Capitalism has grown to a fundamentally unsustainable state. Only fools try to forecast economic futures, but the fact is that there's a significant chance that sometime in the not-too-distant future the entire capitalist system is going to collapse in a crisis of truly global proportions. At that point, humanity will be at a crossroads between some new system cooked up by the existing powers-that-be who will seek to preserve and even increase their control, or an alternative organized on the basis of truly participatory democracy with a socialist approach to the production and distribution of resources. Basically, we are going to be forced to decide Rosa Luxemburg's old question--socialism or barbarism?
What does it mean to say that capitalism has become fundamentally unsustainable? In the years before and after the financial crisis of 2008, a series of economic and historical works by scholars including David Harvey, John Bellamy Foster and Fred Magdoff, Robert Brenner, Chris Harman, Immanuel Wallerstein, Giovanni Arrighi, Gérard Duménil and Dominique Lévy, Richard Wolff, Dave McNally, and Ellen Mieskins Wood have demonstrated the enduring utility of Marxist analysis for understanding capitalism today. Whereas mainstream economists were caught off guard by the crisis of 2008 (after her personal fortunes took a huge hit, the Queen asked the academics at the London School of Economics "why did nobody notice it?"), Marxist economists had been warning for some time that capitalism was becoming increasingly unsustainable and therefore crisis-prone, principally because finance has been decoupled from production. Since 2008, nothing has been done to rein in the financial system--the same class of thieves and sociopaths who wrecked the economy before receiving a bailout are still in charge and out of control, and if anything their power is more concentrated today--and so until there is fundamental change we will continue to periodically witness catastrophic meltdowns of the financial system that devastate an increasingly interdependent world economy.
What does it mean to say that finance and production have been decoupled from one another? In brief, it means that capital has been faced with shrinking profits and a shortage of profitable investment opportunities in traditionally "productive" sectors of the economy, and has therefore turned to financial forms of speculation on debt and currency trading in what basically amounts to gambling among billionaires. When finance is decoupled from production and becomes the predominant method of investment for future profits, then we might say that the only thing capitalists are making is money. Here's how Bellamy Foster and Magdoff summarize it:
Currency and futures speculation, trading in complex derivatives, the emergence and growth of hedge funds, and the stunning increase in debt are all responses to the same phenomenon. As the economy of production of goods and services stagnates, failing to generate the rate of return...that capital desires, a new type of 'investment' emerged. It seeks to leverage debt and embrace bubble-like expansions aimed at high, speculative profits through financial instruments. The depth of stagnation, and its tenacious hold on the mature capitalist economy, is amply testified to by the flight of investment into what we have called "the giant casino." (60-61)
So yes it is like high-stakes gambling, but in a really fucked up casino where the gambler gets to keep all his winnings but the losses are paid for by the 99 people who serve him drinks, prepare his food, and clean his room. The more exact way to say this is that profits are privatized while risks are socialized. When capitalists win, they tell us not to be jealous of their success and try to convince us that taxes are an infringement on the liberties of not only themselves but all of us. When capitalists lose, they demand to be bailed out and threaten to take their chips to another casino, and those of us who work at the casino will ultimately foot the bill by taking on deeper debts that force us to work that much harder and longer in our jobs. Bellamy Foster and Magdoff put it this way:
The huge explosion of debt and speculation provide ways to extract more surplus from the general population and are, thus, part of capital's exploitation of workers and the lower middle class (61).
For more than 20 years after the end of World War II, the United States experienced a period of unprecedented prosperity. There were high rates of growth, American businesses raked in huge profits, and American workers also took home significantly larger incomes and enjoyed a higher standard of living. While higher wages ate into profits on the production side, the increasing disposable income fueled greater levels of demand for consumer goods of all sorts. During these years, capitalism was able to overcome the crisis that had crippled it during the 1930s: namely, the crisis of underconsumption fostered by inequalities of wealth that limited the purchasing power of the working masses. After World War II, the combination of military expenditures and state investments in education, housing, and highway construction advanced the process that had begun in the Progressive era and the New Deal into a full-blown "Keynesian Welfare National State." This post-war system of state management and class compromise--variously called "Fordism," "organized capitalism," or "embedded liberalism"--enlarged the ranks of the American "consumers' republic" based on mass consumption that resolved the problem of demand.
