[OPE-L] 1973 Redux?

From: glevy@PRATT.EDU
Date: Sun May 07 2006 - 08:19:31 EDT

This article was just published on Loren Goldner's web site (url at
end of paper). "Critique and comment are invited", he wrote.  How
is the current period similar and dis-similar from the 1970s?  Do
you agree with his analysis of the period?

In solidarity, Jerry


1973 Redux?: Continuity and Discontinuity in the Decline of
Dollar-Centered World Accumulation

By Loren Goldner

Before entering into the class dynamic of the current world economic
situation, let us consider the manifestations of crisis on the visible
surface, which are real enough.

The world is still in the early phase of an inflationary blow-out centered
on the indebted "U.S. consumer" as the "locomotive" of the world economy.

Every indicator in the world economy today points to a reflation-driven
boom that can ultimately be traced back to credit expansion in the U.S.,
generalized to the world by the unbelievable levels of U.S.
balance-of-payments deficits. When this world-wide Ponzi scheme unravels,
the Asian export giants (Japan, Korea, China) will go into the tank with
the U.S.,
as will the Third World raw materials producers (e.g. Latin America)
currently enjoying a boom from exports to Asia, above all China.

The parallels with the  the early 1970's, just prior to the 1973-1979
inflationary surge, are uncanny:

-the U.S. bogged down in a losing, unpopular war (Vietnam then, Iraq now)

-a scandal-ridden, foundering Republican administration (Nixon then, Bush

-all commodity prices headed skyward, led by gold and oil

-a lingering "boom"  mentality in the U.S. mainstream (the Dow Jones
Industrial Average hitting finally regaining the peak levels of early
2000, just before the dot.com crash; in fact, the U.S. stock market has
gone exactly nowhere for six years, and has gone backward when inflation
is factored in.)

-unbelievable run-up of consumer (and all kinds of) debt in the U.S.

-a faltering dollar and growing uneasiness of the U.S.'s international
creditors, who have made the above run-up of debt possible.

These parallels are not mere empirical coincidence, but point to an
"invariant" in world accumulation since the late 1950's when the worldwide
"dollar standard" first began to erode. By definition, every U.S.
"expansion" since 1958 has brought about a decline in America's
international position, and has only been possible through such a decline.
(This is what Michael Hudson, in his excellent book Super-Imperialism,
calls "managing empire through bankruptcy". )

A brief look at basic economic realities shows this erosion has continued
unabated. As of the end of 2005, there was  $33 trillion in outstanding
debt (Federal, state, local, corporate, personal) in the U.S. economy,
three times GDP. (No one knows how much is tied up in the international
hedge funds and derivatives, and the estimated $7-8 trillion in Federal
debt does not include trillions more in commitments for Social Security
and Medicare.)  The state (including Federal, state and local levels)
consumes 40% of GDP. The net U.S. debt abroad is between $3 and $4
trillion (at least $11 trillion held by foreigners minus $8 trillion in
U.S. assets abroad) i.e. it is comparable (at 30% of GDP) to the situation
of crisis-ridden Third World countries.  That amount is growing by $800
billion a year at current rates. Ominously, in late 2005, foreign income
from investment in the U.S. exceeded U.S. income from overseas investment
(the one remaining strong pillar of the U.S. international position) for
the first time. Foreigners hold an increasing percent of U.S. government
debt; the four major Asian central banks (Japan, China, South Korea,
Taiwan) alone hold nearly $2 trillion.  It is the Federal government's
debt, and hence these foreign loans, which make possible the reflationary
actions of the Federal Reserve Bank. Since the early 1980's, a kind of
"financial arbitrage capitalism", in which investment in increasingly
focused on different possible financial instruments instead of production,
has been put in place.  Thus the old conceptualization of the role of the
banking system and the Fed's (apparent) ability to expand and contract
credit availability through it,  is superseded;  increasing amounts of
"virtual" credit are created by "securitized finance" independent of
banks. One must also consider the government-linked entities (Freddie Mac,
Fannie Mae), which backed the reflation of mortgages of the past 4 years,
leading to an incredible housing bubble. This entire edifice has depended
on 1) low inflation in the U.S., as higher inflation would scare off
foreign lenders; 2) the willingness of U.S,  "consumers" to go more and
more heavily into debt (with debt service now taking 14% of incomes, as
opposed to 11% a few years ago) 3) the willingness and ability and above
all the need of foreigners to go on re-lending U.S. balance-of-payments
deficits back to the U.S., allowing increasingly indebted U.S. "consumers"
to be the "locomotive" of the world economy.

Constantly relending money to an ever-more indebted borrower to delay the
latter's bankruptcy is the very definition of a "Ponzi scheme", and that
is what world accumulation has come to.

There are of course important discontinuities with the early 1970's.
The U.S. strategy of a "global leveraged buyout" of previously protected
or semi-protected regions (the ex-Soviet bloc, China, India, East Asia,
Europe) is much more advanced, bringing more than two billion people into
a global work force far less sheltered behind previous national barriers
to looting. This reality is having a major downward pull on wages, as
outsourcing from the U.S. and Europe to these new zones (China, India,
Eastern Europe) accelerates.

