After Five Years: Report Card on Crisis Capitalism

Written By: - Date published: 2:48 pm, July 11th, 2012 - 27 comments
Categories: capitalism, debt / deficit, International - Tags: , ,

 

After Five Years: Report Card on Crisis Capitalism

Monday, 09 July 2012
By Richard D Wolff

After five years of crisis – with no end in sight – it’s time to evaluate what happened, why and what needs to be done. One key cause of this crisis is the class structure of capitalist enterprises. I stress that because most treatments miss it. By class structure, I mean enterprises’ internal organization pitting workers against corporate boards of directors and major shareholders. Those boards seek first to maximize corporate profits and growth. That means maximizing the difference between the value they get from workers’ labor and the value of the wages paid to workers. Those boards also decide how to use that difference (“surplus value”) to secure the corporation’s reproduction and growth. The major shareholders and the directors they select make all basic corporate decisions: what, how and where to produce and how to spend the surplus value (on executive pay hikes and bonuses, outsourcing production, buying politicians etc.) Workers (the majority) live with the results of decisions made by a tiny minority (shareholders and directors). Workers are excluded from participating in those decisions: a lesson in capitalist democracy.

US capitalism changed in the 1970s. The prior century of labor shortages had required real wage increases every decade (to bring in immigrant workers). In the 1970s, many capitalists installed labor-saving computers, while others relocated production to lower-wage countries. Demand for US laborers fell. Simultaneously, women moved massively into wage work as did new immigrants from Latin America. The supply of laborers in the US rose. Capitalists no longer needed to raise real wages, so they stopped doing so. Since the 1970s, what capitalists paid workers stayed the same. Meanwhile, computers helped labor productivity to rise: what workers produced for capitalists to sell kept increasing. Surplus value (and profits), therefore, soared (stock market boom, rising financial sector etc.) while the wage portion of national product/income fell.

By making these changes, US capitalism provoked a classic contradiction/problem for itself. It paid insufficient wages to enable workers to purchase growing capitalist output. The solution, led by the fast-growing financial sector, was two-fold. First, it cycled rising corporate profits partly into major new consumer lending (mortgages; car loans; credit cards; and, later, student loans). Rising consumer debt sustained growing mass consumption despite stagnant wages, and so postponed an otherwise certain economic downturn. Second, financiers promoted profitable new investments for corporations and the rich (securities based on consumer debts and credit default swaps that insured such securities). Financial corporations displaced non-financial corporations as dominant in the US economy. Financial transactions based on consumer debts built on stagnant wages (the ultimate means to service that debt): those fruits of capitalist decisions brought the “2007 crash.” (What is widely known as the crash of 2008 technically began in the fourth quarter of 2007.) The crisis nightmare began: a cyclical downturn coupled to long-run decline in workers’ purchasing power.

As the crisis deepened, capitalists and mainstream economists insisted that it was “only a financial problem” – credit had frozen because banks did not trust one another and stopped lending. The credit freeze would be “easily managed” by federal bailouts of financial and a few other corporations (e.g. GM) deemed “too big to fail.” Dutiful politicians funded those bailouts with massive government borrowing from (rather than taxing) the large cash hoards accumulating in the hands of banks, large corporations and the rich. They hoarded, they explained, because lending to or investing in the economy they had crashed was “too risky.” Instead of making their hoards available to individuals and businesses that might have revived the economy, financial capitalists lent them to the government to bail out those same capitalists: a lesson in capitalist efficiency.
As government debts soared to bail out global capitalism, financial capitalists began to worry about over-indebted governments. Those governments’ citizens – especially where traditions of anti-capitalist criticism were strong, as in Greece – might balk at servicing debts that resulted from capitalism’s failures, not theirs. So, financial capitalists demanded ever-higher interest for lending to such governments. They also demanded the imposition of austerity programs. Public employment and services were to be slashed. The money thereby saved would instead guarantee interest and repayment of those governments’ debts. Major leaders dared not suggest – let alone raise – significant taxes on corporations and the rich as an alternative to government borrowing or austerity.

In this way, the costs of economic crisis and bailouts were shifted onto national populations via unemployment, home foreclosures and austerity: a lesson in capitalist justice.

