The Mint: Good afternoon, Ann. And it’s a pleasure to have you on again here, talking to The Mint.
Ann Pettifor: Thank you ever so much, Henry. It’s an honour to be here and to be back again.
The Mint: Yes. No, it’s brilliant. Because we haven’t really talked together on this platform, for some time and things have obviously, changed a lot. And at the moment, clearly, we are in really interesting times.
So, what I want to talk to you about really, was how you see the global economic system, at the moment, what the challenges are, and where we can go with it? What do you think the key factors, that are dominating global economics at the moment, are?
Ann Pettifor: So, it’s clear that the whole inter globalised system is, in a sense, deglobalizing, at some levels. But the key characteristic of the system at the moment, is volatility, instability, and shocks, basically. So, we keep suffering shocks and there’s an enormous amount of volatility, both in currencies, in interest rates now, and in financial markets and in stock markets. And then, of course, there’s a crypto crash happening as we speak, which was so predictable and so utterly misguided, actually. I’m very angry with regulators, for having done nothing, while this Ponzi scheme grew into the mountain that it is. And there’ve been surveys showing, that actually, it’s people from ethnic groups and the poor and the young, who are going to be victims of this scam.
So, the system is now currently deeply unstable. It’s not helped by the war in Ukraine, and it’s not helped by Putin’s nationalism, if you like. And indeed, by nationalism across the board, including American nationalism and American imperialism. So, I think the thing that’s most relevant right now, are one, the prices of energy and secondly, the prices of food. And both are globalised prices fixed in global markets. And my current concern and obsession, if you like, is with the way in which these markets operate. And many of us think they operate on the simple economic principle of supply and demand, there’s demand for energy and that’s why the price has gone up. But in fact, the pricing of commodities, like oil, is not that simple. An awful lot of it happens on the Chicago Mercantile Exchange and these are an exchange where futures contracts, options contracts, and so on, are managed.
And it’s difficult to say, clearly the price is affected by a lack of supply and an increased demand. But we know that prices are amplified, by the level of speculation, in these markets. And no one quite knows how much amplification there is. But big institutions like the US International Energy Agency, acknowledge that there is an amplifying of extremes, volatility, whether when the prices rise or when they fall.
And so what worries me, is the fact that governments, regions like the European Union, are totally impotent in the face of these markets. We just have to accept these prices. We just have to accept the fact, that because Putin has closed down ports in the Black Sea, grain prices have gone through the roof.And nothing can be done to manage that process, either to manage Putin on the one hand, and that is a big naughty problem. But on the other hand, in the past, governments used to maintain stores and warehouses of vital commodities, vital to human security, if you like, and survival. And of course, governments gave up doing that and say, no, no, the market would supply. The market would meet all demand. The market would always be able to satisfy demand. And so it wouldn’t matter that governments weren’t managing this commodities.
So, we’re not in a position, where back in the 1980s, Mrs Thatcher’s government, liberalised energy prices on the one hand, and then denationalised energy companies, like for example, British Petroleum became BPE. And then, when more countries began the liberalisation and denationalisation process, of these vital sectors of the economy, vital to the health of the economy, then the markets were globalised, basically.First, they were liberalised, and then they were globalised.
And we now live … And part of that, I think, the political unrest there is around the world and the rise of nationalism, I’m horrified to see that Mrs. Le Pen, now has a substantial representation in the French parliament. It’s just shocking that there are 80 or 89 seats, allocated to Mrs. Le Pen, to fascists essentially, in the French parliament, across the water.
That rise of nationalism, far right politics, and authoritarianism, is in my view, as Karl Polanyi argued, a reaction to the fact, that governments appear to be impotent in the face of markets.
So, when the market says to individuals, I’m sorry, we can do nothing about the price of transport or of energy, you’re just going to have to suck it and see it. And the government says I’d love to help, but nothing to do with me, people react by saying, we need a strong man, to protect us from these markets. And that’s what we’re getting. We’re getting those strong men. I mean, there’s some shift in Latin America, where some of the strong men are being challenged, but in places like the Philippines in India, in Russia and in parts of Africa, we see more and more of this authoritarianism. And I fear for the future, frankly.
