Economics, Smeckanomics, What about the Oscars?

“Zombie Capitalism – Global Crisis and the Relevance of Marx,” by Chris Harman, 2009

Like Zizek’s book about the ‘End Times’ (reviewed below) Harman’s title is deceptive. You might think it is a prediction of a generalized capitalist stagnation, similar to the situation in Japan that went on for many years. The sub-title is really the title – Harman uses the key Marxist categories of the rate of profit, the organic composition of capital, the problems of over-production (over-accumulation to some); the growth in monopoly and the growth of the world working-class to show the superiority of the Marxist approach over the neo-classical, monetarist or Keynesian explanations.

Harman makes it clear that what caused the crisis was not ‘lack of regulation,’ nor ‘de-industrialization or ‘financialization,’ or imperialism, nor even the capture of the leadership of both U.S. parties by Wall Street – but a crisis brought on by the internal contradictions of capital itself, of which all these are only symptoms. Harman is not a great writer, but he is a somewhat clear writer, and this allows readers to use his points to extrapolate additional insights themselves. Harman is a member of a British group that was inspired by Trotskyism and later broke with part of Trotsky’s analysis, embracing the idea that the USSR and other similar states were ‘state capitalist.’ No matter what you think about his ‘statist’ perspective, Harman's method does have the benefit of including the USSR, China and eastern Europe in the analysis as more than invisible economic actors.

I am going to bullet-point his most salient thoughts:

1. Harman again affirms the truth of the labor theory of value, which classical capitalist theorists like Smith and Ricardo also utilized, and against the various neo-classical theories that give equal value to capital itself, rent, and interest. Most objections to Marx's labor theory center on the issue of time, demanding that all effects be immediate (called the transformation problem.) Harman notes that when you add time to any calculation, these objections disappear. Labor produces all wealth, and capital, rent and interest are only by-products of labor and/or nature.

2. The only point of capital is to make a profit – the most profit possible. If growing food would no longer make a profit, then food would not be grown. Eating is a by-product of the profit system. A falling rate of profit in a capital system is like a dropping air supply to a scuba diver – cause for drastic action.

3. Marx located crises within the capitalist form of accumulation – principally in what he called the ‘organic composition of capital.’ Basically, as time goes on, capitalists must increase their machinery and technology to get a competitive edge. The first adopters gain over their competitors, but as everyone adopts the same technology, the edge disappears. Productivity increases for awhile, then slows. But in the process, less labor is required, and as labor is the actual source of profit, the profit rate tends to decline. Harman locates this falling rate of profit, based on the increase in the organic composition of capital, as one of the main causes for the present crisis. I would identify the implementation, and now near exhaustion of the software / internet / computer technology ‘revolution’ as the specific technological issue. This I think is the most complicated part of Marxism to understand.

4. The profit rate falls, and as a result, a crisis – a recession or depression - breaks out. Bankruptcies occur, ‘creative destruction’ ensues and the remaining capitalists grow bigger feasting on the bankrupt ones, and a new cycle of accumulation begins again. During this crisis there have been many bankruptcies across the U.S., especially among small businessmen. This is also part of what happened in the recent Wall Street meltdown – we now have fewer, but larger FIRE sector entities. Harman does not, however, explain how the absence of even more bankruptcies (i.e. – the capitalist state saving the imperialist banking system, and eliminating the ‘moral hazard’ for some ‘too large to fail’ entities…) might interfere with the natural capitalist cycle of ‘creative destruction’ essential to a long-term revival of profit rates. This is, in essence, what happened in Japan, after their financial system was rescued by the state after a collapse in real estate value. It was a recipe for ‘zombie’ stagnation. In essence, without bankruptcies or war destruction, capital cannot re-start an effective profit drive.

5. The over-production of homes and real-estate values was a classic capitalist bubble. On top of the over-production, an excess of profits (‘over-accumulation’) led to financial speculation, hedges, derivatives, over-leveraging and debt, which eventually led to the crash, as all debts cannot be repaid. This is the “Minsky” moment. Marx called paper debt and paper profit ‘fictitious capital,’ which intensifies the natural profit-decline going on underneath in industrial capital. Harman does not complete this insight and speculate as to how much more intense financial capital’s massive size could make the next crash, given the increased debt at present. In other words, is there a maximum size of debt that can now be fatal? I.E. financial capital’s speculation is like gasoline on a fire.

6. Marx’s insight that capital tends to monopoly is truer today. Larger and larger firms of all kinds threaten the system as a whole if they go bankrupt, as they are so large they can bring down the whole capital system due to the massive amount of inter-locking economic relationships. Again, how big is fatally big?

7. Harman points out that while Marx and Engels understood the damaging effect capital had on nature, and wrote about it extensively, they did not conclude at that time that capital could actually exploit and destroy nature AS A WHOLE as it covered the globe in pursuit of profits. Harman is another Marxist who joins John Bellamy Foster (reviewed below) to point out that capital can have only one extended relationship with nature – an exploitative one.

