming a member of the World Trade Organization, China was able to export to the West much more freely, and China gets to have it both ways. On the one hand, it's treated as a developing country for purposes of being allowed to use certain kinds of subsidies, which would be illegal for developed countries. But on the other hand, it's treated as a developed country in that it has the full privileges of WTO membership. At the time, I remember writing that China should have been given a provisional candidate status subject to good behavior.

And I also need to say that there were lots of conflicts of interest. Robert Rubin, who was Clinton's chief adviser on economics, really wanted China in the World Trade Organization subject to Wall Street getting cut in on some of these deals. And Rubin's affiliations, of course, were with Goldman and with Citigroup. And he epitomized the revolving door. He came from one, he went back to the other. And so China was given a free pass not just because of ideological blinders or a geopolitical naivete but because of a lot of powerful people in the United States who made a lot of money off of this.

GROSS: If you're just joining us, my guest is Robert Kuttner. He's an economics journalist. He co-founded, co-edits and is a columnist for The American Prospect, and he's a professor of public policy at Brandeis. His new book is called "Can Democracy Survive Global Capitalism?" We'll be right back after a break. This is FRESH AIR.

(SOUNDBITE OF SLOWBERN'S "WHEN WAR WAS KING")

GROSS: This is FRESH AIR, and if you're just joining us, my guest is Robert Kuttner. His new book is called "Can Democracy Survive Global Capitalism?" So we've been talking about how China has established an unfair playing field economically. So then the question is, what kind of leverage do we have against them? The leverage that President Trump is relying on right now is tariffs. He's proposing $150 billion of tariffs. How do tariffs address the problem of an unlevel playing field?

KUTTNER: Well, they make it more expensive to purchase a product made in the country on which you are levying a tariff. So if a car costs $25,000 and you add a 100 percent tariff, the car suddenly costs $50,000 and consumers buy fewer units of that car. It's a blunt instrument. It's fine to use the threat of tariffs in the context of renegotiating the entire arrangement by which China gets to interact with the rest of the world.

But you've been hearing the outcry from American farmers. You've been hearing the outcry from Fortune 500 executives. A tariff war for its own sake is a loser's game because you end up hurting each other to no good effect, and it ends up in a stalemate. So I hate to make predictions, but my prediction is that both sides are going to back down and agree to talk, kick the can down the road and not much will change relative to the larger problem of China's entire economic strategy being predatory vis-a-vis the rest of the world.

GROSS: One of the things China has been doing is buying Western companies. Can you give us an example of China doing that?

KUTTNER: Until very recently, Chinese companies and, for that matter, the Chinese government were allowed to buy up anything they wanted to buy up unless there was a very narrowly defined national security reason to keep them from buying up a very sensitive technology.

So for example, China is rapidly on track to make itself among the world's most competitive auto industries, including advanced electric vehicles. There's a Chinese company called Geely - G-E-E-L-Y - that has just been on an acquisition binge. It bought Volvo. It bought the iconic London black taxis, and it's electrifying a lot of them. And it is doing this all over the world. And until very recently, the United States essentially said, look, we're going to - even though we know that China is not an ordinary country because the state is so heavily involved in its whole economic system, we're going to pretend that it's just another country. And if a Chinese corporation wants to buy a Western corporation - no big deal.

Lately, the Trump administration has taken a broader view of what strategic technologies it wants to keep out of China's hands for industrial reasons as well as for narrowly militarily reasons. And I think that's a good thing. I think that's long overdue because this is not an ordinary country. This is a country where the state is behind nominally private players.

GROSS: One of the things that China can do that democracies can't is move very quickly...

KUTTNER: Yes.

GROSS: ...On economic policy because it's an autocracy. And it's even more of one now because President Xi has declared that he can be president for as long as he wants.

KUTTNER: Right.

GROSS: So what kind of advantages does that give China?

KUTTNER: It gives China a huge advantages for the reason you state. When the United States tries to change policy, Congress gets involved, both houses of Congress get involved, interest groups get to weigh in. And Xi just pronounces something and policy changes, so it makes it all the more imperative that we have a coherent strategy vis-a-vis China and one that works with our allies instead of alienating allies.

GROSS: In your book, you make connections between global capitalism and what's happening politically in countries in Western Europe, in Eastern Europe and in the United States. And you see a connection between the rise of global capitalism and the rise of the far-right. What is the connection that you see? And we're talking about the rise of the far-right, as I said, in Eastern Europe, Europe and, you say, in the United States.

KUTTNER: I think you have to go back to what happened after World War II, which was a quite remarkable moment in history when laissez faire capitalism, which brought us the Great Depression, had obviously failed. And the capitalism that was prevalent in the 1920s did not just produce the Great Depression, it produced Hitler because unemployment rates were so high and austerity policies were so perverse that people turned to fascists because they were desperate. It's very hard for democracies to survive 20 and 30 percent unemployment.

