Crunch time for US capitalism?
December 04, 2004
By Patrick Bond
If you are like many aggrieved people I know, the prospect of the US economic empire stumbling, tripping, and maybe even crashing is welcome indeed.
So cheer up, it seems like comeuppance season has dawned. Former Federal Reserve governor Paul Volcker warned earlier this year of a "75% chance of a financial crisis hitting the US in the next five years, if it does not change its policies."
As Volcker told the Financial Times a month ago, "I think the problem now is that there isn't a sense of crisis. Sure, you can talk about the budget deficit in America if you think it is a problem - and I think it is a big problem - but there is no sense of crisis, so no one wants to listen."
That may have just changed. Volcker's successor, Alan Greenspan, scared the financial markets into a mini-seizure last week by admitting, "It seems persuasive that, given the size of the U.S. current account deficit, a diminished appetite for adding to dollar balances must occur at some point."
Former US Labor secretary Robert Reich predicted in September: "The mainstream view is that the budget deficit is going to get larger. Simultaneously, the mainstream view is that there is no reason to believe that the trade deficit is going to shrink any time soon. In fact, I see the dollar continuing to decline and I see at some point a tipping pointÂ^Å because at some point it becomes a lousy investment."
A week after the election, former Treasury secretary Robert Rubin accused Bush of "playing with fire" for allowing the dollar to weaken alongside continuing federal deficit spending, a combination which would generate "serious disruptions in our financial markets."
Added C. Fred Bergsten, director of the Institute for International Economics in Washington (a voice of pure orthodoxy), "Everyone in the market knows the dollar has to come down a lot. People are starting to run for the exits."
That run for the exit could be extremely costly for China, for example, with former Treasury official Nouriel Roubini telling Reuters that about 8% of its GDP - or half a trillion $US - would be lost in the event the Chinese currency was allowed to find its real value, and the dollar crashed a further 20%.
Of course, this isn"t about merely tracking the volatility of the dollar"s price against other countries, which will dip and dive and strengthen for erratic short-term reasons. Deeper, structural analysis is required.
Yale-based anarchist David Graeber half-jokingly suggests "a systematic division of labour in which Marxists critique the political economy, but stay out of organising, and anarchists handle the day-to-day organising, but defer to Marxists on questions of abstract theory; i.e., in which Marxists explain why the economic crash in Argentina occurred and the anarchists deal with what to do about it."
Right, then, what do Marxists and other dissident economists have to say, what with mega-Argentine-scale financial problems looming?
To start with diagnoses of the situation, four critical schools of thought are worth citing because they have somewhat different - and often competing - ideas about what ails US and global capitalism:
1) Overly competitive corporations, which drive down the rate of profit; 2) Overconfidence within financial markets, which today act more like a casino than savings/investment mechanism; 3) Overproduction of commodities, as a persistent reflection of inadequate consumer buying power; and 4) Overaccumulation of capital more generally, a problem which cannot be displaced forever, but which one day must face more severe devaluation.
In the first case, the best example is UCLA historian Robert Brenner's 2003 book *The Boom and the Bubble* and subsequent analysis in New Left Review, London Review of Books, Against the Current, and other journals.
In the second, followers of the late US financial economist Hyman Minsky - like David Felix of Washington University and Steve Keen of University of Western Sydney - argue that financial markets inexorably move from accommodating capitalism, to hosting speculative investments, to becoming a pure gamble, in the spirit of the old "Ponzi"-style inverted pyramid schemes.
The third category draws on the legacy of John Maynard Keynes, whose solutions to "underconsumption" typically involve loose credit and generous state subsidies, so as to boost consumer buying power. Many radical economists in the US have renewed this line of argument, perhaps because it is politically safer than calling for anti-capitalist revolution. (Reagan, Bush Sr and Bush Jr could be described as "military Keynesians" thanks to their vast budget deficits and Pentagon-hedonism.)
Arguing the fourth case, eloquent classical Marxists like Ellen Meikskins Wood in her book *Empire of Capital* (2003) and David Harvey in *The New Imperialism* (2004) have updated important earlier accounts of overaccumulation by Simon Clarke (*Keynesianism, Monetarism and the Crisis of the State*, 1988), Harvey in *The Condition of Postmodernity* (1989), Harry Shutt (*The Trouble with Capitalism*, 1999) and Robert Biel (*The New Imperialism*, 2000).
Opposed to these is a Marxist position which respects the strength, resourcefulness and self-healing capacity within capitalism - and especially reflects upon the weakness of the system"s main enemy: the working class. Those arguing that the system is *not* facing a systemic overaccumulation crisis include Leo Panitch, Sam Gindin and Chris Rude in the new *Socialist Register 2005: The Empire Reloaded*, Doug Henwood in *After the New Economy* (2003) and Giovanni Arrighi (criticizing Brenner) in *New Left Review* last year.
Some of these latter accounts stress a fifth school of Marxist theory: class struggle as determinant. And it is true, the world's working class and nearly all counterhegemonic national struggles have suffered persistent, debilitating defeats over the past three decades, which certainly helps explain capital"s apparent recovery from 1970s woes.
Yet the internal contradictions continue bubbling up. Globalization has generated economic stagnation, not dynamism. According to even the World Bank, the increase in the world"s annual GDP per person fell from 3.6% during the 1960s, to 2.1% during the 1970s, to 1.3% during the 1980s to 1.1% during the 1990s and 1% during the early 2000s.
