Debt Dependence,Surplus Extraction and the Need for Change

Globalization has become a keyword of our time, and not just for scholars. It has widely penetrated the wider zeitgeist. A second keyword has more recently become familiar with awareness that the contemporary conjuncture is also profoundly shaped by financialization. The latter term, however, is shrouded in a problematic existence. This is, in part, because the increase in the power of finance capital to extract surplus, to appropriate value created elsewhere, as well as to generate speculative bubbles (the last three expansions and recessions in the USA are owed to speculative bubbles) is more difficult for people to understand. Scholars have generally focused on the macro economics, politics of monetary policy, and the lack of proper regulation. They have chronicled Federal Reserve and Treasury policy and the obtuseness of Washington elected officials, most of whom most of the time are unwilling to confront the power of finance capital. But the extent to which the tenticles of debt creation have become central to the lives of ordinary people has needed greater explication. The majority of the papers in this issue develop understanding of how the debt relation has changed the life prospects of the multitute.

Among the fine essays on the sociology and political economy of finance, the Panitch and Gindin essay speaks to the macro level of analysis, offering important correctives to the conventional wisdom. The other contributions pioneer new ground at the level of micro-social impacts of financialization. In doing so, they perform an importance service to heterodox thinking on the societal impacts of financial stratagems, many of which border on criminality (often on the far side of the line). The phenomena of debt bondage is reshaping understanding of the American Dream – that has become a nightmare for so many indebted Americans – due to profit maximizing dishonesty of the financiers. These are the bookends of heterodox social study of the contemporary political economy’s turn to a more extreme accumulation by dispossession.

A central thread in the essays of this special issue is the lesson that mainstream social science’s preference for separating state and market misdirects scholars. It is replaced in these by a focus on the way governments structure markets in class terms to privilege fractions of capital thereby extending, protecting and expanding the scope of exploitative practices. This is seen in legislative biases and enforcement priorities. It is this central focal point through which the global perspective of Panitch and Gindin argue that the more capital becomes internationalized the more the state fashions regulatory regimes to facilitate accumulation in the form of expanded international investment and trade, that reveals the exploitation of the debt relations that shackle the working class debtor and incentivize financial markets to extract surplus from the productive economy.

The construct Susanne Soederberg has usefully developed, the debtfare state is a framing employed by Linda Cocoin her discussion of bankruptcy prevention, as well as the reconceptualization by Genevieve LeBaron of debt bondage, and the deployment of conservative morality to stigmatize undeserving debtors, and provides a framing for understanding the more effective coercion of those designated as ‘undeserving’ as explained by Adrienne Roberts. These essays reframe the debate on who is responsible for unpaid debt by putting class relations uppermost in analysing debt as a social relation. A broad critical sociology stance allows Laureen Snider to demystify the social construction of stock market trading, a practice allowing it to be seen in a context of its role as a fetishized tools of speculation. Each essay attacks different aspects of the elephant. Unlike the beast in the story of the five blind men and their limited comprehension of its nature, the sum of these interventions allows us to see the parts through an understanding of the whole. Markets and their social construction under capitalism in its present stage of development are hardly natural and given. Rather they are shaped by class forces and political institutions. These essays offer a powerful window on the character of the contemporary era, the global neoliberal social structure of accumulation. as it is manifest in the US political economy.

Panitch and Gindin illuminate the US Department of the Treasury’s pre-eminent structural position along with the Federal Reserve that allows the USA, since the establishment of the Bretton Woods System in 1944, to act as the indispensible currency. The dollar’s role as the unit of account for international trade and the haven for risk adverse wealth, makes Washington the lender of last resort (Panitch and Gindin, 2012).It allows America to take the leading role in shaping the international financial regime that binds the nations of the world, provides coercive incentives to financial institutions and constrains the possibilities of debtors, driving them to accept a course of action that is generally in violation of the democratic will of voters. Encouraging high risk loan strategies by forcing the removal of capital controls and other barriers to the movement of liquid capital, rejecting instruments nations could employ to protect their currencies from harmful impacts originating beyond their borders and their control, and orchestrating the allowable solutions to debt crises resulting from the imposed international financial regime ensures that the institutions of American power impose a hegemony that is difficult to challenge.

