By Ashley Smith
The Socialist Worker
March 7, 2011
A
new book provides a framework for understanding the worst economic
crisis since the Great Depression–and the opportunities for
revolutionaries, writes Ashley Smith.
IN LATE 2008, our rulers
panicked. With the spectacular crash of the investment bank Lehman
Brothers, they were seized with the fear of the possible collapse of the
global financial system. As George W. Bush’s Treasury Secretary Hank
Paulson confessed, “I’m worried about the world falling apart.”
But
today, the bankers and capitalists seem to have recovered their
gravity-defying hubris. Wall Street firms handed out record bonuses at
the start of the year–and big business cheerleader-in-chief Barak Obama
boasted in his State of the Union Address, “We are poised for progress.
Two years after the worst recession most of us have ever know, the
stock market has come roaring back. Corporate profits are up. The
economy is growing again.”
Don’t believe the hype. The crisis has
not ended, but mutated. The governments of the world spent trillions of
dollars to bail out banks and corporations, essentially transferring
their bad debts and losses onto government ledgers. In some countries,
this caused a sovereign debt crisis that could lead to defaulting on
their debt.
To get themselves out of this trap and balance their
budgets, governments everywhere have launched massive austerity
programs. They are slashing public workers’ wages and benefits, gutting
social programs, raising the retirement age to lower the cost of social
security, and scapegoating the oppressed to divide and conquer any
opposition. The only success story among the world’s major economies,
China, is plagued with overcapacity, speculative bubbles on the stock
market, and rampant inflation.
Review: Books
David McNally, Global Slump: The Economics and Politics of Crisis and Resistance. PM Press, 2011, 230 pages, $17.
Canadian socialist David McNally’s new book Global Slump: The Economics and Politics of Crisis and Resistance, brilliantly explains the roots and nature of this new epoch of crisis, capitalist austerity and working-class resistance.
In
an accessible and witty style, he uses Karl Marx’s theory of crisis to
explain the arc of world capitalism from the long boom after the Second
World War to today’s slump. He also develops a perspective that can
guide the revolutionary socialist left to build forces in the thick of
emerging struggles for reform and eventual revolution.
– – – – – – – – – – – – – – – –
McNALLY
ARGUES that booms and crises are rooted in the dynamics of competitive
exploitation at the heart of the system. Capitalists, in order to
out-compete their rivals, invest in plant, machinery and technology to
increase productivity so workers make more products that can be sold at a
cheaper price. This generates a boom for a period of time, but soon,
rivals catch up. Worse, since they are investing more in technology than
in living labor, which is the source of profit, their rate of profit
goes down.
Crises then break out. Corporations have built too many
factories, producing too many products that they can’t be sold at a high
enough rate of return. Such crises of overproduction and declining
profit rates can only be overcome when capital can rid itself of some of
the overaccumulation–by cheapening the cost of plant and machinery and
driving down the cost of living labor. When that’s accomplished, the
cycle repeats again.
In ageing capitalism, however, crises take
on a different character. To restore growth, the actions taken during
crises must be more destructive to clear out space for renewed
expansion. For example, it took the Second World War to restore growth
after the Great Depression.
But fearful of the gravity of such
deep crises, national states now step in to protect companies from
failing, thus preventing the destruction of overaccumulated capital.
“The result,” McNally argues, “is a stretching out of the crisis–by
making it longer, if less severe. In short, by inhibiting the
destruction of capital, recessions are made less brutal–but also less
effective.”
Based on this theory, McNally explains how the
postwar boom turned into crisis in the 1970s. The Second World War had
laid waste to Germany and Japan, as well as large parts of Europe.
Therefore, capitalism was able to sustain a prolonged boom from the end
of the war up to the early 1970s. By then, the rise of Japan and Germany
as economic rivals to the U.S. triggered another crisis of
overproduction and declining rates of profit.
All the governments
responded with policies known as Keynesian that typically revolve
around increased government spending to stimulate demand and investment.
Keynesians, according to McNally, wrongly think that crises are rooted
in capitalist’s psychological fear of inadequate returns. If state
investment is substituted for them, then it can trigger another
expansion in the economy.
The Keynesians are wrong
theoretically–crises are rooted in the system itself, not in the
bosses’ mindset. The proof was in what happened in the 1970s–state
spending merely triggered an inflationary spiral and poor growth rates,
described at the time as “stagflation.”