The Mint: One thing that interests me, is how the pandemic and the role of governments during the pandemic, had also played into this. Because I thought it was quite noticeable in the UK, that our Chancellor, Rishi Sunak, wanted to say now, oh, we can’t do anything, you’ve just got to survive. And I think, part of the reason he had to turn around and actually support people, was during the pandemic, well, government sort of shown, that they could act, that they did have power. And it’s interesting, that Johnson said, once they’d actually produced a half decent package, that he created a power. He said, we will put our arms around you over the energy, like we did in the pandemic.
So, do you think people’s expectations of government, to some extent due to what they did during the pandemic, have gone up? And so, that it’s much less easy for governments to say, oh, sorry, it’s markets. We can’t do anything now?
Ann Pettifor: I think governments are desperately trying to do something. If you think of what the German government is trying to do, which is very exposed to Russia. I think, yes, it was extraordinary that right wing governments accepted, that they had to intervene to deal with the pandemic. I think that the pandemic wasn’t a threat posed by markets, basically.
The Mint: No, no, indeed.
Ann Pettifor: It was a threat posed by a virus. And so they treated it as something else. When it comes to markets, right wing governments are very, very reluctant to intervene. They want the market to burn it out. If I remember, Mellon saying to Hoover, liquidate labour, liquidate land, liquidate agriculture. In a sense there’s still that some of that thinking, that actually, allowing the market to burn itself out, if you like, is a thing that we just have to deal with.
The Mint: Again, a bit like leaving the Irish famine to kill everyone and then the fittest will survive.
Ann Pettifor: Yeah.
The Mint: I was just wondering also, about parallels with the seventies, because that’s been used a lot, hasn’t it?
Ann Pettifor: Yeah.
The Mint: And normally, to justify instructions to workers, not to demand extra wages because the wage price threatened wage price spiral.
Ann Pettifor: Yes.
The Mint: But obviously also, the seventies, ended up with an upheaval in politics and economic ideology, didn’t it?
Ann Pettifor: Yeah, it did indeed.
The Mint: So, do you think, that this sort of crisis, where people are going to be hit really hard, will create the sort of change, which we didn’t really see after the 2008 crisis?
Ann Pettifor: Yes. I think first of all, we’ve learnt from the 2000 … I mean, the thing that annoyed me intensity about the 2008 crisis and, you know, I don’t want to boast, but I did predict the crisis, was that people on the progressive end of the political spectrum, stood there with their mouths open, shocked, stunned.
We didn’t think this could happen, you know, but people like the Governor of the Bank of England and even Alan Greenspan and the Governor of the Federal Reserve, hell bells, we didn’t think this could happen. And that shock and that stunning thing, meant that people were paralysed, really and the left in particular was paralysed. What has happened? We didn’t know this could happen, because we haven’t done our homework, if you like.
The Mint: Yeah.
Ann Pettifor: And, so as a result, of the globalised financial system, consolidated its power over the global economy. But I think the public have learned from that, they understand that QE was a thing that supported the banking sector and not the majority. So, I think there’s much greater awareness and so it’s harder for this consolidation, to continue at that scale.
To go back to your point about the seventies, I really think it’s fascinating. First of all, I’m so old, Henry, that I remember I lived through it. One of the things I want to say, is that we bought our first house in about 1972, 73, and this was in a period of rampant inflation. And from our perspective, it was wonderful, because inflation eroded the value of our mortgage, while at the same time, trade unions were still strong and our wages kept in line with inflation.
And so one of the reasons my generation are wealthy, in the sense of having asset wealth, property wealth, is precisely because inflation, got rid of all our debts, our mortgages. So, I sort of say, that inflation is not always a bad thing and it’s a very good thing for debtors and creditors hate it, with a loathing, that is deeply embedded in most mainstream economics. That on the one hand.
But the other thing that was remarkable was 1971, the Nixon shock and Present Nixon’s decision to unilaterally and without consulting his allies, dismantle the Bretton Wood’s International Financial Architecture. And that was stunning and it was sold as something he was doing for domestic purposes, but it was swinging a wrecking ball, at the Global Financial Architecture.