Moreover, GDP measures are notorious overestimates of social welfare, especially since environmental degradation became more extreme from the 1970s. We must also factor in the extremely uneven character of accumulation across the world, with some sites - like Eastern Europe and Africa - suffering rapidly declining per capita GDP for much of the globalization epoch.
Or consider a classical symptom of capitalist crisis: the corporate rate of profit. At first glance, the after-tax US corporate profit rate - which fell precipitously from the mid-1960s - appeared to recover beginning in 1984, nearly reaching earlier post-war highs (although it must be said that tax rates were much lower in the recent period).
On the other hand, corporate interest payments remained at record high levels throughout the 1980s-90s. Subtracting interest expenses, we get a better sense of net revenue available to the firm for future investment and accumulation, which indeed remained far lower from the early 1980s- present, than during earlier periods, according to French Marxists Gérard Duménil and Dominique Lévy (http://www.cepremap.ens.fr).
Duménil and Lévy also deconstruct the ways that US corporations responded to declining manufacturing-sector accumulation. Manufacturing revenues were responsible for roughly half of total (before-tax) corporate profits during the quarter-century post-war "Golden Age", but fell to below 20% by the early 2000s.
In contrast, profits in the financial sector rose from the 10-20% range during the 1950s-60s, to above 30% by 2000. Financiers doubled their asset base in relation to non-financial peers during the 1980s-90s.
What does this mean?
According to Harvey, the contradictions of capitalism were "displaced" instead of resolved: they were moved across time and space, especially via hyperactive financial markets. Time is accounted for in the vast credit bubble, which lets you pay now, on the basis of debt, and hope to earn future revenues to cover your loan repayments.
And capitalism's use of "space" - geographic crisis displacement - is really what globalization has been about: allowing corporations facing falling profits to seek relief in sites where raw materials and labor are cheaper, where regulations are fewer, and where new markets for products might emerge. Hence corporate profits drawn from global operations rose from a range of 4 to 8% during the 1950s-60s to above 20% by 2000.
To be sure, some of the problems faced by capitalism have not been simply stalled and shifted around. Some vicious hits - asset devaluations - have occurred in different sites over the past 30 years.
These included the Third World debt crisis (early 1980s for commercial lenders, but still going on for most of the world's states and societies); energy finance shocks (mid 1980s); crashes of international stock (1987) and property (1991-93) markets; crises in nearly all the large emerging market countries (1995-2002); and even huge individual bankruptcies which had powerful international ripples.
Late-1990s examples of financial-speculative gambles gone very sour in derivatives, exotic stock market positions, currency trading, and bad bets on commodity futures and interest rate futures include Long-Term Capital Management ($3.5 billion)(1998), Sumitomo/London Metal Exchange (,1.6 billion)(1996), I.G.Metallgessellschaft ($2.2 billion)(1994), Kashima Oil ($1.57 billion)(1994), Orange County, California ($1.5 billion)(1994), Barings Bank (,900 million)(1995), the Belgian government ($1 billion)(1997), and Union Bank of Switzerland ($690 million)(1998).
>From 2000, subsequent US firm bankruptcies on an even larger scales -
e.g., Enron, Anderson Accounting, World Com, Tyco - had more to do with
corruption, but were also symptoms of financial gambling in immature
markets.
Most importantly, the US stock market was the site of an enormous "New Economy" bubble until 2000, perhaps culminating in the Dot Com crash which wiped $8.5 trillion of paper wealth off the books from peak to trough (in the US alone) - but on the other hand, seemingly reinflating in 2003-04 thanks to the return of household investors and mutual fund flows, and possibly rising further in future years if Bush begins social security privatisation.
There were crashes not only in New York, but also 1/3 declines during 2002 in Finland, Germany, Greece, Ireland, Netherlands,and Sweden, and other less severe falls in most other stock markets.
David Harvey provides a further idea to interpret how the system responds to overaccumulation and financial overhang. Inspired by Rosa Luxemburg"s ruminations a century ago over the relations between capitalism and non- capitalist spheres of life, he describes new systems of "accumulation by dispossession", which means, essentially, the looting of the commons and use of extra-economic power to gain profits.
The systems of dispossession today also more explicitly attack the sphere of "reproduction", where exploitation occurs especially through unequal gender power relations. This reflects the "reprivatization" of life, as York University political scientists Isabella Bakker and Stephen Gill argue in their 2003 book *Power, Production and Social Reproduction*.
Together, these concepts allow Marxists to explain why "capitalist crisis" doesn't automatically generate the sorts of payments-system breakdowns and mass core-capitalist unemployment problems witnessed during the main previous conjuncture of overaccumulation, the Great Depression.
According to a careful analysis by York University"s Greg Albo in last year"s *Socialist Register 2004: The New Imperial Challenge*, "The economic slowdown and neoliberalism led to a significant financialization of the economy from the 1970s onwards." Today, "The deflation of the asset bubble adds another tension between the US and other zones that complicates any path of adjustment in the world market."
That's all I seem to have room for in this installment: some teaser quotes, a dash of Marxist theory, and preliminary evidence. In the next column, I'll unpack the statistics that indicate a new round of profound economic vulnerability, not to mention very serious "tension between the US and other zones". And there are, as well, some profound political lessons to learn, if we're not to be taken for a ride on the roller-coaster this time, as we were during the late 1990s.
(Patrick - pbond at sn.apc.org - teaches political economy at the University of KwaZulu-Natal and directs the Centre for Civil Society - http://www.ukzn.ac.za/ccs)