The Global Capitalist Crisis and Its Aftermath

The Causes and Consequences of the Great Recession of 2008-2009

Berch Berberoglu

• Publisher: Routledge
• Year: 2016
• eBook ISBN: 9781351888912
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Globalisation
• Index: Politics & International Relations

Written by a team of experts on the contemporary global capitalist political economy who are able to shed light on the inner workings of global capitalism and the capitalist globalization process that has led to the growth and development of capitalism from the national to the global level, this groundbreaking volume provides critical analyses of the causes and consequences of the Great Recession of 2008-2009. Through a careful examination of the origin, development and aftermath of the catastrophic economic crisis from which the world is still trying to recover, editor Berch Berberoglu and his colleagues demonstrate that those most responsible for the economic collapse are the ones least affected by its devastating impact felt most severely by working people around the world. Ultimately, this book argues that it is only through the systematic restructuring of the world economy by the working class that society will be able to prevent the boom and bust cycle of global capitalist crises and usher in a more egalitarian socialist economy and society.

Chapter 1
The Contours of the Marxist Debate on the Global Capitalist Crisis

David Thurston Martin

Introduction

The global capitalist crisis has generated much debate among scholars about its causes and consequences, but the debates within the tradition of Marxist political economy has been some of the most prolific and insightful, given the tradition’s focus on the structures and dynamics of capitalism, rather than individual actors, policies, and institutions. In contrast to scholars of the neo-classical or Keynesian traditions, these scholars stress the structural nature of financial crises and look for underlying causes in the realm of production. As a result, most Marxist scholars locate the roots of the current crisis to the 1970s, when capitalism’s post-second World War boom entered a crisis. But that is the extent of the consensus; these scholars disagree over whether the period since the 1970s has been characterized by stagnation or expansion, overproduction or underconsumption, rising or falling rates of profit, and increasing or decreasing real wages. While these disagreements at face value appear irreconcilable, taken together, the strengths of one argument is complemented by the weaknesses of the others, generating a comprehensive understanding of the structural dynamics of the current global capitalist crisis in the context of the dialectical nature of the uneven development of global capitalism. This chapter will summarize, critique, and synthesize the works of leading authors in the various schools of Marxist political economy to explore the emerging contours of the Marxist debate on the global capitalist crisis.

Stagnation

John bellamy foster and fred magdoff, editor of Monthly Review and son of a former editor of that journal respectively, carry forward the monopoly Capital school of Marxist political economy, developed in the works of Paul Baran, Paul sweezy, harry magdoff, and harry braverman in the 1960s and 1970s, to analyze the current crisis in their 2009 book, The Great Financial Crisis. In that book, they compile a selection of essays from Monthly Review, dating between 2006 and 2008, and add a new introduction that provides a clear and concise statement of the argument of the monopoly school on the global capitalist crisis.

This school argues that capitalism has gone through several stages: competitive capitalism from roughly 1770 to 1870, monopoly capitalism from 1870 to 1970, and monopoly-finance capitalism from 1970 to the present. Their argument is that as capitalism matures, it tends to stagnate and, therefore, requires ever larger external stimuli to boost growth. Those external stimuli can come in the form of technological innovations, military spending, the sales effort, and, last, but certainly not least, speculative finance and debt. Thus, for example, the invention of the automobile provided an external stimulus for the massive expansion of capitalism in the mid-twentieth century, but, since the 1970s, the information and communication technology (iCT) revolution has failed to provide a similar stimulus, and the stagnation tendency of monopoly capitalism took hold. As a result, since the end of the long post war boom in the crisis of the 1970s, speculative finance has become a “secondary engine for growth, given the weakness of the primary engine, productive investment” (Foster and Magdoff, 2009: 18). That is, financial speculation and debt are the principal “external stimuli” in the age of monopoly-finance capital by propping up demand through debt expansion and increasing profits through speculation.

The stagnation tendency of monopoly capitalism derives from the overproduction of capital, or, as Marx put it, “the real barrier to capitalist production is capital itself” (Foster and Magdoff, 2009: 20). While expanding the productivity and productive capacity of capitalism, the rise of corporations (first national and now transnational) also created monopolistic control over markets, in which the corporations colluded to keep prices high and production low. This tendency generated massive profits and, at the same time, much underutilized productive capacity. Since the 1970s, the finance sector has absorbed much of this surplus capital, leveraging it into a debt-fueled expansion of effective demand as real wages have leveled under the weight of stagnating productive investment. Since real wages stagnated as productivity increased since the 1970s, monopoly capital faced a growing realization problem for its production. The expansion of consumer credit and household debt intervened to resolve this realization problem.

