There is an ongoing structural crisis in the global capitalist economy. Compared to the post-war "Golden Age" of 1950 to 1973, the period from 1974 has seen a continual worsening in economic performance in the West and for Japan. For example, growth is lower, unemployment is far higher, labour productivity lower as is investment. Average rates of unemployment in the major industrialised countries have risen sharply since 1973, especially after 1979. Unemployment "in the advanced capitalist countries (the 'Group of 7'. . .) increased by 56 per cent between 1973 and 1980 (from an average 3.4 per cent to 5.3 per cent of the labour force) and by another 50 per cent since then (from 5.3 per cent of the labour force in 1980 to 8.0 per cent in 19994)." [Takis Fotopoulos, Towards and Inclusive Democracy, p. 35] Job insecurity has increased (in the USA, for example, there is the most job insecurity since the depression of the 1930s [Op. Cit., p. 141]). In addition, both national economies and the international economy have become far less stable.
This crisis is not confined to the economy. It extends into the ecological and the social. "In recent years," point out Larry Elliot and Dan Atkinson, "some radical economics have tried to [create] . . . an all-embracing measure of well-being called the Index of Sustainable Economic Welfare [ISEW] . . . In the 1950s and 1960s the ISEW rose in tandem with per capita GDP. It was a time not just of rising incomes, but of greater social equity, low crime, full employment and expanding welfare states. But from the mid-1970s onwards the two measures started to move apart. GDP per head continued its inexorable rise, but the ISEW start to decline as a result of lengthening dole queues, social exclusion, the explosion in crime, habitat loss, environmental degradation and the growth of environment- and stress-related illness. By the start of the 1990s, the ISEW was almost back to the levels at which it started in the early 1990s." [The Age of Insecurity, p. 248] Which indicates well our comments in section C.10, namely that economic factors cannot, and do not, indicate human happiness. However, here we discuss economic factors. This does not imply that the social and ecological crises are unimportant or are reducible to the economy. Far from it. We concentrate on the economic factor simply because this is the factor usually stressed by the establishment and it is useful to indicate the divergence of reality and hype we are currently being subjected to.
Ironically enough, as Robert Brenner points out, "as the neo-classical medicine has been administered in even stronger doses [since the 1960s], the economy has performed steadily less well. The 1970s were worse than the 1960s, the 1980s worse than the 1970s, and the 1990s have been worse than the 1980s." ["The Economics of Global Turbulence", New Left Review, no. 229, p. 236] This is ironic because during the crisis of Keynesianism in the 1970s the right argued that too much equality and democracy harmed the economy, and so us all in the long run (due to lower growth, sluggish investment and so on). However, after over a decade of pro-capitalist governments, rising inequality, increased freedom for capital and its owners and managers, the weakening of trade unions and so on, economic performance has become worse!
If we look at the USA in the 1990s (usually presented as an economy that "got it right") we find that the "cyclical upturn of the 1990s has, in terms of the main macro-economic indicators of growth — output, investment, productivity, and real compensation — has been even less dynamic than its relatively weak predecessors of the 1980s and the 1970s (not to mention those of the 1950s and 1960s)." [Op. Cit., p. 5] Of course, the economy is presented as a success because inequality is growing, the rich are getting richer and wealth is concentrating into fewer and fewer hands. For the rich and finance capital, it can be considered a "Golden Age" and so is presented as such by the media. Indeed, it is for this reason that it may be wrong to term this slow rot a "crisis" as it is hardly one for the ruling elite. Their share in social wealth, power and income has steadily increased over this period. For the majority it is undoubtedly a crisis (the term "silent depression" has been accurately used to describe this) but for those who run the system it has by no means been a crisis.