While the stories of the Latin American and Asian debt and financial crises have been told many times, Panitch and Gindin offer new insight, stressing the domestic forces in play and internal conflicts within the dependent economies when faced with these crises. The discussion of the Korean case is a model in this respect. The framing for Panitch and Gindin is bilateral, with the key US governance agencies on the dominant side of the relation while attention is given to the political machinations and the interest groups they represent, along with a similar investigative stance to the internal maneuvering in the countries on the dependent side of this relation. There is less attention in their framing to the role of the global state governance institutions – the International Monetary Fund (IMF), the World Bank and others – perhaps because they have been dominated by Washington and so their mediating role is not considered in this essay.

The contradictions between what might be understood as the national interests of the US and its role in creating, maintaining and enhancing globalized capital’s world-spanning control and accumulation strategies, and between these imperatives and the health and stability of the system easily fractured by speculative accesses in this era of finance capital’s dominance, set regulators with different perspectives against each other, and in conflict with national authorities. Currently the IMF is proposing, a significant shift from solutions that unilaterally favor creditors and put the entire burden of adjustment on debtors through a punishing austerity, an approach that the IMF now concludes is counterproductive. The proposal being made, that the bondholders accept some of the loss, an expected outcome in such a situation in the paradigmatic market model, is as yet unacceptable to the US, Germany and international finance represented by these powers. Extension of the Panitch/Ginden work would take on board the issue of global governance in a context in which the national interests (that is those of the international banks and creditors domiciled in the dominant countries of the world system) appear in conflict with resolutions sensible to the long term reproduction of the existing world system. At the level of Europe, France and Germany resist regulators’ attempts at increasing capital requirements and allowable leverage. The turmoil within the global state economic governance institutions suggests an awareness that the short-sighted greed that has been allowed to flourish endangers the long run (and not that very long run actually) health of the system. There is awareness that there are dangers of new bubbles and their collapse on an even larger scale as well as the remaining inherent weaknesses of many financial institutions whose conditions are obscured by the unwillingness of regulators to hold them to necessary and more demanding standards.

When the 2007–8 financial collapse occurred, most people were mystified by phenomena they could not comprehend: by the language of collateralized debt obligations, derivatives, leverage and the rest of a terminological blizzard that was suddenly presented in accounts of what was soon called the Great Recession. Understanding financial asset trading and the consequences of a lack of proper market regulation, indeed of allowing the very existence of these complex products, would have given insight into how inappropriate the terminology of recession was, no matter what the modifier. We are facing a long period of secular stagnation announced not simply by Marxists who have explored this tendency in capitalism, but by paragons of the establishment such as Larry Summers who, in a speech on 8 November 2013 at the International Monetary Fund, suggested that the USA might be stuck in what he correctly called ‘secular stagnation’, and which he described in the words of Bloomberg Businessweek, as: ‘a slump that is not the product of the business cycle but a more-or-less permanent condition. Summers’s conclusion is deeply pessimistic. If he is right, the economy is incapable of producing full employment without financial bubbles or massive stimulus, both of which tend to end badly’ (Coy and Phillips, 2013). The speech got a lot of attention. Summers, after all, has been a US Treasury Secretary, is noted as one of the smartest, if not the most PC economists around, and is widely seen as a Wall Street-oriented policy maker. His understanding then is a powerful indictment of not simply finance capital but of capitalism that, as part of the logic of its development, now takes the form it does. The freedom given to finance and an overaccumulation of capital generated by the defeats of labor produce crisis-provoking imbalances that augur slow growth, and income stagnation for working people. The profit picture remains positive as a greater share of national income goes to capital in almost all countries world-wide.

Such a troubling perspective concerns the more analytic of ruling class savants who raise alarm, not at the impacts such a prospect has for the working class that is victim to its worst consequences, but to the future survival of the system as we have known it and the possible reaction of the populus to such an extended future. The dissonance is jarring given the naturalization of financial markets as efficiency enhancing and the celebration of the riches obtainable through trading innovative financial instruments that, as Laureen Snider demonstrates, allowed financial actors to amass immense riches while creating devastating social harm and displacing blame for the collapse on government thanks to the political, social and economic power they accumulated. This has acyed as the currency to purchase insurance against possible punishment for irresponsible and criminal behavior. In discussing the abusive financial elements in sub-prime mortgages lending and bundling of such assets into collateralized debt obligations that formed the most prominent portion of a wider asset securitization (credit card receivables and so on) a huge bubble was created. This expanding frenzy logically and inevitably collapsed,. In telling this story Snider sheds light on the new reign of finance capital. Her particular contribution is to analyze the algorithmic surveillance technologies of stock market trading; the co-location of quant program traders’ servers with the market’s own computers minimizes the time it takes to initiate trades. While she writes of dominant financial institutions evading civil, regulatory and criminal law, what is more impressive to my way of thinking is how little of their activities is considered illegal or subject to regulation. Her discussion of historical antecedents in markets and technologies that are a background to the contemporary inventing of the new financial instruments she discusses illuminates the speed with which a new financial system has been created.