These domestic policies were complemented on an international level after World War II by the Marshall Plan implemented in Western Europe and comparable means of foreign aid to Japan. The U.S. government poured billions of dollars into the reconstruction of a war-torn world and accomplished two objectives at once: they buffered states and ruling classes against the threat of communist revolutions, and they enlarged the international market for the export of American products. The United States emerged from World War II as the hegemonic center of the non-communist world, an economic, military, and political powerhouse with an affluent "middle class" whose lifestyle was envied and emulated throughout the world. However, the further we are removed from those years, the more they look like a "golden age" that represents an exception rather than the rule of American capitalism.
So what the fuck happened? It began with a perfect storm of economic, political, and military crises that coalesced around 1968. The American war machine got bogged down in Vietnam, with the Tet Offensive of January 1968 exposing major chinks in the U.S. armor. The costs of the war along with rising state expenditures for domestic programs (the Johnson administration wanted both guns and butter) had also begun to provoke an inflationary spiral in the American economy. Meanwhile, the Japanese and the Germans had caught up with the United States and begun to contest its dominant position in world trade. Immanuel Wallerstein explains the significance of the Vietnam War as a turning point for the beginning of the end of American hegemony, both in the geopolitical arena of nation-states and the economic system of global trade:
But Vietnam was not merely a military defeat or a blight on U.S. prestige. The war dealt a major blow to the United States' ability to remain the world's most dominant economic power. The conflict was extremely expensive and more or less used up the U.S. gold reserves that had been so plentiful since 1945. Moreover, the United States incurred these costs just as western Europe and Japan experienced major upswings. These conditions ended U.S. preeminence in the global economy (The Decline of American Power, p. 18).
In 1971, rising rates of inflation brought on by increasing government expenditures and America's emerging deficits in world trade and balance-of-payments led President Nixon to disconnect the value of the dollar from the gold standard in what is sometimes called "the Nixon Shock." This has turned out to be a crucial event in the financialization of capitalism, for the end of the gold standard allowed currencies to be traded and speculated upon in a deregulated system of floating exchange rates. With the benefit of a historian's hindsight, we can now see the 1970s as the critical turning point marking a break with the post-war system and a turn to the more unfettered forms of capitalism we find today. The developing crisis of capitalism in the early 1970s was further compounded in 1973-74 when OPEC--emboldened after witnessing U.S. defeat in Vietnam--proclaimed an oil embargo directed against American support for Israel and thereby dramatically increased the price of oil on the world market. By the mid-1970s, the stagnation of capitalism on a global scale had become evident to all and showed no signs of reversing course. As David Harvey has described those times:
Signs of a serious crisis of capital accumulation were everywhere apparent. Unemployment and inflation were both surging everywhere, ushering in a global phase of 'stagflation' that lasted throughout much of the 1970s. Fiscal crises of various states (Britain, for example, had to be bailed out by the IMF in 1975-76) resulted as tax revenues plunged and social expenditures soared. Keynesian policies were no longer working. (A Brief History of Neoliberalism, p. 12)
As Harvey and many others have since argued, the downturn of the 1970s presented not only a crisis (the graph above illuminates the declining rate of profit and increasing frequency of recession in the mid-late 1970s) but also an opportunity for the ruling classes to break with the compromises with organized labor and the regulatory state that had been instituted after World War II. In 1979, the richest 1% of Americans owned only approximately 20% of the nation's wealth and about 8% of its income--the lowest figures we've seen either before or since. As we know, that was about to change in dramatic fashion. Harvey describes the crisis facing the capitalist class at this juncture:
To have a stable share of an increasing pie is one thing. But when growth collapsed in the 1970s, when real interest rates went negative and paltry dividends and profits were the norm, then upper classes everywhere felt threatened. In the US the control of wealth (as opposed to income) by the top 1 per cent of the population had remained fairly stable throughout the twentieth century. But in the 1970s it plunged precipitously as asset values (stocks, property, savings) collapsed. The upper classes had to move decisively if they were to protect themselves from political and economic annihilation (A Brief History of Neoliberalism, p. 15)
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