The early 1970's was the final phase of the last worldwide working-class
upsurge, against which the entire post-1973 period must be understood as a
conscious counter-offensive. It took the worldwide working-class movement
nearly three decades to learn how to struggle offensively on the new
terrain of neo-liberalism, and the new wave of struggles can be dated from
the 1997 UPS strike in the U.S. and the Seattle anti-globalization riot of
1999, against which Sept. 11 marked a major turning point in capitalist,
above all American counter-strategy.  More recently, this new
recomposition of the working class can be seen in a palpable strike wave
in western Europe or, most recently,  the May 1 mobilization of the Latino
working class in the U.S. over immigrant rights.

It is true that Chinese exports are exerting a deflationary drag globally,
which is different from the 1970's. But wages are rapidly rising in
Shenzhen and in Guandong province to attract workers, and Bangladesh has
now edged out China as the low-wage champion of the Third World. Further,
the relentless boom in China is pulling up all commodity prices by its
seemingly bottomless demand for raw materials, now spreading the boom to
Latin America, and to African oil producers.

Last but not least, one must not forget geopolitical dislocation, led by
the brewing Iran crisis, one of several dimensions that takes the
preceding out of purely economic considerations.

One plausible counter-scenario to the preceding is the downward turn of
the U.S. housing market, now underway, plunges the U.S. (and, by a
fall-off of U.S. demand, the world) into a deflationary crash faster than
otherwise anticipate. In my opinion, the Federal Reserve Bank will not
allow this to happen without first pulling out all stops on reflation with
the famous "helicopter money" theorized by its new chairman, Benjamin
Bernanke. True, the Fed is hardly omnipotent and there would be a huge run
out of the dollar, forcing a rapid rise in U.S. interest rates, which
would in turn further act to kill off the housing bubble. For the moment,
all the capitalists can do is continue expanding the debt pyramid, and
intensify their attacks on the working class.

What is a "global leveraged buyout"? Accumulation is threatened because
the totality of capitalist paper claims to wealth (profit, interest and
ground rent), starting with the $3-4 trillion "nomad dollars" held outside
the U.S.,  exceed the surplus value available for their valorization. This
excess of fictitious claims is, as sketched above, the result of decades
of debt pyramiding aimed at delaying a deflationary crisis, and can be
maintained only by reducing the global wage and through "primitive
accumulation" (non-reproduction or non-exchange) from incorporating petty
producers from Third World agriculture into the global working class, the
running down of capital plant and infrastructure, and the looting of
nature. It is quite different from earlier, "normal" capitalist expansions
in which these claims grow alongside the expanded reproduction of society.
Today, capitalist paper expands and social reproduction contracts.

Global leveraged buyout has meant, since 1973, opening national or
regional zones of assets to the U.S.-centered credit bubble, much in the
same way that Germany's military expansion after 1938 aimed at  propping
up the 1933-1938 credit pyramid created by Hjalmar Schacht's "Mefo bill"
(Mefowechsel, issued by the Metallforschungsgesellschaft which financed
German rearmament)  .In the 1997-98 Asian financial crisis, for example,
American capital, through the International Monetary Fund (IMF) opened
relatively closed Asian economies such as Korea to "vulture capitalist"
buyouts of greatly discounted real assets which were later restructured
and resold at a significant profit. The opening of the ex-Soviet bloc,
China and India presents the global leveraged buyout with tremendous
possibilities of exploiting highly-educated, cheap labor power and natural
resources which might keep this process going for years. Behind these
empirical manifestations we see the classic cycle of valorization-
devalorization- revalorization described in vol. III of Marx's Capital.

Two major powers, the European Union and China,  represent obstacles to
America's strategy of global leveraged buyout. Both are vulnerable to
America's current dominance of world petroleum resources, and are
increasingly challenging the U.S. in the worldwide race to control them,
from disagreements over Iran to the competition for new oil sources in

Europe is far from being able to challenge the U.S. Because capital is not
merely an economic and social relationship but also a political and
military one, history has shown that monetary and economic union without
political unification is unviable, and Europe's political unification is
currently dead in the water.

Consider the euro's challenge to the dollar as an international reserve
currency. While Europe's net global position, both in trade and finance,
has none of the problems of  the foreign indebtedness of the U.S., a
worldwide flight from the dollar would strongly revalue the euro and weigh
heavily on Europe's international competitive position. (This already
alarmed the European capitalists with the post-2002 rise of the euro to
.80 to the dollar, a 40% revaluation in 18 months.) But this problem would
pale next to a major Mideast crisis that threatened Europe's access to
oil, to say nothing of a military confrontation (of which the Yugoslav
wars were an excellent foretaste) that would reveal Europe's profound
disarray in foreign and military policy.