Therefore, Foster and Magdoff argue that the ascendency of finance capital since the late 1960s is “symptomatic of the underlying stagnation tendency” of monopoly capitalism, producing a “symbiotic embrace” between stagnation and financialization (20). The period since the late 1960s has seen the “‘financialization of the capitalist class’ in the sense of a shift in the primary sources of wealth accumulation at the very top of society from production to finance” (Foster and Holleman, 2010). In the United States, the finance capital fraction of the capitalist class became increasingly dominant as evident by its accumulation of wealth, profits, and power (Phillips, 2008). Other fractions of capital colluded in this ascendency due to finance’s ability to absorb surplus, realize production, and discipline labor and the state. Finance “ascended” to invest surplus in more liquid forms than production and generate speculative profits under conditions of an overproduction crisis, to prop up effective demand through the expansion of household debt, and to discipline labor through financial and fiscal crises.

Foster and magdoff argue that as a result, rather than a “modest helper” in the accumulation process, “the expansion of debt and speculation that characterized the us economy … since the late 1960s represented the main means by which the system managed to avoid sinking into a deep slump” (19). In other words, finance capital’s expansion of credit helped productive capital realize its production without raising wages, and workers increased their consumption through higher levels of household debt, not wages. Raghuram rajan, former chief economist at the international monetary fund, described this strategy as “let them eat credit” (2010). That is, capital “solved” the realization problem of the overproduction crisis through the explosion of household debt.

While this “external stimulus” of debt expansion served as a secondary engine of growth in face of underlying stagnation, it also created the conditions of more volatility as growth came to depend on the speculative asset bubbles and their inevitable crashes. Foster and Magdoff describe monopoly-finance capital’s dependence on debt-fueled growth like a drug addict needing ever larger speculative “fixes”: “the system became more and more dependent on a series of financial bubbles to keep it going, each one bigger than the last” (18). This drive for ever-bigger bubbles to stimulate growth explains the geographic movement of the series of financial bubbles (and crises) from the periphery of capitalism to the center, that is, from the periphery in the Third World debt crisis of 1982 to the center in the Wall Street crisis of 2008. Only financial markets as “deep” and “sophisticated” as those found on Wall Street could generate an $8 trillion housing bubble at the center of the Great financial Crisis (baker, 2009). Given the financialization of the capitalist class and the breaking of the power of labor, the “solution” to this crisis within the current structure of power is to be found not in the nationalization of the banks and their conversion into public utilities, but in the bailout of Wall street banks with trillions of dollars from state intervention to fuel the “junkies” search for another speculative “fix.”

A Critique of Foster and Magdoff

First and foremost, the notion that technological innovation, war, imperialism, sales effort, advertising, financial speculation, and household debt are “external stimuli” to capitalism, that is, “external to the logic of capitalism,” ignores the history of capitalism itself, in which innovation, wars, imperialism, military spending, speculative bubbles, financial crises, and debt expansion have all played a central role in overcoming the “real barrier” of “capital itself” by destroying and devaluing capital, and jumpstarting new waves of capitalist expansion. In other words, in order to make the argument that, as capitalism matures, it also stagnates, Foster and Magdoff have categorically excluded as “external stimuli” the very social forces, which capitalism has historically used to overcome the real barrier of the expansion of capital, “capital itself” by destroying and devaluing capital. Innovation/invention, war/imperialism, and debt/financial crises, rather than external, are central to the logic of capitalism in historical perspective. To argue for the stagnation tendency of monopoly capitalism, foster and magdoff are forced to claim that the social processes that fuel the dynamism of capitalism are external stimuli. Unfortunately, they are not.

Furthermore, to make the argument that capitalism has stagnated since the 1970s, foster and magdoff rely on data only from the united states, arbitrarily excluding the expansion of capitalism into other regions, especially Asia. In this case, they are at least more self-conscious about this selective use of data and argue that their focus on “almost exclusively on the development of the Global Financial Crisis within the context of the US economy” is justified since the “main contradictions of capitalism are still best perceived … from the standpoint of the preeminent capitalist economy at a given stage of its development” (2009: 21). But globalization has been a principal “escape route” for capital from the stagnation in the united statea (bello, 2009). Since the 1960s, us capital has exploited the revolution in information and communications technology, such as computers, satellites, and the internet, and transportation, such as containerization, large-capacity cargo shipping, and jet aircraft. This strategy of capital created an integrated system of global production and finance.