While sociologists have not given a great deal of attention to high frequency trading and the dark pools, to non-bank banks and shadow banking, to unregulated finance so mammoth as to create the potential for and the occasional actuality of system collapse, Snider competently discusses the use of time sensitive information and the role of government in enabling advantage that makes a mockery out of any thought that there is a level playing field among stock market investors. The essay is a logical supplement to the discussion of the debt relations of the Treasury securities repo market, fueling the short-term lending that funds so much of this speculation, and is a part of the chain of borrowing that continues down to the pay-day borrower.

At the macro level the mainstream approach naturalizes the market and its unequal social relations and sees the role of the state as addressing (often quite imperfectly) those crises that cannot be avoided (and always come as a surprise). Such a view is contested in the critical literature by a structural analysis that understands financial crises as the inevitable result of the power imbalance in which financial capital is privileged in its drive to appropriate surplus. At the micro level debt bondage is presented in mainstream literature as the consequence of individual failings. In actuality, it is imbricated in class exploitation and takes a form characteristic of the institutional fabric of each conjuncture. Genevieve LeBaron’s situates the plight of migrant workers in the USA in the neoliberal regime and explains dispossession and coercive labor markets that connect to the larger theme of debt peonage in a way that ties what has been called modern day slavery to the overarching accumulation process. It is a strategy that, by “othering” this group, allows for its superexploitation. She adds to the literature that makes visible debt bondage acting as a common form of slavery in a capitalist world system, instancing the production of nuts, sugar, cattle and other sectors the output of which flow into the supply chain of international brands.

Integrating free and unfree labor into an overarching analysis allows a more complex class analysis of an important feature of the world system that is typically ignored in work denying the continued existence of pre-capitalist forms of exploitation that ultimately enrich capital. The essay also raises the broader question of the meaning of freedom in class society more broadly. To speak of the predatory inclusion of temporary foreign workers can be seen either as analytically distinct, or as an aspect of a continuum of differential exploitation that is part of a divide-and-dominate strategy of capital more broadly in which degrees of obvious and less obvious coercion constitute a whole and in which credit and lending play a prominent role.

The combined and uneven nature of capitalism on a world scale is gendered and racialized in ways that heighten conditions of desperation that are preyed upon so that vulnerability to labor exploitation is intensified, as LeBaron stresses, by taking on costly debt as a survival necessity and become a further instrument of market discipline. Recruiting, lending to, and supplying heavily indebted workers whose passports are often confiscated against repayment leaves these workers who typically do not speak the language of the country to which they have been sent defenseless against harmful treatment that undermines the working conditions and bargaining power of other workers as well as themselves. The abuse of H2-A and H2-B workers is not just a major factor in low wage jobs that undermine the prospects of less educated, especially citizen workers of color that are her focus, but also has changed the character of many job categories including knowledge-intensive ones such as computer programmers. The phenomena she describes play an important role in the restructuring of the global working class as it internationalizes and becomes subject to greater discipline, in part as a result of the proliferation of debt relations she describes. On a wider canvas this process is creating a truly global proletariat that cannot help but become more capable of seeing the need for unity as a class to resist capital, and that can collectively forge an alternative system providing them dignity and security. Understanding the gradations of unfreedom in world capitalist labor relations is an important intellectual and political project.