Indeed, the only countries which saw substantial and dynamic growth after 1973 where those which used state intervention to violate the eternal "laws" of neo-classical economics, namely the South East Asian countries (in this they followed the example of Japan which had used state intervention to grow at massive rates after the war). Of course, before the economic crisis of 1997, "free market" capitalists argued that these countries were classic examples of "free market" economies. For example, right-wing icon F.A von Hayek asserted that "South Korea and other newcomers" had "discovered the benefits of free markets" when, in fact, they had done nothing of the kind ["1980s Unemployment and the Unions" reproduced in The Economic Decline of Modern Britain, p. 113]. More recently, in 1995, the Heritage Foundation released its index of economic freedom. Four of the top seven countries were Asian, including Japan and Taiwan. All the Asian countries struggling just four years latter were qualified as "free." However, as Takis Fotopoulos argues, "it was not laissez-faire policies that induced their spectacular growth. As a number of studies have shown, the expansion of the Asian Tigers was based on massive state intervention that boosted their export sectors, by public policies involving not only heavy protectionism but even deliberate distortion of market prices to stimulate investment and trade." [Op. Cit., p. 115] After the crisis, the free-marketeers discovered the statism that had always been there and danced happily on the grave of what used to be called "the Asian miracle."
Such hypocrisy is truly sickening and smacks of a Stalinist/Orwellian desire to re-write history so as to appear always right. Moreover, such a cynical analysis actually undermines their own case for the wonders of the "free market." After all, until the crisis appeared, the world's investors — which is to say "the market" — saw nothing but blue skies ahead for these economies. They showed their faith by shoving billions into Asian equity markets, while foreign banks contentedly handed out billions in loans. If Asia's problems are systemic and the result of these countries' statist policies, then investors' failure to recognise this earlier is a blow against the market, not for it.
Still more perverse is that, even as the supporters of "free-market" capitalism conclude that history is rendering its verdict on the Asian model of capitalism, they seem to forget that until the recent crisis they themselves took great pains to deny that such a model existed. Until Asia fell apart, supporters of "free-market" capitalism happily held it up as proof that the only recipe for economic growth was open markets and non-intervention on the part of the state. Needless to say, this re-writing of history will be placed down the memory-hole, along with any other claims which have subsequently been proved utter nonsense.
So, as can be seen, the global economy has been marked by an increasing stagnation, the slowing down of growth, in the western economies (for example, the 1990s business upswing has been the weakest since the end of the Second World War). This is despite (or, more likely, because of) the free market reforms imposed and the deregulation of finance capital (we say "because of" simply because neo-classical economics argue that pro-market reforms would increase growth and improve the economy, but as we argued in section C such economics have little basis in reality and so their recommendations are hardly going to produce positive results). Of course as the ruling class have been doing well in this New World Order this underlying slowdown has been ignored and obviously
In recent years crisis (particularly financial crisis) has become increasingly visible, reflecting (finally) the underlying weakness of the global economy. This underlying weakness has been hidden by the speculator performance of the world's stock markets, whose performance, ironically enough, have helped create that weakness to begin with! As one expert on Wall Street argues, "Bond markets . . . hate economic strength . . . Stocks generally behave badly just as the real economy is at its strongest. . . Stocks thrive on a cool economy, and wither in a hot one." [Wall Street, p. 124] In other words, real economic weakness is reflected in financial strength.
Henwood also notes that "[w]hat might be called the rentier share of the corporate surplus — dividends plus interest as a percentage of pre-tax profits and interest — has risen sharply, from 20-30% in the 1950s to 60% in the 1990s." [Op. Cit., p. 73] This helps explain the stagnation which has afflicted the economies of the west. The rich have been placing more of their ever-expanding wealth in stocks, allowing this market to rise in the face of general economic torpor. Rather than being used for investment, surplus is being funnelled into the finance markets, markets which do concentrate wealth very successfully (retained earnings in the US have decreased as interest and dividend payments have increased [Brenner, Op. Cit., p. 210]). Given that "the US financial system performs dismally at its advertised task, that of efficiently directing society's savings towards their optimal investment pursuits. The system is stupefyingly expensive, gives terrible signals for the allocation of capital, and has surprisingly little to do with real investment." [Henwood, Op. Cit., p. 3] As most investment comes from internal funds, the rise in the rentiers (those who derive their incomes from returns on capital) share of the surplus has meant less investment and so the stagnation of the economy. And the weakening economy has increased financial strength, which in turn leads to a weakening in the real economy. A viscous circle, and one reflected in the slowing of economic growth over the last 30 years.
