RUBY:

From Schwartz Media I’m Ruby Jones this is 7am.

Global unemployment is at record highs as the world struggles to contain the fallout from coronavirus.
But has the pandemic exposed something more fundamentally broken about our economic system?

Today, as part of The Saturday Paper series imagining life after Covid-19, Osman Faruqi speaks to economist and former Greek Finance minister, Yanis Varoufakis.

OSMAN:

Yanis, economic inequality has become even more pronounced throughout the year. The wealth of the world's billionaires is up by a third. How exactly does this happen?

YANIS:

This is a process that began in 2008.

Archival Tape -- Reporter:

“..waiting to see how low the DOW will go, they’re focussed on the DOW, not so focussed on OPEC…”

YANIS:

2008 was a momentous moment in the history of capitalism...

Archival Tape -- Reporter:

“Apple’s under pressure, Yahoo down 8.5%, CISCO 6.5%...”

YANIS:

...equivalent in significance to what happened in 1929, another Wall Street collapse which changed the world.

Archival Tape -- Reporter:

“We’re down 9% today, the XETRA DAX over in Frankfurt is down by 9%, the Paris market down by 9%...”

YANIS:

you had this remarkable combination of huge quantities of money being printed by central banks given to bankers to refloat them, to refloat big business.

Archival Tape -- Reporter:

“I propose the federal government reduce the risk posed by these troubled assets, and supply urgently needed money, so banks and other financial institutions can avoid collapse and resume lending.”

YANIS:

And at the same time, universal almost austerity for the majority of people in crashing a majority of countries.

Archival Tape -- Reporter:

“A day after announcing fresh austerity measures, the Italian government’s been forced to defend the move against widespread criticism…”

Archival Tape -- Reporter:

“Measures to cut spending and raise taxes have led to public outrage…”

Archival Tape -- Reporter:

“Tens of thousands marched in protest over the weekend over harsh austerity measures over the country’s financial meltdown…”

YANIS:

While global capitalism - the real economy - collapsed, central banks have been printing mountain ranges, rivers of cash, and that money is given to commercial banks in the hope that they will lend it to big business so that big business can invest in good quality jobs.

They look at the sea of people out there who are impecunious and they think, ‘Oh my god, why are we going to produce goods that they cannot buy’. So instead, what they do is they take the money from the central bank and they go to the stock exchange and buy back their own shares or other shares.

OSMAN:

Yeah, and you wrote in The Saturday Paper about this process, where companies didn’t actually use the stimulus to create jobs. They bought back their shares instead. You gave an example of one particular company, it’s one most people are familiar with with. That company is Apple. Can you tell me about their role in this?

YANIS:

Apple is a remarkable company. They have invented the iPhone, the iPod before that, iTunes. So they have put a lot of work and innovation into their success, but once they have created a monopoly over the iPhone, and in the context of the post-2008 world in which aggregate demand is generally low, they do what all monopolists do: in order to maximise their profits, they constrain their production.

So they could have produced a lot more iPhones than they are doing, but they're reducing supply in order to keep prices at a level to maximise their profits. By reducing supply relative to what they could do, they have a lot of savings in the bank. They've got more than 200 billion in the bank.

So when the Federal Reserve, the Central Bank of the United States, prints more billions in order to help push all the boats that are sinking back to the surface or to lift them up, the Federal Reserve lent to the Bank of America or Citibank or to Goldman Sachs. And Goldman Sachs or Bank of America, they look around and say, ‘Well, who is our best customer.’ Of course, Apple is one.

So they pick up the phone to call the executives and say, look, I have a free billion here for you, or 10 billion free, almost zero interest rate, because this is very cheap money handed over to the commercial banks by the Federal Reserve. ‘Do you want it?’ Apple say ‘yeah, well, we'll take it.’ They don't intend to invest it because they already have a stash of cash. But if it's free money, why not take it? The tiny amount of interest they pay is tax deductible. And that is what they do is they go to the stock exchange in New York and buy back shares of Apple.

Archival Tape -- Reporter:

“Apple owns four of the top five biggest quarterly buybacks of all time, just this past quarter they spent nearly 23 billion dollars buying back their own shares…”

YANIS:

That increases demand for the shares of Apple. It increases the price of the shares of Apple. And remember, the directors of Apple have bonuses that they've linked to the share price. So they make a mint out of this.

Archival Tape -- Reporter:

“Apple shares closed higher today by more than 1%-...”

Archival Tape -- Reporter:

“...Apple’s market cap in part because of that move now outweighs the entire energy sector…”

YANIS:

So their share portfolio goes up and up without them doing anything that's not a result of economising, innovating or doing anything clever. The ultrarich effectively grow much, much richer in their sleep, so to speak.

OSMAN:

Ok. So for the past decade we’ve had this kind of transfer of money from central banks to huge corporations, which as you say has accelerated wealth inequality. Where has that left us?

YANIS:

The large corporations with all the power are dependent entirely on the states to keep them in business. So we have a kind of state feudalism, not even capitalism.