The coercive mechanisms experienced by the poor and by other working class debtors, the subject of Adrienne Roberts’s contribution, moves the analysis of debt beyond the illegitimate coercions of effective slavery of immigrant debtors to the use of incarceration as a tool of coercion on citizens with presumed legal rights within the legal system. It forms a continuum with essays by Coco and Soederberg (discussed below) in illuminating how changes in the legal system, in state budgeting, and in the enforcement of coercion by the state all entrap debtors in ways that are new or have become more routinized and widespread. Her article illuminates the debt-buying industry that unscrupulously uses changes in the bankruptcy laws and legal interpretations that allow imprisonment for debt – a punishment thought long ago discarded in civilized societies – to flourish once more in the netherworld of legal entanglement to which debtors are increasingly subjected. She is right to see this phenomenon as another aspect of a widening commercialization of the state in the era of global neoliberalism in which the concerns of the social structure of national Keynesianism and entitlements of the welfare state have been abandoned to such a dramatic extent. It is a narrative that is apiece with the banks ‘losing’ paperwork on mortgage claims, forging titles, and sudden foreclosure when promises of refinancing had been made and more broadly being non-responsive to indebted households pursuant of adding new fees. The example of others imprisoned for debt by companies that buy, at a fraction of face value, debts (often illegitimate claims) and then harass and coerce payment now characterize an entire industry that has grown to obscene proportions.

While the greed of the private companies employing these tactics is often discussed, one of the important points made by these essays is that changes in legislation have enabled and empowered such practices. The state is acting, increasingly, although not without meaningful opposition, to coerce payment of debt as part of a system that thrives upon, and makes more central, the coercive power of the debt relationship to extract greater surplus from labor. In so acting it decreases the living standards of the working class on a widening scale. The return of debtors’ prison enabled by the Fair [sic] Debt Collection Practices Act discussed by Roberts empowers contempt of court as a mechanism to reinstitute imprisonment for debt. This law has a counterpart in another rebalancing of the power of lenders over debtors embodied in the Bankruptcy Abuse Prevention and Consumer Protection Act (another Orwellian name) that takes away for so many the possibility of a once guaranteed right to declare bankruptcy and get a new start. Both make a mockery of the presumed neutrality of the legal system. Properly understood the law is all too often an adjunct and servant for private debt collection. Roberts’s useful recounting of the history of societies abandoning debtors’ prison, and the reasoning supporting this shift raise important questions about the logic implicit in renewing this abandoned practice.

In the contemporary era of an ever tightening neoliberal chokehold on the working class capitalism moves into a period of barbarism and naked class rule in which accumulation by dispossession in Harvey’s terms, or redistributive growth in which profits accrue from extractions through the debt relation. What does it mean that in the US 95 percent of the gain from economic recovery, such as it has been through 2012, has gone to the 1 percent? Growing inequality and the impact of the rising share of national income going to the 1 percent structurally forces the average worker whose real income has stagnated since the late 1970s to borrow to survive. The small elite that benefits from financialization invest their rising share of national income in speculative activity that is unproductive and threatens the society when bubbles collapse. The ability of taxpayers to bail out the financiers may well be challenged in the next major collapse of speculative pyramiding of fictitious capital.

While the more far-sighted elements of the ruling class worry about this, they are less concerned by the impacts on the lives of working people of the changes in the legal system that, as Linda Coco explains, convey information about shifts in the power relation between labor and capital. The state locks people future lives onto a debt payment treadmill forcing choices that are not of their own making. These increase the unfreedom of individuals through the compunding of debt burdens that are tightly coerced. Re-stigmatizing bankruptcy, Coco argues, is part of the use of shaming and guilt tripping failure that is put on individuals but that originates in the basic working of capitalism. In addition to the neoliberal imposition of lower wages, loss of sick days, the end of defined benefit pensions along with the threat to social security and the decline in public provisioning and entitlements, debt peonage for workers and bailouts for banks are part of a rapid increase in inequality of wealth and power.

Susanne Soederberg has given the name ‘debtfare state’ to the new social relation of imposed dependence on loans, the commoditization of debt, and the coercions enforced by state power that characterize the present stage of capitalist development and provide an important addition to the usual list of the crimes of neoliberalism. Her focus on the state enforcement of debt contracts in prejudicial fashion to the detriment of working people as opposed to direct forms of domination between employer and employee, as a form of what Marx calls secondary exploitation, is referenced in her essay in this issue by the case of student debt. It displays all the features of debtfare, the institutionalization by the state of laws governing borrowing and repayment so as to favor creditors and its ideological resonances of a democratization of credit as cover for the expansion of exploitation through the expansion of debt burdens projected as contracts freely entered into in a free market. Like all other ‘free’ markets in what is in fact the unfree system of capitalist class relations debt takes on particular characteristics in social reproduction in the neoliberal era. The normalization of reliance on student debt is a direct result of drastic cutbacks in public support for education. Dismantling of the public sphere and the social wage foster private accumulation, expanding its boundaries as the realm of the public diminishes.

