[OPE-L] Patrick Bond -- Crunch Time for U.S. Capitalism?

From: Gerald_A_Levy@MSN.COM
Date: Sun Dec 05 2004 - 11:17:08 EST

A survey of recent Marxist and heterodox perspectives. In
his next column, Bond promises to "unpack the statistics ...."

In solidarity, Jerry
ZNet Commentary
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 point¬.  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

1) Overly competitive corporations, which drive down  the rate of
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

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
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
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

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

(Patrick - pbond@s... - teaches political economy at the
University of KwaZulu-Natal and directs the Centre for Civil
Society - http://www.ukzn.ac.za/ccs)

This archive was generated by hypermail 2.1.5 : Fri Dec 24 2004 - 00:00:01 EST