China is in fact the real problem for U.S. world hegemony, as recent CIA
reports have frankly stated. Sometimes it seems as if all U.S. foreign
policy since at least the late 1970's (e.g. Afghanistan) has been aimed at
controlling the periphery of Russia and China, and since the collapse of
the Soviet bloc, the encirclement of China. The emergence of an East Asian
capitalist bloc capable of replacing the U.S. as the world hegemon is the
nightmare of American capital. China, in contrast to the European Union,
is still too closed for the capitalists' satisfaction, and "global
leveraged buyout" there is still in its early stages. Asian nationalisms
(China, Korea, Japan) as well as the lingering Cold War questions (Taiwan,
the division of Korea) are still major obstacles to anything resembling an
"Asian Union", but the U.S. is using every means in its power to stoke
these fires and prevent such a union from forming.

In the currently accelerating world reflation, Germany and Japan, the two
previous "locomotives" of Europe and East Asia respectively, recently
eclipsed by the creation of the euro and the rise of China, are showing
the highest "capitalist confidence" in 15 years. But both countries are
highly vulnerable to the rising international interest rates necessary to
control the return of inflation, as well as to the currency revaluation
mentioned previously. In early May, the European Central Bank avoided
raising interest rates both to prevent such a revaluation and to avoid
choking off signs of recovery, particularly in Germany.

Both countries (and particularly Japan) also show signs of the
"demographic crisis" touted in the capitalist press around the incipient
pension bankruptcy. The recent capitalist hue and cry over this crisis
could not be more hypocritical. Within a capitalist framework, this crisis
only exists because the restructuring of the past 30 years has narrowed
the "active population" (i.e. the population capable of producing surplus
value) to people between the ages of 25 and 50. France, for example, has
in recent years seen the gamut of excluded or potentially excluded groups
struggle against this downsizing: public employees went into the streets
over pensions (May-June 2003), immigrant youth rioted over their total
exclusion and criminalization (November 2005) and most recently students
struck for two months (March-April 2006) to prevent the gutting of labor
protection for young people. The retired, the unemployable and the
soon-to-be-exploited have all moved, while the surplus-value producing
population, the group with the greatest power to resist capital,  has
remained largely immobile.

The "demographic crisis" exists only because of the demands of capitalist
valorization. It expresses the fact that productive forces exist today
which could enable a higher form of society to both greatly decrease
socially-necessary labor and to transform the remaining necessary labor
into the

".development of the rich individuality which is as all-sided in its
production as in its consumption, and whose labor also therefore no
longers appears as labor, but as the full development of activity itself."
(Marx, Grundisse)

Further, the "demographic crisis" in Europe and Japan reflects the actual
contraction of population (Japan has negative population growth in 2005,
Germany has been close to zero growth) because of the greatly increased
cost, in capitalist terms,  of reproducing the next generation.

Finally, on a world scale, there is no "demographic crisis" whatsoever. It
is only a crisis because of the persistence of value production and of the
nation-state. The crisis in the advanced capitalist sector since the early
1970's has produced an aging population-for-capital, and the same crisis
in the less-developed world has produced a huge young population (as among
poor peasants, where a large family is indispensable for the elderly where
no pensions exist). These complementary imbalances are only two signs of
the same coin, the crisis of capital's recomposition for a possible new

This brings us to the final dimension of the analysis. Why has capital,
since the early 1970's, had to resort to such fictitious development and
launch such (at least in the U.S.) a class war in which only one side was

The early 1970's crisis erupted, as mentioned, at the end of a period of
rising working-class insurgency. Underneath all appearances, this crisis
expressed the superannuation of value as a form through which society
could reproduce itself. In the proletarian eruption in Europe and the U.S.
from the mid-1960's (wildcat movement in the U.S. and the U.K.) to the
mid-1970's (Italy, Portugal, Spain) by way of May 1968 in France, the
working class (as well as other social strata) were groping toward the
"full development of activity itself" made possible and necessary by the
previous development of capitalism. The capitalists, on the other hand,
needed to oversee a general devalorization of capital and of labor power
such that a new expansion could begin on a profitable basis. In contrast
to the first phase of capitalist history (1815-1914) this could not occur
through a rapid deflation, depression and recovery. Global society was TOO
productive for the value form, and hence not merely capitalist paper but
actual productive forces, and above all labor power, had to be destroyed
and rolled back, as had occurred in the 1914-1945 transition from
British-centered to America-centered world accumulation. The emergence of
the "neo-liberal" phase of capitalism in the late 1970's was the attempt
to protect the capitalist titles to profit, interest and ground rent from
excessive devalorization through the global "Ponzi scheme" described
previously, and at the same time to oversee a "slow-motion crash landing"
in the grinding down of working-class living standards globally.

As a result, the world today is poised between the U.S. and East Asian
centered phases of capitalist expansion. But the latter can only triumph
by a far greater, more violent shakeout than has occurred to date. And
like the early years of the last shakeout (1917-1921), before the new
American dominance was in place, this is creating a new opening for the
"old mole", in which the old slogan "socialism or barbarism" will not be a
romantic battle cry, but the most rigorous necessity.

This text is from the Break Their Haughty Power web site

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