So the people after World War II who founded the post-war system said, we are never going to let this happen again. And so they built a global system that was compatible with a system of managed capitalism domestically so that prosperity would be broadly distributed. Now, globalization, beginning in the '70s and the '80s, overturned that system to the point where economic insecurity increased to the point where ordinary people lost confidence in elites to the point where, in country after country after country, the far-right fill that vacuum very much the way it did in the 1920s.

GROSS: Part of the goal of international trade cooperation after World War II is to try to prevent the rise of fascism again and to prevent another world war through economic cooperation.

KUTTNER: Yes, but it was a form of economic cooperation and a form of - a restarting of normal commerce that was consistent with governments managing capitalism in a broad public interest. And so in the entire West, you had policies that tightly regulated banks. You had policies that protected and empowered labor. You had policies of significant public investment. And it was a very nice balance between the market part of the system and the Democratic part of the system, and it worked. It produced high rates of growth, and it produced very broadly diffused prosperity. And there was no far-right in that era because ordinary people felt that they were getting a fair deal.

And when that system was blown up in the '70s and '80s in favor of a reversion to unregulated laissez faire capitalism more reminiscent of the pre-1929 period, people lost confidence in elites. And I'm sorry to say that the elites who brought us this brand of globalization were Democrats just as much as they were Republicans. This was a bipartisan consensus that if we just move to a more globalized market system, everybody will be better off.

Well, in fact, everybody was not better off. The top 1 or 2 percent were significantly better off. The economy is twice as rich on average, but ordinary people feel both very insecure and they feel disrespected. And furthermore, to have this insecurity for ordinary working people at a time when you were trying to be very culturally sensitive to new groups who are asking to be let in, that's just to pour oil on the flames.

GROSS: My guest is Robert Kuttner, author of the new book "Can Democracy Survive Global Capitalism?" We'll talk more after a break. Book critic Maureen Corrigan will review Meg Wolitzer's new novel about two women who represent two generations of feminists. And jazz critic Kevin Whitehead will have a remembrance of pianist and composer Cecil Taylor, who died last week. I'm Terry Gross, and this is FRESH AIR.

(SOUNDBITE OF GUILLERMO KLEIN'S "CHILD'S PLAY")

GROSS: This is FRESH AIR. I'm Terry Gross back with Robert Kuttner, author of the new book "Can Democracy Survive Global Capitalism?" He's the co-founder and co-editor of The American Prospect, where he also writes a column. And he's a professor of public policy at Brandeis University. When we left off, we were talking about the connection he sees between global capitalism and the rise of the far-right in Europe and the U.S.

So one thing that Europe, Eastern Europe and the U.S. seems to have in common when it comes to the far-right is a backlash against refugees. And that is being used politically by leaders on the right to activate their base. Do you see that as connected to the theme of your book, which is how the global economy has worked against democracy in some places?

KUTTNER: Yes, I do. And I think in both Europe and in the United States, politically centrist leaders who were trying to be enlightened made a huge blunder. If you want to open your doors generously to refugees, as some leaders in Western Europe did, you can't at the same time ignore the plight of locals who are suffering the effects of 10 percent unemployment compounded by austerity policies. If you do that, you get Brexit, or you get the Alternative fur Deutschland, or you get Orban. You get regular people rebelling against the fact that their own economic life is going down the drain, and here we are welcoming all these foreigners.

And I think the counterpart in the United States was the fact that Hillary Clinton, on the one hand, was taking large speaking fees from Goldman Sachs and identifying herself with the kind of globalism that benefits mostly elites and at the same time was really trying to be enlightened on this subject of immigrants, on the subject of transgender people. I applaud that. But I think if you want to get elected, you can't ignore the plight of ordinary working people at the same time you're asking the voters to open their hearts to immigrants and to other claimants for social justice. It's asking too much of people whose living standards have gone down the drain to expect them to be liberal on social issues.

And back in the period when things were going well economically, that was the year in which the broad middle of the United States was prepared to embrace civil rights. But the two things go together. You can't take away people's livelihoods at the same time that you're demanding that they be open-hearted, or it backfires and you end up electing people like Donald Trump.

GROSS: So let me move on to a different chapter here. The Congressional Budget Office reported this week that the national debt is expected to reach more than $33 trillion by 2028. I don't know if you know the answer to this, but how much of that estimate is because of the recent tax cuts?

KUTTNER: Well, the reason tax cuts are $1.5 trillion over 10 years, supposedly some of that will be made up by increased economic growth, although there's no evidence for that. The Republicans have played this game going back to Ronald Reagan. You enact a tax cut. You claim that the benefits will be so great that they will pay for the cost of the tax cut. That's known as supply-side economics.

And when that turns out not to be true, you discover the peril of the deficit. And then you cut a whole bunch of domestic programs to try and fill in some of the cost of that deficit and rising debt. So that was done under Reagan, was done under Bush one, under Bush two. And now the same script is being repeated under Trump. And the obvious answer is to repeal much of the tax cut if we're really concerned about deficits and debts.