And that architecture had given us 45 to 71, a period of global economic stability, prosperity, too much growth, for my taste. And it wasn’t Keynesian either because Keynes’s obsession, is primarily with monetary policy and Bretton Woods’ system, did not go along with what Keynes wanted, which was an independent central bank, to act as a clearing union. Instead of a dominant currency, like the dollar, being the world’s reserve currency.
The Mint: Yeah.
Ann Pettifor: He lost out on that argument. So, 45 to 71 wasn’t, in my view, Keynesian and everybody defines Keynesianism as fiscal spending and he had very little interest in fiscal policy. He was obsessed with monetary policy. But the dismantling of Bretton Woods, and then the reaction to it … I’m currently working with Progressive International, on a reminder that in 1973, the poor countries began to demand a new international economic order, the NIEO and the G77 led this.
And for a while, Europe supported the demand for a new international economic order, post Bretton Woods. And the Americans, began to fear that this was a breakup of the Atlantic Alliance and they were really fearful about what the G 77 were doing. And at that moment, the G77 had included, of course, the OPEC countries, that had had wielded their power and given confidence to the Global South.
So, that demand came up, unfortunately, Europeans defected and went across to the side of the United States and it fizzled out, but it was a hopeful time. And it was a time of confidence that the Global South had demanded, reparations for the kind of losses that poor countries had made, under the new framework.
So, that was interesting and that was now, just 50 years ago. And then of course, 79 is when Thatcher comes to power. And again, I lived through that period. And it was Thatcher, that liberalised, for example, energy prices in the energy system.
The Mint: Ann, I wonder, who’s the equivalent?
Ann Pettifor: Yeah.
The Mint: I just wonder, do we have the equivalent of a sort of Thatcherism, a new ideology, coming in to claim, to save the situation, didn’t they? They looked at the crisis and the chaos, tried to paint a picture as strong as possible that, and said, we are going to save it. And I suppose, I’m wondering who are the people, who are going to claim to ride to the rescue, now at this point?
Ann Pettifor: So, I don’t think that we have, the Keyneses or the big thinkers, that we had in the 1940s, post World War II. But what I do think, is that the green movement and the climate breakdown facts and the science behind that, these are going to be transformative. And I think there’s leadership in there. There isn’t any single institution or individual, that’s come forth yet, but there’s an awful lot of work going on in the green movement, in the movement to tackle climate breakdown and biodiversity collapse.
And the vision, for what comes after that, is what’s been mobilised, in my view, by the Green New Deal or behind the Green New Deal. And that’s where the change is going to come, that’s where the transformation is going to come from. And it’s going to be forced on the economics, by the scientific facts of the climate and of climate breakdown. So, that movement is beginning to cohere. There’s a sort of de-growth section of it. There’s the work that’s going on, on universal basic services. There’s thinking going on, as to what kind of world we want to create, in which the planet would survive and humanity would survive, within the confines of the planet. There’s a lot of great thinking going on there and I think that’s where the revolution will come from.
The Mint: Is the left taking that up? I suppose in France, you’ve got this green left coalition, haven’t you?
Ann Pettifor: Yes.
Well, I mean, in Germany you have a Green Social Democrat Coalition, and that’s quite conservative, actually. The Greens are, for example, fiscally, deeply conservatives, as indeed the Social Democrats have appointed a Free Democrat, as their Finance Minister.
The Mint: Yeah.
Ann Pettifor: He is hell bent on austerity. So, I don’t think that the green movement is necessarily leftist or progressive. There’s a lot of elements in it, that are not, economically speaking.
The Mint: Yeah.
Ann Pettifor: But I think the vision of a more sustainable world, is going to drive the economics, in that direction.
The Mint: And you are working on the Green New Deal, in Europe.
Ann Pettifor: Yeah.
The Mint: And how much teeth, how much influence, does that really have?
Ann Pettifor: Well, it’s so fascinating, because first of all, the European Commission and the parliament have declared this Green Deal. I mean, I’m struck that they’ve left out the New bit because-
The Mint: Yes. Oh, so they’ve left out the New, I didn’t realise that.
Ann Pettifor: So, I think it means, you know, they’ve left out that bit of it, that Roosevelt considered so important in order to deal with the Dust Bowl, which is the transformation, of the financial system and the shifting of power, from Wall Street to the democratically elected Treasury.
