[OPE-L:7682] Bello on Brenner

From: Rakesh Bhandari (rakeshb@stanford.edu)
Date: Tue Sep 17 2002 - 23:24:21 EDT

My OPE-L posts are set to postpone, but I think I can still post; so 
I am forwarding this to the list.

Review of Robert Brenner, The Boom and the Bubble: the US in the 
World Economy (London and New York: Verso, 2002).  303 pp.  $23 
US/$34 CAN.

By Walden Bello*

	Paul Krugman and Joseph Stiglitz may be celebrity economists, 
but it is a neo-Marxist economic historian whose earlier work focused 
on the origins of capitalism in late feudal Europe that has turned 
out the most compelling and comprehensive account of the crisis 
gripping contemporary global capitalism.
Brenner's World
	UCLA Professor Robert Brenner's recent work 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, globalized production 
and markets.  The picture he draws is not one of corporations 
denationalized by economic integration and states whose powers have 
been eroded, as in much current writing on globalization.  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 US economy is largely determined by this volatile relationship of 
competition with and dependence on the other global capitalist 
centers of Europe, Japan,  and-though to a much lesser degree--East 

The Argument
	In Brenner's view, the post-World War II era is divided into 
a period of dynamic global economic expansion from the late forties 
to the early seventies and one marked by persistent crises and uneven 
growth since then--a relatively dismal period broken only by the 
seven-year US boom in the 1990's.  Whereas in the first phase, the 
US, Europe, and Japan derived mutual benefit from global expansion, 
from the early seventies on, economic growth became largely a 
zero-sum game, where one center economy's advance was purchased with 
stagnation or recession in its neighbors.
	Since the seventies, the key problem for the center 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 center economy, but achieving it has run into opposition from 
established monopolies, organized labor, and powerful rival center 
	By delinking the dollar from the gold standard and 
effectively devaluing it, the Nixon administration hoped to steal a 
march on its rivals.  It was, however, left to the Reagan 
administration to decisively restore the American economy's edge, and 
this it did via three mechanisms:  breaking organized labor to hold 
down wages, maintaining high interest rates to attract capital to the 
US, and engineering the infamous "Plaza Accord" in 1985, which 
drastically 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 to eventually 
push both Japan and Germany to recession and lay the ground for 
greater US competitiveness and profitability in the late eighties and 
early nineties.
	The effect was, however, two-edged, for even as US 
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 US exports, which 
had served as a key engine of the US manufacturing recovery.  In an 
increasingly integrated global economy, Brenner points out, "the fact 
remains that while the US 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 US economy itself." Consequently, Washington under 
the Clinton administration engineered the "reverse Plaza Accord" in 
the mid-nineties, 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 US industry by Japan and Germany, so was the 
Clinton-Rubin reversal of the rising dollar a US-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 labor-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 US 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 layed down was being utilized.  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 carefully nursed by the low-interest-rate policy and "New 
Economy" talk of Fed Chairman Alan Greenspan.  Grounded in the 
illusion of future profitability of high-tech firms, the dot.com 
phenomenon extended the by about two years.  "Never before in US 
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 US 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 capitalization of 
non-financial corporations from $4.8 billion in 1994 to $15.6 
trillion in the first quarter of 2000 represented what Brenner 
characterizes 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 dollars 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 US economy to avoid a serious and 
prolonged downturn has been greatly eroded, though Brenner is 
cautious about writing it off.
Missing: Kondratieff and China
	The Brenner canvas of post-war expansion and decline has a 
remarkable affinity to the theory of the early Soviet-era economist 
Nikolai Kondratieff that capitalism moves forward in 50-60-year-long 
"waves" that ascend, crest, and descend into a deep trough.  Yet, 
surprisingly, The Boom and the Bubble does not contain a single 
reference to Kondratieff.
	This is intriguing.
	Perhaps Brenner is trying to distance himself from 
deterministic interpretations of Kondratieff, which have either 
posited the exploitation and exhaustion of new technologies as the 
central driver of long-wave activity or proclaimed the inevitability 
of a massive Great-Depression-like crisis.
	If this is the case, Brenner is right to be wary of sounding 
apocalyptic, given the resiliency which has enabled US-dominated 
global capitalism to surmount crises in the past five decades.  He 
fails, however, to discuss the factor that should serve as the 
greatest reason for caution: China.  China's potential role of 
serving as an exit strategy for the current crisis of overcapacity is 
underlined by the fact that it has absorbed an average of $45 billion 
in foreign capital since the late 1990's, making it by far the 
biggest recipient of foreign investment in the South.   China is, 
however, still focused on export-oriented production, making it a 
critical contributor to global overcapacity.  Should China turn 
towards a strategy of hitching capitalist growth principally to the 
expansion of domestic purchasing power, it could turn into the engine 
that would ward off, perhaps for a few decades, the specter of global 
stagnation.  Already China is the world's largest market for cellular 
phones, and troubled Ericsson's move to establish a manufacturing 
base there indicates that key players in the crisis-ridden telecoms 
sector see their salvation in China.
Missing: The Crisis of Reproduction
	But barring a sharp turn by China's leaders, the likelihood 
for a Kondratieff-like deflationary-if not depressive--phase is 
really great at this point.  One is not likely, however, to draw this 
grim conclusion from an analysis that hews narrowly, as Brenner's 
does, to developments at the level of production, to the dynamics of 