Lets summarize: (1) capitalists decided in the 1970s to computerize and increasingly relocate production overseas; (2) that enabled them to impose wage stagnation and greatly increase surpluses and profits; (3) financial capitalists lent to consumers and built a speculative bubble based on consumer debt; (4) when rising consumer debts exceeded what stagnant wages could afford, the system crashed; (5) capitalists got trillion-dollar bailouts while lending government the money for those bailouts; and (6) now, capitalists make entire populations pay for the crisis and bailouts by directing politicians to impose austerity. This capitalist system not only fails to “deliver the goods,” it dumps ever-more-outrageous bads.

Nor are solutions available in New Deal-type regulations and Keynesian deficit spending as promoted by economists Paul Krugman and Robert Reich. While the New Deal reduced capitalist excess and eased mass suffering (neither happens now), it never overcame the 1930s depression (World War II did). Capitalism’s costly cycles were never stopped (eleven downturns occurred after 1941 and before the 2007 crash). Moreover, FDR’s insufficient New Deal regulations and taxes on corporations and the rich were undone after 1945 as capitalists funded the politicians, parties, lobbyists and think tanks that shaped legislation and public opinion. A new New Deal now (green or otherwise) would have poorer and shorter-lived economic results. Capitalists now have greater financial resources and decades of experience in blocking and undoing limits on their wealth and freedom.

After five years of crisis, it has become clear that any real solution for capitalist crisis must include changing the class structure of capitalist enterprises and thereby their directors’ decisions. Those are twin obstacles to ending capitalism’s repeated crises and their immense social costs. The necessary change would reorganize the production of goods and services. Instead of undemocratic, hierarchical capitalist corporations, workers would collectively become their own board of directors and make all the key decisions themselves. Had workers’ self-directed enterprises replaced capitalist enterprises in the 1970s, real wages would not have stopped rising thereafter; jobs would not have moved out of the US; a consumer credit explosion would not have happened – and so on.

Workers’ self-directed enterprises would have their problems, too. We cannot exchange an inadequate capitalism for some pretend paradise. America can, however, do better than a capitalism whose failures were already many and deep even before exploding into this latest severe crisis. We ought finally to dare to think so, say so, make the needed changes and move forward.

Copyright, Truthout.org. Reprinted with permission, original here.

27 comments on “After Five Years: Report Card on Crisis Capitalism”

  1. Carol 1

    We ought finally to dare to think so, say so, make the needed changes and move forward.
    But how ruthless will the wealthy and their powerful political allies be in maintaining their privilege.

    I find it very scary that the UK government is going to place surface-to-air missiles on top of residential rooftops – and the courts are allowing it.

    http://www.independent.co.uk/news/uk/crime/judge-rejects-bid-to-stop-olympic-rooftop-missiles-7932339.html

    If they are willing to put ordinary people at risk in their own homes, what else will they be willing to do?

    • Shane Gallagher 1.1

      My aunt used to teach history (we’re Irish) – and I used to ask her when I was a child how could the English do all those terrible things to the people of of all the countries they conquered. She told me that whatever they did to foreigners they had originally done to their own people. The English elites care little for the masses.

      • Draco T Bastard 1.1.1

        The elites never care for the masses. It is this fact that people keep forgetting that gets National voted back in. Unfortunately, there isn’t a political party out there that will challenge the status quo, to make needed changes to our society that will remove the power from the capitalists.

  2. joe90 2

    Wolff talks about the costs of capitalism’s crisis: Who Will Pay?

  3. Tiger Mountain 3

    The politics that dare not speak its name…

    “Truthout” is quite well resourced going on the www site and fairly describes the problems of the shitpile we are all in but the analysis (on the basis of the article above) fails in the end. Some sort of hybrid worker run capitalism is not going to cut it. The holy grail for many social democrats has always been getting bosses to behave themselves in a cross class “win–win scenario”. But they only ever do ‘behave’ for brief periods. A more radical solution is ultimately required.

    There is a whole superstructure beyond the capitalist workplace itself–state forces (cops, army and spooks), surveillence mechanisms, finance capital (who substantially caused the 2008 crash), media, education, bureaucratic and religious systems that all help keep most citizens in line.

    Socialism is at good odds for a 21st century comeback is all I can say.

    • Correct, Tiger Mountain.
      The crisis wasnt caused by falling wages and consumption but a falling rate of profit due to insufficient surplus value over wage and other capital costs.
      Its fundamental to capitalism and doesnt rest on who owns corporations.
      Worker owned corporates that continued to pay high wages to keep consumption up could not avoid a falling rate of profit.
      This is a utopian solution to a misunderstood problem.
      A good critique of underconsumptionist theories of crisis is here.