And that shift in power is transformational and terribly important, to his ability to tackle, a, unemployment, b, the collapse of investments, c, the agricultural crisis, but most importantly, the Dust Bowl, the environmental crisis. And the Europeans have left that bit out.
The Mint: Ah.
Ann Pettifor: But they are really seriously committed, to cutting emissions and doing it by certain dates and they’ve embedded that in law in a very, my view, sort of Germanic way. Their problem is, that they are too heavily reliant, as are the Americans, on the private sector, for addressing, for financing, the transformation.
The Mint: Yeah.
Ann Pettifor: And the amounts of money, of finance, made available by a, the ECB or b, the Development Bank or c, the Commission, are just tiny and meaningless, really, in the face of the transformation needed. You know, what has to be transformed, our whole systems, transport system has to be transformed, the agricultural system has to be transformed, the energy system has to be transformed and the private sector is risk averse when it comes to those major transformations.
And we’ll only do it, as Professor Daniel La Cabour, so clearly illustrates, we’ll only do it if the state de-risks any of their investments. This is the opposite of capitalism. This is Soviet [inaudible 00:19:14 economy.
The Mint: Sorry. As I understand it, during the pandemic, there was a loosening of the rules, a temporary sort of relaxation of rules, in terms of what members could take out in terms of debt.
Ann Pettifor: Yes.
The Mint: And isn’t there currently a review, of those rules happening, as well. Is there going to be any loosening of those rules in terms of debt, by members of the European Union?
Ann Pettifor: Well, that was what was extraordinary, about what happened in the middle of the pandemic, and the, I think it’s called the Next Generation Initiative, by the EU, but also the decision to collectively back the issuance of bonds for the recovery. And they did that, on the grounds that actually all states, within Europe, had to be supported to tackle the pandemic. Now, that is in place and was a powerful precedent because before that, this collective backing of bond issuance, was something that was anathema to the right wing finance ministers of Europe. But having breached or broached the subject, the issue, I don’t think they can put the genie back in its bottle. I’ve just been in Spain and they’ve just had their Next Generation EU funds delivered. There’s been a process they’ve had to go through, so well after the pandemic, they’re now getting funds for resources, for recovery. And the Social Democratic Government of Spain, is keen to spend that on, amongst other things, environmental protection.
But this whole question, around what the ECB should do next, and whether it should raise interest rates so high, that Italy’s debt becomes totally unsustainable, they’ve helped. They’ve pulled back from that. They’re having to reconsider. They, in my view, unwisely calling emergency meetings, to think about this more deeply. And in order to avoid fragmentation across Europe, they’re going to do something and that would be very, very welcome. It would transform the European Union. We begin to see a sense of solidarity, across the whole of the Union, which has been absent until now. And we need that solidarity, to tackle the transformation needed, to tackle climate breakdown.
The Mint: So, could they take a different road to the Federal Reserve, because obviously, the Federal Reserve has suddenly hiked interest rates and threatened to hike them again?
Ann Pettifor: Yeah, well, the Federal Reserve has been rash, really, and also behaved inappropriately, because the story of hiking up 75 basis points, was leaked to the Wall Street Journal and that’s corruption, in a way really, because it enabled some parties to prepare for that and to speculate on that. But I think it’s too heavy handed. I think that the Fed has underestimated the scale of weakness in the American economy, as well as in the Global economy and the impact of China’s locked down, the war in Ukraine.
America’s got a very big and powerful economy and people forever, wishing that it would weaken and it never does. But I do think that the Fed has underestimated, weakness within the economy and the ability of the consumer, which after all, is responsible for about 66% of US GDP, to keep holding up the show.
I think the consumer is going to be punished by the high energy prices, high food, inflation effectively and is already over indebted. And my worry for the United States, is a degree of zombie corporations that are out there and the very high level of corporate debt and just tiny changes, has already caused much volatility, in the system. And then by raising rates by 75 basis point, I think the Fed is going to accelerate that volatility and precipitate crises. So, I think it was very unwise.
But the inflation monster is so big, in the minds of most conservative economists because they represent creditors, essentially. And so it’s unthinkable, to tolerate any level of inflation, that might erode the value of creditors’ assets. And so long as creditors, are in fact, in the driving seat of the Federal Reserve, so long will we have policies, which are not good for the rest, for the much bigger share of the population, that are debtors.
