Amid the rising tide of books on the world capitalist economic crisis, this one stands out. It is solidly based in Marxist theory, although it does not indulge in jargon for jargon’s sake. It draws upon admirable knowledge of history and institutions, tracing the roles of the United States, the European powers, East Asia and more, from World War II forward, with impressive mastery of both data and mainstream commentary. And its lively writing style evinces command of English vocabulary and idiom beyond the norm even for native speakers of that language.
In nine chapters, Varoufakis takes the reader through his version of the almost seven decades of the postwar era. An early chapter presents the prehistory and sets forth some basic concepts of the capitalist economy as such, including the distinctive nature of labor and money markets, and the changing role of finance. The chapters that follow sketch in the broad outlines of the capitalist world system that emerged after the war. First, what Varoufakis calls the Global Plan, consecrated at Bretton Woods in 1944, established the dominance of the United States as supplier of goods, through its huge trade surpluses, to the weak and recovering world; a process that enthroned the dollar as world currency and gave U.S. capital blank checks to acquire controlling interests across the globe. The Global Plan had a crucial weakness that triggered its collapse in 1971: “the US government’s inability to exercise self-restraint vis-à-vis its own capacity to exploit its original exorbitant privilege; its ability, as custodian of the world’s reserve currency, to print global public money at will”.
The Global Plan thus gave way to the Global Minotaur, the central metaphor of the book. (The original of this image in Greek mythology is explained in a special box early on in the book; the Minotaur was a beast, half-human, half-bull, that devoured human flesh supplied to it as tribute.) The U.S. trade surplus turned into a large and increasing deficit, which joined the government deficit to form the twin deficits that define the Minotaur stage. This stage lasted until the financial crisis of 2008. Just as the Global Plan had a crucial weakness, so did the Global Minotaur:
Again, it was an American failure of self-restraint. Only this time, it was not a failure of the US government… but of the private sector generally and of the banks in particular. The American financial sector failed spectacularly to exercise self-restraint vis-à-vis its capacity to exploit its newfangled exorbitant privilege: its ability, as custodian of global financialization, to print global private money at will.
The heart of modern finance, then, is the inexorable drive of private capital to break out of its own self-imposed constraint: government control over the supply of money. Offshore (euro- or petro-) dollars are supplemented by new financial instruments: securitized mortgages, Collateralized Debt Obligations, Credit Default Swaps. This derivative financial superstructure mystifies and conceals the extent of indebtedness, while simultaneously making the system more fragile. It also frees the Minotaur to pursue, relentlessly, its appetite for European, Chinese and other capital, to finance its twin deficits. The result: the current crisis, ushering in what Varoufakis calls the stage of rule by bankrupted banks, or bankruptocracy
The absence of general (trade) surplus recycling mechanisms plays a large explanatory role. Unregulated markets generate persistent inequalities in productivity and capitalization among regions of an economy; they certainly fail to eliminate these inequalities. Surpluses in one sector (and their flip side, deficits in another) must eventually burst the system apart, unless there is an investment mechanism to transfer surpluses from here to there. Where there is a single currency (the dollar, or the euro) a fiscal mechanism to transfer resources must be present if crisis is to be avoided. This exists in the United States; it does not in the European Community. Hence the developing crisis in the latter, most visible early on in the case of Greece.
Patchwork solutions to the euro crisis simply will not work. It is not just a matter of sovereign debt (of countries such as Greece and Ireland), but rather a Europe-wide banking crisis. Simple reconfigurations of debt, ‘haircuts’, and the like will not eliminate the underlying imbalances. Attacking deficits by ‘austerian’ spending cuts (thereby deepening recessions) is counterproductive. Europe needs nothing less than an Economic Recovery Program, modeled after the U.S. New Deal, together with assumption of much sovereign debt by European Central Bank bond issues to create fiscal and surplus-recycling power at the European level.
Varoufakis’ general conclusion is open-ended. Whether or not the world economy emerges out of bankruptocracy depends on finding the political will to stabilize currencies and to build a global surplus recycling mechanism. This in turn depends largely on the United States:
“If America’s policy makers grasp the meaning and irreversibility of the Global Minotaur’s demise . . . there is a chance of a future that will prove rational, stable and pregnant with at least an iota of hope that our latest Crisis will be allowed to unleash its creative potential. Perhaps centuries later, our own Minotaur’s death will inspire the poets and the myth makers to mark its demise as the beginning of a new, authentic humanism.”
Questions, of course, abound. The postwar transition between Plan and Minotaur suggests that a truly golden-age position between them (one of balanced trade and stable relations across the Pond) was at least possible. What is the source of the drive to extremes? Also, the conception that U.S. power over the rest of the world is secured first by trade surpluses, later by trade deficits, seems unsatisfactory from an explanatory point of view. Have we really got a good political economy of mercantilism, building national power by producing and selling more to one’s trading partners than one receives from them? Varoufakis’ analysis is still quite bound to national (or at least regional) capitals: U.S. vs. Europe; Germany (and other surplus countries) vs Greece (and other deficit countries) within Europe; China vs East Asia; East Asia vs the rest of the world.
Would the picture benefit by incorporating the emergence of a transnational capitalist class and treating the United States (the Minotaur) as beginning to assume the role of a transnational capitalist state? Finally, has the central exploitative role of finance gotten lost here a bit in the swirl of trade surplus recycling? We presumably do not want to forget that even a well-managed capitalism would be an exploitative system, and as such inherently prone to crisis. I am not suggesting for a moment that Varoufakis does not know this; only that perhaps at times his theory loses track of it.
All of this notwithstanding, The Global Minotaur is a refreshing and powerful entry into the great global debate, and an important contribution to the “new, authentic humanism” to which progressive observers (and victims) of the current crisis must surely aspire.