overproduction.  Focused at that level, the farthest Brenner can go 
is to state that "it is not easy to see what forces exist to push the 
economy forward."
	However, what is unique about the current conjuncture is the 
coming together of a crisis of production and a crisis of 
reproduction of the system, the latter referring to the recreation of 
the political and cultural context necessary for global capitalism to 
survive and thrive.  Global politics, the dynamics of cultural 
hegemony, and the interplay of key institutional actors are what is 
missing in Brenner's broad canvas, and these are the elements whose 
interaction will determine whether or not the consequences of the 
crisis of overcapacity can be contained.
	Despite capitalism's famed resiliency, containment of the 
crisis at the level of production is increasingly less an option 
owing to the current intersection of the crisis of overproduction 
with three related "superstructural" crises--a conjunction that 
either did not occur earlier in the post-World War II period or was 
marked by much less intensity.
	The "crisis of legitimacy" refers to the increasing inability 
of the neoliberal ideology that underpins today's global capitalism 
to persuade people of its viability as a system of production, 
exchange, and distribution.  The disaster wrought by structural 
adjustment in Africa and Latin America; the chain reaction of 
financial crises in Mexico, Asia, Brazil, Russia, Argentina, and Wall 
Street; and the massive combination of massive fraud and spectacular 
wiping out of investors' wealth have all eaten away at the 
credibility of the system.  The legitimacy of the transnational 
corporation-the engine of the system-is at its lowest in years, with 
over 70 per cent of Americans claiming even before Enron erupted that 
the corporation had too much power over their lives.  Also plunged 
into a crisis of credibility are those institutions that serve as 
capitalism's system of global economic governance--the International 
Monetary Fund, the World Bank, and the World Trade 
organization-making them the weak link in the system.
	Paralleling this crisis is mounting disaffection with 
Washington or Westminster-type liberal democracies that have served 
as a central stabilization mechanism for global capitalism in the 
South-a site that hardly makes an appearance in Brenner's stage yet 
has constantly been a critical point of vulnerability in the stable 
reproduction of the system globally.  In places like the Philippines, 
Pakistan, Brazil, and Venezuela, popular disillusionment with 
socially riven, economically stagnant electoral democracies oiled by 
money politics is rife among the lower classes and even the middle 
class, being in the case of Pakistan one of the factors that allowed 
General Musharraf to seize political power.
	But the crisis of legitimacy of liberal democracy is not 
limited to the South.  It is also shaking up the US, Japan, and 
Europe.    Beneath the post-September 11 poll popularity of George 
Bush continues to stir the widespread pre-September 11 feeling in the 
US electorate that owing to massive corporate influence, plutocracy 
is now the US system of government, not democracy.  Despite 
Washington's current posturing about punishing corporate fraud, the 
spectacular developments in Wall Street are perceived as a moral 
collapse in which both economic and political elites are implicated.
	In Japan, ineptitude is the key characteristic associated by 
citizens with the an interest-group ridden conservative democracy 
that has presided over a decade of stagnation and decline.
	While there is also much concern about corporate control of 
the political party finances in Europe, an even greater subverter of 
democratic legitimacy is the widespread anger over the 
non-transparent process that technocratic elites allied to corporate 
elites have, in the name of European integration, technocratic 
rationality, and market rationality, eroded the principle of 
subsidiarity by funneling effective political and economic 
decision-making upwards to techno-corporate structures, at the apex 
of which stands the European Commission, that are largely 
unaccountable to electorates on the ground.  Electoral revolts like 
those associated with Jean-Marie Le Pen in France and the 
assassinated Pim Fortuyn in the Netherlands are manifestations of 
deep alienation with technocratic democracy.
	Finally, there is the strategic crisis brought about by 
politico-military "overextension."  While there may be factions in 
Washington that are "military Keynesianism" as a way out of the 
current economic impasse, in fact the military equation at this 
juncture might be more of a potentially unravelling factor.  The 
recent expansion of US military influence into Afghanistan, the 
Philippines, South Asia, and Central Asia may communicate strength. 
Yet, despite all this movement, the US has not been able to 
consolidate victory anywhere, certainly not in Afghanistan where ere 
anarchy, and not a stable pro-US regime reigns.  Indeed, it is 
arguable that because of the massive disaffection they have created 
throughout the Muslim world, the US's political-military moves, 
including its pro-Israel policies, have worsened rather than improved 
the US's strategic situation in the Middle East.  This sense of being 
strapped in the rollercoaster of overextension is probably what 
accounts for the reluctance of some factions in the Pentagon to 
follow the Cheney-Rumsfeld-Wolfowitz lobby's push to invade Iraq. 
Meanwhile, even as Washington is obsessed with terrorism in the 
Middle East, political rebellions against neoliberalism are shaking 
up its Latin American backyard.
	Kondratieff's portrait of crisis was hardly deterministic. 
In his schema, it was the volatile interaction of production, 
political, and ideological crises that facilitated the descent of the 
long waves from crest to trough in the 1880's and again in the 
1930's.  The situation today, over 50 years after the beginning of 
the post-World War II economic ascent, is analogous.  Robert Brenner 
provides us with an insightful guide to the roots and dynamics of the 
crisis of the system of production, one that is more reliable than 
most of the treatises turned out by the hotshot deserters from the 
collapsing neoclassical paradigm.  But his superb analysis of the 
crisis of production needs to be supplemented with an exploration of 
the parallel crisis of the system of reproduction to bring home both 
the depth of capitalism's contemporary crisis and the volatility of 
the conjuncture.

*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 (London: Zed 
Press, 2002).

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