      • Tiger Mountain 3.1.1

        I am no financial genius Dave but have tried to master the basics since adopting a class analysis and materialist political philosophy some years back.

        The tendency for the rate of profit to fall, one of capitalism’s more significant inbuilt flaws, has 99.99% of bourgeois economists in denial and running for cover. Ask anyone, say at the NZCTU-Conway, Rosenberg and they all still fudge on this vital matter.

  4. ad 4

    Maybe I’m too practical, but I’m just not sure how this spectacularly sweeping set of generalisations and glorious abstract nouns helps anyone. I can enjoy a good evening of Left Melancholy drinking too much on a Sunday, but seriously. The writer proposes no role for the public sector, nor any nuance for ethnicity or culture or the environment, and further sweeps all agency off the table stating and that no New Deal program past or since would work. All we have to do is another Battleship Potemkin and all will be well.

    Whereas on other parts of this site, more complex and interesting contests of jobs and assets and rights and communities and the public sector are occurring right here, in New Zealand of all places.

    I mean, I just love reading AdBusters, but I am getting heartily sick of bad Critical Theory promising the next Great Leap Forward or Great Leap Backward. This sure ain’t Hardt and negri, or even 1980s Habermas.

    Something fresh please.

    • Draco T Bastard 4.1

      Pointing out the faults of the present system is often needed to get movement towards a solution.

      • ad 4.1.1

        Only if it has precision and deep mechanical knowledge. Neither were in evidence.
        I would put it to you Draco, you could do better with one day of drafting.

    • Carol 4.2

      Well, I guess if you’re looking for total worker revolution, the public sector has no role: i.e. with such an analysis, the public sector would be seen as softening the brutal characteristics of capitalism, and keeping the workers onside so they don’t riot in the street.

      Any other considerations – environmental issues, ethnicity, gender etc, would be seen as secondary issues, and problems in those areas would be seated back to the primary cause as the class struggle.

      Yes, such analysis is lacking nuances. However, it seems to me in recent decades, too often many on the left have been dealing with the nuances and ignoring the elephant in the room…. the struggle between the ruling and subject classes.

      There’s room for a dialogue between both kinds of analysis, IMO, but hard to work out coherently in a short and engaging analysis.

      • Tiger Mountain 4.2.1

        C’mon Carol, certain reforms are worthy of support such as paid parental leave, but others such as the WFF in work tax credit just take the incentive off middle income people to join a union and get organised to obtain their own pay rises from employers rather than other tax payers.

        The old hydro schemes and state jobs for life are mostly gone now. NZ appears to be the land of the lawn mowing round, barrista, aged carer and SME along with privileged landowners and dirty dairy farmers. So does the last person in Aotearoa turn out the lights (not that lighting will be a real option with privatised power) or do we fight on? Fight I say, there are still enough of us.

        • Carol 4.2.1.1

          Yes, TM, things like paid parental leave ARE worth fighting for.

          But it’s also important to take a step back sometimes, to see the big picture of how the capitalist elite are ripping us all off.

    • oshay 4.3

      Wolff is a Marxian economist. He doesn’t have time for post-modern theories of our current situation that use vague notions of a crises of meaning. Wolff quite simply explains the laws of Capitalist production and accumulation and how they impact our current situation. If you don’t like a critical theory of society based upon empirical facts and how that society sustains itself (economics) then I guess you should stick to Ad-busters and their ‘Spiritual Insurrection’. Who needs Marx’s historical materialism when you have the wisdom of the Dahlia Lama’s transcendental enlightenment [sic]?

      Please don’t get me started on Ad-busters Post-Anarchism. Post-structuralism combined with anarchism is simply combining an idealist political philosophy with an even more idealist attempt at critical theory. It seems not much has changed since Marx wrote ‘The Poverty of Philosophy’ and Engles’ ‘Socialism: Utopian and Scientific’. It doesn’t matter if its German idealism or French idealism, it’s still idealism. I’ll take Marx’s materialist realism over any idealist philosophy, modern or post-modern.

  5. Johnm 5

    Rotten system rigged by the rich

    Bankers have been caught out rigging the interest rates. But the scandal goes much wider than that.