To get out of a massive
global crisis, the ruling classes, especially in the U.S., turned to
quite different policies, which came to be known by the term
“neoliberalism.” This meant letting the free market rip, by implementing
deregulation and privatization, and shredding social welfare system.
The face of neoliberalism on a world scale was globalization, where more
powerful countries battered their way into markets in the less
developed world.
McNally argues that ruling classes used three
strategies to cheapen capital and labor in this era. First, they shut
down factories and turned to lean production techniques that lowered the
cost of plant and machinery. Second, they smashed unions in the
advanced capitalist world. Third, carrying out what Marx called
“primitive accumulation,” they dispossessed peasants in the developing
world, driving them into the cities as cheap labor.
As a result
of these measures, McNally argues, the capitalist class was able to
overcome the crisis of the 1970s and trigger a period of expansion from
the early 1980s until 2007 in the advanced capitalist world and sections
of developing world, especially around China in Northeast Asia. The
neoliberal boom tripled the size of the world economy.
McNally’s
argument is an important correction to Robert Brenner, Alex Callinicos
and the late Chris Harman, who have claimed that the world economy has
suffered a long downturn since the 1970s. These authors argue that
capitalism in the neoliberal period pales in comparison to the
robustness of the postwar boom.
But as McNally shows, the postwar
expansion was exceptional in the history of capitalism, and when you
instead compare the neoliberal period to other periods of capitalist
expansion, it matches their rates of growth and profitability.
McNally
also counters other radicals who suggest that the neoliberal expansion
was merely the product of speculative bubbles or the casino economy on
Wall Street created by what economics call financialization.
He
also rejects Marxists like Gerard Dumenil and Dominique Levy, who
believe that finance capital effectively carried out a coup to take
control of the state and thus deregulate the free market in its
interests.
The problem with such conceptions is that they can
lead their supporters to tail Keynesianism, with its case that there is
no systemic cause of capitalist crisis, and that financial regulation
can solve the current crisis.
Instead, McNally shows how
financialization is rooted in the problems of the system itself. It was
an unintended consequence of the 1970s crisis, it enabled the neoliberal
expansion and it then exacerbated the crisis.
How? From 1946 to
1971, countries backed their currencies with gold. But as the U.S.
increasingly imported products from abroad, its competitors built up
enormous dollar reserves that the U.S. could no longer back with its own
gold. Nixon therefore abandoned the gold standard, allowing currencies
to change in value, or “float,” against one another. From this point on,
finance capital found ways to speculate on currency movements.
Deregulation of financial markets in the 1980s and ’90s was a matter of
government policy catching up to reality, rather than policy causing the
speculation.
As a result, finance capital became the predominant
section of American capital, garnering 41 percent of U.S. profits in
2007. By then, these profits were no longer underpinned by growth in the
real economy.
THE NEOLIBERAL boom came with enormous social
costs. The capitalist class impoverished workers in the advanced
capitalist world. “In the U.S.,” McNally writes, “real wages were 15
percent lower by 1993 than they had been in 1978.”
McNally pays
particular attention to racist dynamics of this class war on workers. In
the U.S., he tracks how, as the U.S. cut social programs, it turned to
prisons to jail its racialized “surplus” population.
Finance
capital turned to what he calls “predatory inclusion” by pushing credit
cards not only on workers as a whole, but particularly on impoverished
people of color. Banks abandoned racist practices of redlining and
entrapped people of color in sub-prime loans.
In the Global
South, the predatory nature of the neoliberal boom has been even more
dramatic. McNally shows how the U.S., through the IMF, imposed
structural adjustment policies on indebted countries, privatizing state
industry, gutting the welfare state and opening them up to multinational
capital.
Neoliberal agricultural policies opened countries to
imperialist agribusiness, whose subsidized products undercut local
agriculture, driving peasants off the land to become a source of cheap
labor in their own countries, or abroad as migrant workers, where they
suffer from xenophobia and racial oppression.
The neoliberal boom
fell prey to the classic contradictions of capitalism and turned into a
bust in 2007. By the mid-1990s, the boom had produced overcapacity and
an orgy of speculation centered in one of the new areas of growth–Asia.
The crisis in Asia starting in 1997 was a sign that the neoliberal boom
was coming to an end.
Since then, McNally argues, the advanced
capitalist world engaged in increased financial speculation, first in
high-tech and then real estate. Growth in the real economy was
restricted to China, Northeast Asia and countries like Brazil, which
mainly supplied commodities to the Asian boom.