In effect, especially since the end of the 1970s, has seen the increasing dominance of finance capital. This dominance has, in effect, created a market for government policies as finance capital has become increasingly global in nature. Governments must secure, protect and expand the field of profit-making for financial capital and transnational corporations, otherwise they will be punished by the global markets (i.e. finance capital). These policies have been at the expense of the underlying economy in general, and of the working class in particular:
"Rentier power was directed at labour, both organised and unorganised ranks of wage earners, because it regarded rising wages as a principal threat to the stable order. For obvious reasons, this goal was never stated very clearly, but financial markets understood the centrality of the struggle: protecting the value of their capital required the suppression of labour incomes." [William Greider, One World, Ready or Not, p. 302]
Of course, industrial capital also hates labour, so there is a basis of an alliance between the two sides of capital, even if they do disagree over the specifics of the economic policies implemented. Given that a key aspect of the neo-liberal reforms was the transformation of the labour market from a post-war sellers' market to a nineteenth century buyers' market, with its effects on factory discipline, wage claims and proneness to strike, industrial capital could not but be happy with its effects. Doug Henwood correctly argues that "Liberals and populists often search for potential allies among industrialists, reasoning that even if financial interests suffer in a boom, firms that trade in real, rather than fictitious, products would thrive when growth is strong. In general, industrialists are less sympathetic to these arguments. Employers in any industry like slack in the labour market; it makes for a pliant workforce, one unlikely to make demands or resist speedups." In addition, "many non-financial corporations have heavy financial interests." [Op. Cit., p. 123, p. 135]
Thus the general stagnation afflicting much of the world, a stagnation which has developed into crisis as the needs of finance have undermined the real economy which, ultimately, it is dependent upon. The contradiction between short term profits and long term survival inherent in capitalism strikes again.
Crisis, as we have noted above, has appeared in areas previously considered as strong economies and it has been spreading. An important aspect of this crisis is the tendency for productive capacity to outstrip effective demand (i.e. the tendency to over-invest relative to the available demand), which arises in large part from the imbalance between capitalists' need for a high rate of profit and their simultaneous need to ensure that workers have enough wealth and income so that they can keep buying the products on which those profits depend (see section C). Inequality has been increasing in the USA, which means that the economy faces as realisation crisis (see section C.7), a crisis which has so far been avoided by deepening debt for working people (debt levels more than doubled between the 1950s to the 1990s, from 25% to over 60%).
Over-investment has been magnified in the East-Asian Tigers as they were forced to open their economies to global finance. These economies, due to their intervention in the market (and repressive regimes against labour) ensured they were a more profitable place to invest than elsewhere. Capital flooded into the area, ensuring a relative over-investment was inevitable. As we argued in section C.7.2, crisis is possible simply due to the lack of information provided by the price mechanism — economic agents can react in such a way that the collective result of individually rational decisions is irrational. Thus the desire to reap profits in the Tiger economies resulted in a squeeze in profits as the aggregate investment decisions resulted in over-investment, and so over-production and falling profits.
In effect, the South East Asian economies suffered from a problem termed the "fallacy of composition." When you are the first Asian export-driven economy, you are competing with high-cost Western producers and so your cheap workers, low taxes and lax environmental laws allow you to under-cut your competitors and make profits. However, as more tigers joined into the market, they end up competing against each other and so their profit margins would decrease towards their actual cost price rather than that of Western firms. With the decrease in profits, the capital that flowed into the region flowed back out, thus creating a crisis (and proving, incidentally, that free markets are destabilising and do not secure the best of all possible outcomes). Thus, the rentier regime, after weakening the Western economies, helped destabilise the Eastern ones too.
So, in the short-run, many large corporations and financial companies solved their profit problems by expanding production into "underdeveloped" countries so as to take advantage of the cheap labour there (and the state repression which ensured that cheapness) along with weaker environmental laws and lower taxes. Yet gradually they are running out of third-world populations to exploit. For the very process of "development" stimulated by the presence of Transnational Corporations in third-world nations increases competition and so, potentially, over-investment and, even more importantly, produces resistance in the form of unions, rebellions and so on, which tend to exert a downward pressure on the level of exploitation and profits (for example, in South Korea, labour' share in value-added increased from 23 to 30 per cent, in stark contrast to the USA, Germany and Japan, simply because Korean workers had rebelled and won new political freedoms).
