The Boom and the Bubble: the US in the World Economy by Robert Brenner; Verso, London and New York, 2002; pages 303, $23.
THE recent work of Professor Robert Brenner of the University of California, Los Angeles (UCLA) is a solidly argued and empirically impeccable restatement of the centrality of overproduction in capitalism - a problem that has preoccupied thinkers as diverse as Marx, Joseph Schumpeter, Joan Robinson, Ernest Mandel, Paul Baran, and Paul Sweezy. Brenner's distinctive contribution is to draw out the specific dynamics and consequences of overproduction or underconsumption in the era of integrated, globalised production and markets. The picture he draws is not one of corporations denationalised by economic integration and states whose powers have been eroded, as in much current writing on globalisation. In Brenner's global economy, state elites battle to gain a competitive edge for their corporate elites. But if national competition is central, so is the common interest among the competing elites of the central economies to expand the global economy. The trajectory of the United States economy is determined largely by this volatile relationship of competition with and dependence on the other global capitalist centres of Europe, Japan, and - though to a much lesser degree - East Asia.
In Brenner's view, the post-Second World War era is divided into a period of dynamic global economic expansion from the late 1940s to the early 1970s and one marked by persistent crises and uneven growth since then - a relatively dismal period broken only by the seven-year U.S. boom in the 1990s. Whereas in the first phase, the U.S., Europe, and Japan derived mutual benefit from global expansion, from the early 1970s on, economic growth became largely a zero-sum game, where one centre economy's advance was purchased with stagnation or recession in its neighbours.
Since the 1970s, the key problem for the centre economies has been a chronic tendency towards overcapacity and thus a steady decline in profitability. Disposing of old capital stock, increasing productivity, and regaining profitability has been an urgent need of each centre economy, but achieving it has run into opposition from established monopolies, organised labour, and powerful rival centre economies.
By delinking the dollar from the gold standard and effectively devaluing it, the Nixon administration hoped to steal a march over its rivals. It was, however, left to the Reagan administration to restore decisively the American economy's edge, and this it did through three mechanisms: breaking organised labour to hold down wages, maintaining high interest rates to attract capital to the U.S., and engineering the infamous "Plaza Accord" in 1985, which pushed up the value of the yen and set the stage for the "relentless rise" of the mark to make the Japanese and German manufacturing sectors bear the lion's share of adjustment. In a global economy marked by overcapacity, the result was eventually to push both Japan and Germany to recession and lay the ground for greater U.S. competitiveness and profitability in the late 1980s and early 1990s.
The effect was, however, two-edged, for even as U.S. manufacturing regained profitability, it was also threatened by the prolonged recession that settled over Japan and Germany, which degraded the capacity of these economies to absorb U.S. exports, which had served as a key engine of the U.S. manufacturing recovery. In an increasingly integrated global economy, Brenner points out, "the fact remains that while the U.S. economic revival took place largely at the expense of its leading rivals, that it had to do so was ultimately at the cost of the U..S economy itself". Consequently, Washington under the Clinton administration engineered the "reverse Plaza Accord" in the mid-1990s, when the value of the dollar was allowed to rise relative to the yen in an effort to help spark an export-led recovery in Japan. Just as the Plaza Accord had essentially been a rescue operation of U.S. industry by Japan and Germany, so was the Clinton-Rubin reversal of the rising dollar a U.S.-engineered "bailout of Japan's crisis-bound manufacturing sector".
This move, however, failed to spark sustained economic revival in Japan. And a great part of the reason was that the global overcapacity problem had become even more acute owing to the Japanese conglomerates moving a great many of their labour-intensive manufacturing operations to China and East Asia, precisely to escape being rendered non-competitive by the rising yen. But even as it failed to reactivate the Japanese economy, the reverse Plaza Accord played a key role in undermining the competitiveness of the northeast Asian and southeast Asian economies whose currencies were tied to the rising dollar. When these economies, with their sizable markets, collapsed during the Asian financial crisis in 1997-98, the global crisis of overproduction intensified.
Tied to an increasingly integrated but keenly competitive global production system and market, the U.S. manufacturing sector saw its profits stop growing after 1997. By the end of the decade, practically all key industrial sectors were suffering tremendous overcapacity, with the worst situation existing in the telecommunications sector, where only 2.5 per cent of the infrastructure laid down was being utilised. By 2002, the gap between capacity and output was, according to The Economist, the largest since the Great Depression.
With manufacturing and the rest of the "real economy" ceasing to absorb investment profitably, capital migrated to the speculative sector, where a period of hyperactive growth in high technology stocks was nursed carefully by the low-interest-rate policy and "New Economy" talk of Federal Reserve chairman Alan Greenspan. Grounded in the illusion of future profitability of high-tech firms, the dot.com phenomenon extended by about two years. "Never before in U.S. history," Brenner contends, "had the stock market played such a direct, and decisive, role in financing non-financial corporations, and thereby powering the growth of capital expenditures and in this way the real economy. Never before had a U.S. economic expansion become so dependent upon the stock market's ascent."
But with the profitability of the financial sector being dependent on the underlying, actual profitability of the manufacturing sector, the finance-driven growth ultimately had to run out of steam. The dizzying rise in market capitalisation of non-financial corporations from $4.8 billion in 1994 to $15.6 trillion in the first quarter of 2000 represented what Brenner characterises as an "absurd disconnection between the rise of paper wealth and the growth of actual output, and particularly of profits, in the underlying economy." The loss of $7 trillion in paper wealth in the stock market collapse that began in March 2000 represented the rude reassertion of the reality of a global economy crippled by overcapacity, overproduction, and lack of profitability. With the mechanism of "stock-market Keynesianism" having been exhausted, the capacity of the U.S. economy to avoid a serious and prolonged downturn has been greatly eroded, though Brenner is cautious about writing it off....
Walden Bello is executive director of Focus on the Global South and Professor of Sociology and Public Administration at the University of the Philippines. His latest book is Deglobalization (Zed Press, London, 2002).
<http://www.flonnet.com/fl1922/stories/20021108001507400.htm> -- Yoshie
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