And that was the situation before Covid-19, and many commentators have described the pandemic as the new crisis. I disagree, respectfully. It's not a new crisis. It's an escalation of the pre-existing crisis.
So Covid-19 hits - what was the response of our governments and central banks? Well, more of the same.

Archival Tape -- Reporter:

“The Fed has acted, and they have acted in a way that is quite dramatic, lowering interest rates almost down to zero…”

YANIS:

They use exactly the same techniques that they've been using since 2008, that is quantitative easing, money printing. They increased that process magnificently.

Archival Tape -- Reporter:

“Not only did the RBA cut the official interest rate without waiting for the usual monthly board meeting, it’ll also buy government bonds…”

YANIS:

And more and more worryingly, what it does is it enhances inequality, because those are the top, the directors of Apple, you know, see their wealth multiply when the little people out there are going from bad to worse, and that poisons democracies, poisons the climate, creates Donald Trumps and the Bolsonaros of the world.
And the same problems that we had before that led to stagnation for the many and opulence for the very, very, very few, for the oligarchy, now has been turbo charged.

OSMAN:

We’ll be back in a moment.

[ADVERTISEMENT]

OSMAN:

Yanis, everything you’ve said so far suggests that our economy is functioning in a way that doesn’t really seem sustainable. In your piece for The Saturday Paper you describe our current situation as post-capitalist - can you tell me what you mean by that, and how it’s different to what we generally understand as capitalism?

YANIS:

I'll give you two examples. Firstly, very recently, we have noticed the complete disconnect between, on the one hand, money market share markets that are doing very, very well, and capitalism. You know, business. Profits. At the coalface. We have a complete collapse of profitability.

So you have companies that have no profits and their share prices are going through the roof. That is not capitalism. Capitalism is all about companies that innovate, exploit labour, accumulate profits, turn those profits into investments, those investments produce more gadgets, more stuff, that stuff leads to more profits and so on and so forth. This is not what we have. We are well beyond that.

The second example I want to give you is the structure of ownership, so how the baker, the brewer, and the butcher compete with one another in the marketplace - none of them are powerful. The only thing that keeps them in business is the good quality of the bread, of the meat, of the beer that they produce for us. And the dynamism of competitive capitalism relies on fierce competition and that there is no concentration of market power.

But if you look today at the New York Stock Exchange, you find that ninety, nine-zero, ninety percent of companies listed in the stock exchange belong to three companies: BlackRock, Vanguard and State Street. Now, that's feudalism. That's oligarchy with the state printing money for them and effectively zero competition.

OSMAN:

So three companies, which I’d never heard of, own 90% of the stock exchange. That’s just extraordinary. And so the consequence of this new economic order is the growing inequality … so is this system now entrenched? Or, if not - how would you push back?

YANIS:

With great difficulty is the honest answer. Well, look, the only thing that can make a difference is political organisation. The solution must be political. The market doesn't work because it has been cornered. What works is democratic politics. Exactly that which has been depleted over the last few decades - Democratic politics - is the only remedy.

I think we need a vision. Firstly, a common programme, a common international Green New Deal. We need...let me put it bluntly, we need 10 trillion dollars, US dollars, worldwide to be spent every year on good quality, green transition jobs. Green energy and other ways of affecting the green transition. And this is not going to happen simply by taxing the rich. We need to tax the rich for reasons of social justice, but we need to utilise public financial instruments in order to do so. There are clear ways of doing that, but that is just a stepping stone.

We have to imagine a world beyond capitalism, this capitalism has already evolved out of the competitive phase, now it has become a dystopic techno feudalism, I call it. And we need a vision. We need to answer the question: ‘Mate, if you don’t like capitalism, what’s the alternative?’

OSMAN:

Yanis, as well as being an economist who is studying these extraordinary shifts we’re living through, you were also also the finance minister in Greece during the country’s severe economic crisis five years ago. What did you learn from that experience that informs the way you look at our current situation?

YANIS:

That financiers are so internationalised and so united, and our side, the progressives, are always prone to divisions, which are the reason why we get defeated.

So the reason why we get defeated and why humanity is… has lost its way, is to be found not in the immense strength of the enemy, if you can put it that way, but in our tendency to divide and multiply, to undermine one another, to turn against each other.

OSMAN:

Yanis, thank you so much for talking to me.

YANIS:

Thank you.

[ADVERTISEMENT]

RUBY:

Also in the news today…

Queensland’s Chief Health Officer Jeannette Young has suggested that the state could open to Victorians before those living in Sydney.

The comments have sparked a furious response from NSW Premier Gladys Berejiklian. Berejiklian said she would be “mortified” if Victorians were let into Queensland before Sydneysiders.

And in the US, President-elect Joe Biden has said that Donald Trump’s refusal to accept defeat was “an embarrassment”. Trump has so far refused to concede and his campaign is continuing to pursue a number of legal challenges to the result.

I’m Ruby Jones, this is 7am. See ya tomorrow.