This process reflects, in many ways, the rise of finance capital in the 1970s. In the 1950s and 1960s, existing industrialised nations experienced increased competition from the ex-Axis powers (namely Japan and Germany). As these nations re-industrialised, they placed increased pressure on the USA and other nations, reducing the global "degree of monopoly" and forcing them to compete with lower cost producers (which, needless to say, reduced the existing companies profits). In addition, full employment produced increasing resistance on the shop floor and in society as a whole (see section C.7.1), squeezing profits even more. Thus a combination of class struggle and global over-capacity resulted in the 1970s crisis. With the inability of the real economy, especially the manufacturing sector, to provide an adequate return, capital shifted into finance. In effect, it ran away from the success of working people asserting their rights at the point of production and elsewhere. This, combined with increased international competition from Japan and Germany, ensured the rise of finance capital, which in return ensured the current stagnationist tendencies in the economy (tendencies made worse by the rise of the Asian Tiger economies in the 1980s).
From the contradictions between finance capital and the real economy, between capitalists' need for profit and human needs, between over-capacity and demand, and others, there has emerged what appears to be a long-term trend toward permanent stagnation of the capitalist economy. This trend has been apparent for several decades, as evidenced by the continuous upward adjustment of the rate of unemployment officially considered to be "normal" or "acceptable" during those decades, and by other symptoms as well such as falling growth, lower rates of profit and so on.
This stagnation has recently become even more obvious by the development of crisis in many countries and the reactions of central banks trying to revive the real economies that have suffered under their rentier inspired policies. Whether this crisis will become worse is hard to say. The Western powers may act to protect the real economy by adopting the Keynesian policies they have tried to discredit over the last thirty years. However, whether such a bailout will succeed is difficult to tell and may just ensure continued stagnation rather than a real up-turn, if it has any effect at all.
Of course, a deep depression may solve the problem of over-capacity and over-investment in the world and lay the foundations of an up-turn. Such a strategy is, however, very dangerous due to working class resistance it could provoke, the deepness of the slump and the length it could last for. However, this, perhaps, has been the case in the USA in 1997-9 where over 20 years of one-sided class war may have paid off in terms of higher profits and profit rate. However, this may have more to do with the problems elsewhere in the world than a real economic change, in addition to rising consumer debt (there is now negative personal savings rate in the US), a worsening trade deficit and a stock market bubble. In addition, rising productivity has combined with stagnant wages to increase the return to capital and the profit rate (wages fell over much of the 1990s recovery and finally regained their pre-recession 1989 peak in 1999! Despite 8 years of economic growth, the typical worker is back only where they started at the peak of the last business cycle). This drop and slow growth of wages essentially accounts for the rising US profit rate, with the recent growth in real wages being hardly enough to make much of an impact (although it has made the US Federal Reserve increase interest rates to slow down even this increase, which re-enforces our argument that capitalist profits require unemployment and insecurity to maintain capitalist power at the point of production).
Such a situation reflects 1920s America (see section C.7.3 for details) which was also marked by rising inequality, a labour surplus and rising profits and suggests that the new US economy faces the same potential for a slump. This means that the US economy must face the danger of over-investment (relative to demand, of course) sooner or later, perhaps sooner due to the problems elsewhere in the world as a profits-lead growth economy is fragile as it is dependent on investment, luxury spending and working class debt to survive — all of which are more unstable and vulnerable to shocks than workers' consumption.
Given the difficulties in predicting the future (and the fact that those who try are usually proven totally wrong!), we will not pretend to know it and leave our discussion at highlighting a few possibilities. One thing is true, however, and that is the working class will pay the price of any "solution" — unless they organise and get rid of capitalism and the state. Ultimately, capitalism need profits to survive and such profits came from the fact that workers do not have economic liberty. Thus any "solution" within a capitalist framework means the increased oppression and exploitation of working people.
Faced with negative balance sheets during recessions, the upper strata occasionally panic and agree to some reforms, some distribution of wealth, which temporarily solves the short-run problem of stagnation by increasing demand and thus permits renewed expansion. However, this short-run solution means that the working class gradually makes economic and political gains, so that exploitation and oppresion, and hence the rate of profit, tends to fall (as happened during the post-war Keynesian "Golden Age"). Faced with the dangers of, on the one hand, economic collapse and, on the other, increased working class power, the ruling class may not act until it is too late. So, on the basis that the current crisis may get worse and stagnation turn into depression, we will discuss why the "economic structural crisis" we have lived through for the later quarter of the 20th century (and its potential crisis) is important to social struggle in the next section.