In all of the cases raised in these essays, student, credit card, or mortgage debt, the reassignment of risk burden from creditor to the state and now heavily to the individual borrower and their families, and in which government acts not to support necessary and secure borrowing by citizens with insurance in case of hardship through government assumption of debt, lender partial losses, and bankruptcy, the legal system and state power are deployed to make these alternatives rarer and lifetime indebtedness, indeed indentured servitude, more common. Such developments, along with the globalization of finance capital and the interpenetration of national capitals, the willful or reluctant abandonment of entitlement provisioning, tax competition and lack of bargaining power at the point of production, point to elements of a new situation.

Leanne Roderick’s timely article complements what we have learned thanks to the Snowden revelations about government snooping into the lives of citizens through its compiling of data from a host of sources – and gives us something more to think about when President Obama repeats assurances that ‘there is no spying on Americans’. In the name of fighting terrorism our privacy has been invaded to an extent few people had understood and perhaps many still do not. But what we also now know, or should know, is that for-profit private data brokers assemble and sell to the government as well as to advertisers all manner of information about us, our likes and dislikes, our friends and routines, and provide tools to push products on us. For-profit data firms with once undreamed of capacities vastly increase the ability of the consumer culture to get into our heads and manipulate our behavior.

We are being followed everywhere. Surveillance click by click – what we read, what consumer goods we buy, where we go if we buy tickets using credit cards allowing us to be sold to advertisers. The veil of once normal taken for granted privacy has been removed, as Roderick explains. There is no reasonable way to opt out of having our data used any more than we have an alternative to clicking ‘I agree’ to the dense boiler plate contracts when we download software or agree to give up our right to be part of class action suits and take credit card companies to court by accepting arbitration by organizations that are structured to favor giant transnationals and international financial institutions.

In exposing the links between consumer data brokers and the bonds of debt Roderick shows us ways financial regulation has been twisted to take away our privacy and control us by an industry that has grown to gigantic size and for the most part go unregulated. In placing the industry within neo-Gramscian and Foucauldian understandings of what Stephen Gill (1995) has called disciplinary neoliberalism, she provides an understanding of the coming together of economic power and the new constitutionalism disciplining public institutions that violate what has been traditionally understood as the rights and protections of citizenship. This combining of post-structuralist literature on consumer finance with a political economy treatment of the consumer data broker industry enriches understanding of the power of capital in the contemporary conjuncture.

With the decline in labor’s power at the point of production comes a politicization of class struggle in which demands on the state to regulate capital, and with that, the realization that government is not the impartial servant of the people but a tool of the ruling class becomes more fully grasped . The organizations of homeowners against the banks, student campaigns for debt moratoria, Occupy in its manifold manifestations, the campaign of fast food workers and Wal-Mart ‘associates’ for $15 an hour are apiece with the buzz around Elizabeth Warren as alternative to Hillary Clinton as the choice of the base of the Democratic Party in 2016 and with the rejection of Obama’s Wall Street-friendly choice of Larry Summers to head the Federal Reserve. Awareness of how financial regimes are constructed as tools of class domination, and how debt is used as an instrument of redistributive appropriation of surplus from the working class revealed in the excellent articles here adds a needed dimension to an understanding of class oppression, its intrinsic unfairness, and the need for structural changes rejecting the norms of our economic system.

Reading these individual contributions together enriches each. They suggest connective tissue between the political economy of finance in the contemporary era of neoliberal capitalism and the attack on working people that thanks to technology and capital’s dominance over the state apparatus robs us not only monetarily but of opportunity for autonomous and communal experiences free of money’s insidious multi-faceted influences. Each essay in its own way denaturalizes and politicizes what are class weapons of surplus extraction and disciplinary control that are so widely misunderstood. The disease that is growing both is a result of the financial meltdown and deep crisis that came to general awareness in 2008, which five years after officially ending has yielded a profit recovery largely at taxpayer expense, is fed by the stagnation of wages, an increase in the precariat, and widespread fear and insecurity that have been accompanied by the more naked application of state power to indenture working people. We are in a new stage of capitalism. The essays gathered here serve to chart essential aspects of this unacceptable ‘new normal’ and offer guidance for what is to be done.