Moreover, capitalism expanded into “semi-capitalist, non-capitalist, or pre- capitalist areas” (bello, 2009). According to James petras and henry Veltmeyer in Globalization Unmasked,

for the greater part of the 20th century, substantial regions of the world were organized in a non-capitalist system, a form of collectivism, which did not operate within the capitalist mode of production. In the last decade, these areas have been incorporated and subordinated to the logic of capital accumulation. (2001: 39)

This geographic expansion of capitalism also greatly accelerated primitive accumulation, “a process in which millions have been wrenched from the means of production, proletarianized, and thrown into a global labor market shaped by transnational capital” (Robinson, 2008: 25). The result was not just a geographic expansion but also a demographic one, as indicated by the doubling of the global labor force from 1.46 billion workers in 1980 to 2.92 billion in 2006 as “workers from China, india and the former soviet bloc entered the global labor pool” (Freeman, 2006: 1). Given that capitalism is defined by the exploitation of wage labor, this doubling of the wage labor force is one of the most significant developments in capitalism since the 1970s.

In addition, the imposition of neoliberalism through the Third World debt crisis also integrated the Global South into the global system of production and finance by “synchronizing” national policies under the international monetary fund (IMF)’s structural adjustment programs (SAPs) (Robinson, 2008: 27). The SAPs simultaneously “de-industrialized” the cities and “de-peasantized” the countryside in the Third World, contributing to the generation of an absolute surplus of labor (Araghi, 1995; Delgado and Marquéz, 2008: 1359). As Transnational Corporations (TNCs) shifted industrial production to the periphery to exploit this surplus labor, they created a new international division of labor (nidl), in which the periphery increasingly exported manufactured goods, and imported food from the center. This industrialization of the periphery “generally … along lines determined by global corporations centered in the advanced capitalist countries” (foster and mcChesney, 2009) makes an analysis of us data inadequate to the task of grasping the main contradictions of capitalism at this stage of development.

Moreover, Foster and Magdoff’s justification for relying on US data since it represents the “preeminent capitalist economy” skirts a central issue of our time: for how long will the united states remain the “preeminent capitalist economy”? in short, foster and magdoff’s decision to focus on stagnation solely in the united States ignores the world historic expansion of capitalism in China, possibly the most dynamic rise of capitalism in history (li, 2008). In other words, similar to categorizing innovation, war, imperialism and financial crises as external to the logic of capitalism, they argue that the rise of a dynamic new center of capital accumulation in China is external to “main contradictions of capitalism in its current stage of development.” it is not; it is impossible to grasp the main contradictions of capitalism in this era without understanding the role of the dynamic rise of China in them.

As argued above, the “great doubling” of the global working class, in which China has played a central role, is certainly internal to the logic of capitalism, contributing significantly to the main contradictions of capitalism in its current stage of development. The explosive productive investment, low real wages, and massive household savings in China contribute to the excess productive capacity, downward pressure on wages, and low interest rates in the us, which, in turn, also result in sluggish productive investment, stagnating real wages, and exploding household debt in the us, the focus of foster and magdoff’s argument. It is hard to reconcile the monopoly school’s claim that capitalism has stagnated since the 1970s with the dynamic rise of capitalism in China and the dialectical nature of the uneven development of global capitalism.

The Neoliberal Expansion

Several scholars of Marxist political economy are based at York University in Toronto, Canada, including several editors and contributors of the annual Socialist Register. While these scholars have diverse analyses of global capitalism, they generally agree that the period since the structural crisis in the 1970s has been characterized by a dynamic expansion of capitalism, not stagnation. An early and key text of analysis of the current global capitalist crisis to come out of this school was david mcnally’s Global Sump: The Economics and Politics of Crisis and Resistance, which has a global perspective on developments in capitalism.