GROSS: The House is going to vote on Thursday on a constitutional amendment to require balanced budgets. I realize that probably won't become a constitutional amendment, but is it the same people who were behind the tax cuts that now want to ask for a balanced budget amendment?

KUTTNER: Of course. And it's complete inconsistency, some might say hypocrisy that one week you increase the amount that needs to be borrowed - which is to say the national debt - by $1.5 trillion, and then a few weeks later, you're horrified that, oh, my goodness, that's actually going to increase the deficit. And we better have a balanced budget amendment. And, of course, if you ever had a balanced budget requirement, you would never have been able to have that tax cut.

I think the sponsors of the tax cut are vulnerable because voters are going to make the connection between the tax cut and the fact that Social Security, Medicare, Medicaid, other popular social programs are now going to be put on the chopping block in order to pay for the tax cut.

GROSS: So what does it mean to have a huge deficit? And do economists think that there's a kind of dividing line between like an OK deficit and a really problematic deficit?

KUTTNER: Yes, but economists disagree on where that dividing line is.

GROSS: Of course (laughter) yeah.

KUTTNER: So after World War II, the debt-to-GDP ratio, which is the very important concept here, how big is the debt in relationship to the economy? It was 120-something percent, more than one year's total production. And yet, after the war, because the economy was growing at a nice rate, because we had a moderate rate of inflation, the ratio of debt to GDP by the time Jimmy Carter was president came down to about 25 percent. Now that's a very low rate. I think, for the most part, the concern among economists is whether that ratio is growing or not. And if the ratio is below about a hundred percent and interest rates are not all that high, it's just not a big deal.

The more important question is what you are spending the deficit on. If you're spending the deficit to invest in infrastructure or invest in green transition or invest in things that are going to make the country more productive, it's a defensible use of debt. In the same way that if you borrow money to buy a house, it's a defensible use of borrowing money as opposed to just going on a credit card binge. So the amount of debt is important, and the use of debt is important. Right now, we are increasing the debt in order to pay for tax cuts which are not going to have any significant economic benefit. And we're going to be pushing the total debt ratio to above a hundred percent of GDP, which is the area - the range that most economists start to find alarming.

GROSS: So I want to get back to the conversation you had with Steve Bannon in mid-August of 2017, when he contacted you because he thought that you and he would share some kind of common base about globalism. But he kind of went on to discuss other things with you that made news. So would you give us a sense, like, experientially of what that conversation was like?

First of all, tell us some of the more surprising things he said to you. And I'll preface this by saying he never said to you that it was off the record, so you assumed it was on the record and just published whatever you want to from the interview.

KUTTNER: Well, I recorded the interview. And I realized about 10 minutes in that I was kind of onto the scoop of my life because Bannon had made a very surprising rookie error and had never bothered to put it off the record. And that meant, by definition, by default, it was on the record. So he started out treating me as a soul mate on the subject of China. We both agreed that America's China policy was folly. And he was trying to persuade Trump of that fact and get Trump to take a much harder line on China.

But realizing that I had Steve Bannon on the phone, you know, I started asking him about the alt-right. I started asking him why a tougher line on China had to be linked to white nationalism. And he said some very incautious things about Trump's own base. He said some very incautious things about other Trump officials. As - he talked to me as if he were speaking with an old chum who was a co-conspirator rather than speaking to a journalist on the record. And so it reinforced my view of Bannon as somebody who is very narcissistic, a little bit unhinged.

GROSS: When you interviewed Bannon, he said to you ethno-nationalism - it's losers. It's a fringe element. I think the media plays it up too much, and we got to help crush it. These guys are a collection of clowns. When you published what I just quoted, do you know what impact that had on Bannon?

KUTTNER: Yes. About a half-hour after that piece went live on The American Prospect website, I got a very angry call from Sarah Huckabee Sanders saying, I have Mr. Bannon here and he's extremely upset. And I said, I'm not surprised. And he said he didn't think we were on the record. And I said, well, I recorded it, and he never said that. He should have said that. And that was the end of the call.

And within 12 hours, Bannon had completely changed his story and was saying that yes, he had deliberately put that on the record because he wanted to have that conversation and to get these views out. Now, this was the week of Charlottesville. And this was the week that Bannon was fired a day after that interview ran. So it gives you a little bit of insight into the braggadocio, the bravado, the recklessness and also the kind of weird genius that is Steve Bannon.

And so now he's going around the world talking to neo-fascist parties, far-right parties, and egging them on - telling them they have to stay the course on their ultranationalism. So if he couldn't find a client at home, maybe he can find some clients in Europe.

GROSS: Well, Robert Kuttner, thank you so much for talking with us.

KUTTNER: It's always a pleasure, Terry. Thanks for having me.

GROSS: Robert Kuttner's new book is called "Can Democracy Survive Global Capitalism?" After we take a short break, Maureen Corrigan will review Meg Wolitzer's new novel about a young feminist who meets a feminist icon and confronts their generational differences. This is FRESH AIR.

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