The Mint: Yeah. Because it does seem, the logic of trying to tackle inflation, which seems to be mainly driven by a supply side problem-
Ann Pettifor: Yes.
The Mint: By dampening demand.
Ann Pettifor: Destroying demand, basically.
The Mint: Destroying demand, right.
Ann Pettifor: They go out of their way to destroy demand. But that’s what the Bank of England is doing too. And they haven’t gone … I was surprised, but I think they’ve also begun to get a bit nervous about destroying demand, basically, but that was what Andrew Bailey intended to do, a few months ago, threatening workers and saying that you can’t demand wage rises and so on. It was really unwise. It was too ideological for a central bank, from my view.
The Mint: Well, yes, he didn’t say and you people, who are taking dividends, should cut your demands or those who take-
Ann Pettifor: Or bonuses.
The Mint: Bonuses, should cut those. Did he?
Ann Pettifor: Exactly.
The Mint: So, where do we go from here? Is there any light? You’ve talked about the green movements, with bringing new ideas forward and the Green New Deal. Are those the sort of key places, you think things could emerge and is it mainly Europe? Is Europe the place, where positive things could happen, in spite of the Le Pen victory in France or not the victory, the presence?
Ann Pettifor: I have to admit, Henry, that I’m more pessimistic than I have been for a very long time. And I hate being pessimistic, but I can’t see, I think the left is in disarray. There are some places quite warm, cheering, to see, the Greens and the Social Democrats and Socialists combined in France, to increase their share of the vote and they did very well and it’s really good to see that kind of coalition building. I’m not sure how sustainable it is. I suppose, that if I was looking for hope, I would look to the South really, because the impact of climate breakdown, is going to be felt there most ferociously, at first. And therefore the reaction of the public, is going to be much stronger.
The Mint: But they’re also in the gutters, aren’t they?
Ann Pettifor: But there will have to be found ways out, creditors can’t keep just collecting from countries, especially with … I mean, this is why I’m so obsessed with having to change the international financial system, because the more that volatile, the global system, the stronger the dollar. The stronger the dollar, the weaker the currencies of emerging markets.
And look what’s happening to Japan’s currency, for goodness sake. So, what that does is to increase their costs and make it impossible for them to, for example, buy oil, because you can only pay for oil in US dollars, thanks to a deal of Kissinger made with the Saudis back in 1973, again, a 73 event. But you want to buy pharmaceuticals for COVID or for whatever and you’re a poor country. And I’m thinking of my own home country, South Africa, which is not poor, which has massive wealth in the form of minerals and so on. But her currency, is totally subject to volatility in the global market and to what happens to the dollar. When actually, none of that is relevant to the South African economy. And South Africa has unemployment rates of 60% or so, amongst young people, incredibly high. And so does Europe have very high levels of unemployment amongst young people, by the way.
And so this instability caused by the way, in which the system is structured, causes me to think, where are the people arguing for system change, essentially? And there’s very few of us. One of my gripes, is the left never talks about the international system. We love to obsess about what’s happening here at home, or we might care about what’s happening in low income countries. We might think as many on the left do, that the international system means the World Bank and the IMF, but they’re just tiny bits of it, really.
The real system, is a system of global financial markets, dominated by the US dollar and the US dollar’s role is the world’s reserve currency. And that’s causing tensions with China, with Russia, you know, it’s, what’s leading to war and that’s what makes me, I’m afraid, pessimistic.
Until we change that system, there’s no hope. Now the question is, what would change it? Would another financial crisis change it? Would that force leaders, to come to the table and think we can no longer go on with a strong dollar? I don’t know. I don’t see that leadership anywhere. I don’t see the intellectual leadership and I don’t see the political leadership.
The Mint: Well, we may have to leave it there.
Ann Pettifor: On critical note.
The Mint: As things get worse, some things arise, that new ideas, new possibilities come, but they’re not quite here yet, are they?
Ann Pettifor: No.
The Mint: Thank you very much, Ann. It’s been a pleasure talking to you.
Ann Pettifor: Thank you very much. Cheers.