McNally describes the current crisis as a global slump since “the term is meant to capture a whole period of interconnected crises—the bursting of the real estate bubble; a wave of bank collapses; a series of sovereign debt crises; relapses into recession—that goes on for years without a sustained economic recovery” (McNally 2010: 8–9). That is, the financial crisis that kicked off on Wall Street is not a single crisis but a “mutating” one. Moreover, mcnally strongly disagrees with scholars like foster and magdoff and robert brenner (2002), who characterize the neoliberal period as a period of “stagnation” or a “long downturn” (McNally, 2010: 36). Instead, he argues that the neoliberal restructuring of capitalism jumpstarted a new cycle of growth from 1982–97, producing a new center of capital accumulation in east asia, particularly China. According to mcnally, neoliberalism achieved this expansion principally by intensifying the exploitation of labor worldwide, attacking unions in the Global north, resubordinating national developmental states in the Global south, globalizing the production process through global commodity chains, expanding the global reserve army of labor, and reorganizing work with new information and communication technologies. While neoliberalism entailed “global turbulence,” it boosted the rate of profit and sustained a capitalist expansion from 1982 to 1997 (McNally, 2010: 41).

McNally further argues that this neoliberal cycle of growth came to an end with the 1997 East Asian financial crisis, marking the “onset of new problems of overaccumulation” (41). These problems did not manifest themselves as a generalized global crisis in 1997 because “a decade long credit expansion delayed the day of reckoning” until the housing bubble burst in 2006–07 (41). In essence, mcnally principally disagrees with the foster and magdoff over periodization, arguing that the neoliberal period of 1982–97 is characterized by expansion, not stagnation, but after 1997, the stagnation-financialization dynamic came into effect. After the East Asian financial crisis, a credit expansion inflated asset bubbles, which propped up effective demand through the “wealth effect,” in which rising asset values increases consumer spending, as well as the explosion of consumer credit and household debt. This credit expansion after the Asian financial crisis postponed the inevitable global crisis, given global overcapacity, until 2007. In other words, mcnally agrees with foster and magdoff that the current global crisis has structural roots in overproduction, and that stagnation-financialization dynamic temporarily resolved the realization problem, but that dynamic only dates back to 1997, not the 1970s. According to mcnally, the neoliberal restructuring of capitalism generated an expansion from 1982–97, and then inflated asset prices and increasing household debt prevented a global crisis until 2007.

A Critique of McNally

From a global perspective, McNally’s definition of the “Global Slump” as a series of interconnected crises from, for example, financial crises to sovereign debt crises, applies not just to the period since 2007, but over the entire neoliberal period since the 1970s. As david harvey put it, “capitalism never solves its crisis problems; it just moves them around” (2010). The displacement of the overproduction crisis, that arose from the recovery of european and Japanese capital from their destruction during the Second World War, into the financial sector created a series of interconnected financial crises starting in the 1970s.

By arguing that the onset of the problems of over-accumulation started in 1997, rather than the late 1960s, and that a credit expansion prevented a “general” crisis only during the period from 1997 to 2007, not earlier, mcnally demonstrates the same parochial perspective that he argues so strongly against, when, for example, he states that the “core capitalist countries are far from the full story of the global economy in our era,” and that the world economy is “more than the sum of its largest parts” such as the United States, Germany, and Japan (McNally, 2010: 37). That is, mcnally considers a crisis as “general” only when it is centered in the core capitalist countries, specifically on Wall Street...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• List of Figures and Tables
• Notes on Contributors
• Preface and Acknowledgements
• Introduction: The Global Capitalist Crisis and Its Aftermath on a World Scale
• 1 The Contours of the Marxist Debate on the Global Capitalist Crisis
• 2 The Global Capitalist Crisis: Its Origins, Dynamics and Impact on the United States
• 3 “The Great Recession” of 2008 and the Continuing Global Capitalist Crisis
• 4 The Global Financial Crisis: A Crisis of Capital or for Labor?
• 5 The Global Capitalist Crisis and the 2008 Financial Meltdown in the United States
• 6 The Impact of the Global Capitalist Crisis on the Eurozone
• 7 Japan’s Long Stagnation and the Global Capitalist Crisis: The Onset of Inter-State Rivalry?
• 8 The Continuing Global Capitalist Crisis and the Transition to State-Neoliberalism in China
• 9 Russia and the Global Capitalist Crisis
• 10 Latin America and the Epochal Crisis of Capitalism
• 11 “Africa Rising” or Africans Uprising? The Impact of the Global Capitalist Crisis on Africa
• 12 The Structural Crisis of Global Capitalism and the Prospects for World Revolution in the Twenty-First Century
• 13 The Global Capitalist Crisis and the End of Empire
• Conclusion: The Global Capitalist Crisis and Class Struggle
• Select Bibliography
• Index