    With the help of their RWNJ pals, they’ve been rigging the whole system in their favour.

    Life’s great if you’re a banker. You can make millions from the latest fiddle then pop open the champagne as you pocket a huge bonus. You won’t even need to pay any tax.

    And when it all goes wrong, everyone who might have grassed you up will suffer a sudden case of memory loss. That’s why rioters go to jail for “looting”, while Bob Diamond can walk away from Barclays with a fat cheque.

    The finance industry spent £92 million on lobbying politicians last year(UK section of the Banking Kleptocrats). For a bank that’s pocket change—but a little wining and dining goes a long way.

    It’s a good investment for bankers to ensure lax regulation and tax cuts that will save them billions. While the poor get poorer these fat cats just get fatter. We need to get rid of their whole rigged system.

    It’s not a crisis for the Bankers they’ve been put in charge in the U$$$ and the EU$$$ and we got Key the banker banking off our Assets right now!

  6. Jenny 6

    Meanwhile the climate staggers on under the weight of increasing exploitation beyond it’s carrying capacity.

    The endless cycle of capitalist boom and bust is over. The economic crisis added to the climatic crisis means it is bust all the way down.

    • Colonial Viper 6.1

      The economic crisis is of great help in slowing down climate change.

      • NO CV the CO2 went up more last year than 2007-8

      • Jenny 6.1.2

        The economic crisis is of great help in slowing down climate change.

        Colonial Viper

        Unfortunately CV this is unlikely to happen. The falling rate of profit due to the economic crisis and and dwindling sources of other profitable and secure investment on return, has sharpened the imperative to extract more profit from natural resources and workers. It is because of the crisis nature of capitalism that capitalists are prepared to take such extreme risks with the environment and with their workers.

        I might mention here the scanalous risks taken at Pike river, or the scandalous exploitation of Ipad workers in China. Even worse than all this, the scandalous degradation of the climate, which is not decreasing, but gathering pace. Investors abandoning the collapsing property market are moving their investment exploit more risky* and previously marginal fossil fuel resources like shale oil (US), or lignite (NZ). Or deep sea drilling (globally) or drilling in the Arctic. (possibly even the Antarctic)

        As I said, “Crisis all the way down”.

        That is unless we do something.

      • Jenny 6.1.3

        In answer to climate change apologist, Colonial Viper, that the recession is slowing CO2 emissions.

        The world’s energy system is being pushed to breaking point

        Our addiction to fossil fuels grows stronger each year. Many clean energy technologies are available but they are not being deployed quickly enough to avert potentially disastrous consequences.

        On current form, the world is on track for warming of 6C by the end of the century – a level that would create catastrophe, wiping out agriculture in many areas and rendering swathes of the globe uninhabitable, as well as raising sea levels and causing mass migration, according to scientists.

        Maria van der Hoeven executive director of the International Energy Agency

        http://www.guardian.co.uk/environment/2012/apr/25/governments-catastrophic-climate-change-iea?fb=native&CMP=FBCNETTXT9038

        In common with the denialists, the apologists will resort to misinformation and unsubstantiated claims plucked from their imagination, devoid of fact, to deliberately distract and mislead.

      • mike e 6.1.4

        Cv People can’t afford clean energy so are burning coal.

  7. xtasy 7

    “http://www.youtube.com/watch?v=_uCC-venMtU&feature=related”

    Obrador por presidente de la Republica de Mexico! Por un Mexico liberal y socialista! Viva el pueblo unido!

  8. Afewknowthetruth 8

    There is no solution to a peak energy and peak resources predicament, other than having fewer people and using less energy and resources.

    Since ‘the system’ will not voluntarily move in the required direction, fewer people and using less energy and resources will be forced on ‘the system’ by nature.( The Richard Wolf article is largely irrelevant, of course.)

  9. xtasy 9

    The problem in NZ is: Too many sheeples!

    Never will this country progress with the mentality of the majority presently clinging onto this system. It is a dead lost cause, for sure.

  10. Colonial Viper 10

    R.D. Wolff – a Marxian economist. This is good stuff.

    This is his website.

    http://rdwolff.com/

  11. Matthew 11

    What a great article. Thank you for that… love it.

    • mike e 11.1

      Austerity and lack of foresight muddling through.
      Neo Con men at the helm are Grinding our economy Down slowly but surely.

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