But financial
speculation could only delay the day of reckoning until 2007, when the
combination of overproduction and declining rates of profits popped the
mortgage bubble and threatened to bring down the world banking system.
While
national states have been able to bail out the financial system and
prevent collapse, they have not been able to restore growth. Instead,
because they saved the “too-big-to-fail” corporations and banks, they
have been unable to clear out the overaccumulated capital and restore
the rate of profit.
The world economy is thus mired in what
McNally calls a slump. “Rather than describing a single crisis,” he
writes, “the term is meant to capture a whole period of interconnected
crises–the bursting of a 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.”
Until capital
is able rid itself of the overaccumulation, cheapen the cost of capital
goods again, and drive down the cost of labor even further, it won’t be
able to generate another boom.
McNally argues that capital and their states are determined to find a way out of the slump through austerity. “Our rulers,” he writes, “hope to soften us up for ‘a decade of pain’–a period of high unemployment, falling incomes and huge cuts to health care, education and social welfare programs.”
What
little recovery we have now is a result of this class war. As McNally
reformulates a quip by Lawrence Summers, “We have statistical recovery
because we have a human recession.”
AT THE same time, however,
the crisis is producing the hope of resistance. McNally recounts some of
the highlights of class fightback, from the Republic Windows and Doors
factory occupation in Chicago, to the U.S. immigrant rights movement, to
the heroic struggles in Bolivia, to the teachers’ revolt in Oaxaca,
Mexico, the victorious general strike in Guadeloupe and Martinique, and
the wave of strikes in Europe.
To this, we can now add the
revolutions that have erupted in North Africa and the Middle East
against U.S.-backed tyrants and their neoliberal policies that have
impoverished the working class and dispossessed the peasantry. And now,
in the U.S. itself, the uprising against union-busting and austerity in
Wisconsin, and its echoes in protests around the country.
McNally
calls for socialists to throw themselves into these struggles. He
emphasizes how neoliberalism has undermined, in a term adopted from
Canadian socialist Alan Sears, “organized structures of dissent.” The
ruling class has smashed up unions and broken apart mass organizations
of the oppressed, while benefiting from the NGO-ization of much of the
left.
The task of socialists therefore is to help build struggles
for reform, forge new organizations to sustain resistance and–in the
middle of that process–organize new revolutionary socialist parties
that fight for a whole new society that ends the reign of capital and
establishes workers’ democracy.
One significant missing element
in this otherwise brilliant book is the question of the relation of the
economy to world imperialism–the competition between capitalist states
for the division and redivision of the world system. This absence
weakens McNally’s explanation of the postwar boom. He argues that the
great boom was largely the result of the destruction wrought by the
Second World War. That of course was a factor, but is insufficient to
explain the persistence and length of the boom.
A host of
Marxists, including British socialists Tony Cliff, Michael Kidron and
Chris Harman, developed an explanation–the permanent arms economy–that
showed how military competition between the U.S. and state capitalist
Russia was at the root of the boom.
During the Cold War, both
states diverted surplus into arms production that would have otherwise
been ploughed back into investment in plant and machinery for producing
capital and consumer goods. As a result, the world system averted the
problem of overaccumulation and the tendency of the rate of profit to
fall up until the early 1970s. By then, states like Germany and Japan,
which were under the umbrella of the U.S. and did not spend much on
military production, had caught up with the U.S. by investing in plant
and machinery, generating a classic crisis of overaccumulation and
declining profit rates.
McNally also doesn’t take the impact of
the slump on the dynamics of imperialism in the current period. He does
refer to increased competition between countries as they attempt to
export their way out of the crisis, but never develops the point. Other
Marxists like Alex Callinicos and Joel Geier have pointed out that the
crisis is likely to sharpen the antagonisms between the world’s
capitalist states–most obviously, the U.S. and its main rising
competitor China.
Some authors like Dilip Hiro contend we are
witnessing an emerging multipolar world order. We have already seen the
failure of the main capitalist states to coordinate economic policy as
they have turned to beggar-thy-neighbor policies to protect their own
capital. Add to this increasing competition over resources, especially
oil, and we can see the prospects of increased inter-imperial conflict
in the system.
Besides this missing discussion of imperialism,
McNally has written an invaluable book for a new generation of radicals
and Marxists looking to understand the system, why it doesn’t work and
how we can transform it. Everyone should buy, read, and discuss this
book as part of rebuilding a fighting socialist left around the world
today.