8. Harman affirms Lenin and Luxembourg’s understanding that imperialism still needs war to survive, as war is part of the ‘creative destruction’ demanded by a falling rate of profit. Harman emphasizes that a corollary to this is the build-up of military economies (such as in the U.S.), which is not a chosen political ‘policy,’ but is actually an essential part of the stability of capitalism. This allows excess capital to be wasted on un-productive military spending (a sort of conservative Keynesianism supported by both U.S. political parties). It acts as a constant 'creative destruction,' so to speak, and slows 'over-accumulation' and bubbles. This allows U.S. capital to ‘destroy capital’ at home and also to literally ‘destroy capital’ in the Middle East, allowing firms to re-build the shattered Iraqi state, and allowing continuing waste in Afghanistan. (See Naomi Klein, "Shock Doctrine," reviewed below.) This is another difficult part of Marxism to understand.

Harman shows that state expenditures on armaments have only grown as capital has reached around the world. This is not a policy accident promoted by evil “Republicans’ but a requirement of capital. Harman does not draw this insight out as to the possibility or impossibility of a massive war of destruction similar to World War II ever happening again, and what this means for capital. As we know, it was not Keynesian policies that pulled the U.S. and world out of depression in the '30s, it was World War II. And that massive destruction of capital provided the opportunity for the golden decades of American accumulation which ended in 1970 or so. So, without another massive war, is that even possible anymore?

9. Harman emphasizes that ‘national’ states are not going to disappear under capital. In fact national states becomes more and more important as a base for various national capitals as competition goes global. The dream of capitalist ‘internationalism’ is just that. A collapse of the EU might be a graphic illustrator of that fact.

10. Harman looks at traditional Keynesianism (that favorite ideology of Krugman and various left-liberals in the Democratic Party) and concludes that it never really worked to rescue capital. (Keynes himself was against military spending as a form of government spending, by the way.) It was tried during the 3 recessions in the 70s and because of its failure, the ‘monetarism’ of William Friedman won the argument among the ruling elites. Today, the AFL-CIO and Trumka continue to make the point (as recently as a week ago on CNN) that capital needs a U.S. population able to buy its goods. This was true during the ‘credit card’ decades - workers were able to go into debt to buy those goods, and had the privilege of paying twice through credit card interest too! But capital now looks to a global middle-class to buy its goods, and does not need the U.S. working class to be as active a consumer. The crash has reduced the role debt plays in U.S. consumer spending as well, making a domestic consumer economy that much less attractive. Consumer debt is, however, taking off in India, Brazil and China.

11. Harman analyzes the USSR, China and eastern Europe and indicates that they were partly under the sway of the law of value. This is certainly true, as you cannot have a socialist economy in a block of states. He makes valuable points about accumulation crises in the USSR and eastern block that precipitated the collapse of those states. However there are multiple problems with his overall theory. The ‘state capitalist’ thesis seems to violate the Marxist theory of the state. It gives a regressive character to nationalization, or a possibly progressive character to a certain kind of capital called ‘state capital.’ It raises a question if there is a sort of 'intermediary' capital after ‘private’ capital. It argues against any transitional demands that call for the nationalization of property as being allegedly ‘capitalist’ demands. This part of his analysis is at bottom, I think, ultra-left and closer to anarchism than anything else. However, what I draw from it is that nationalization, in and of itself, cannot be the end-all of social progress, as it does not escape the totality of the market, and is also a fool’s definition of ‘socialism.’ See the market fundamentalists of the Republican Party for that foible.

12. Harman goes into an extensive analysis of which workers are productive, and which workers are excess, based on Marx’s concepts. I.E. teachers, while white-collar, raise the skill/productivity level of future employees, thus adding to labor value, while advertising employees are parasitic, useless to basic production. (Useful only in creating ‘commodity fetishes,’ I might add.) Legal workers essentially move capital from one pocket to another, usually among the capitalists, and are also non-productive. Nurses who participate in getting workers back to work contribute to productivity and labor, while medical workers whose only duty is to allocate bills are parasitic. (the majority of workers in the U.S. health system at present.) Cooks in a restaurant feed workers (part of the necessary maintenance of the class, usually done by unpaid family members), while some sales persons (not check-out clerks) in stores are parasitic. As you can see, the ‘service’ sector categories mix productive workers with parasitic jobs, which is why the statistics need to be carefully parsed.

Overall the world’s working class – blue and white collar - is now the biggest in history. Harman contends it is now the majority class in the world, if you include partial proletarians, as the pure peasant/farmer group has shrunk by being kicked-off the land by capital and environmental collapse. He also contends that the mixture of industrial workers, white-collar workers, peddlers, farmers, unemployed, students and other marginal categories are so inter-penetrated, that they allow ‘all community’ risings against capital, as people in the same family sometimes have contacts in many different employment zones. What the overall growing numbers of proletarians says about a global 'balance of power' between the classes is not drawn out here, but it seems to be positive for the working class. Harman takes a bit more controversial stand in claiming that the imperialist countries did not lose workers, they were just 're-arranged' into smaller entities within the capitalist countries. More data on this seems to be necessary, but it is hard to believe that the numbers of industrial workers in the U.S. are at the same level as in 1978, for instance.

13. Lastly, on the issue of taxes and the capitalist state – a burning issue at the present time – Harman has little to say. We are waiting for an economist who can explain the financial reasons for the destruction of aspects of the social wage and parts of the capitalist state. If we apply Marx’s theory – that the fall of the profit rate demands drastic action – than privatizing as many state functions as possible is a net gain for capital. Teachers are to be replaced by private internet schools. Road maintenance will be done by private contractors. Janitorial work is to be outsourced. Getting rid of the ‘social wage’ and various benefits increases the pressure on the remaining workers, which allows capital to increase the rate of exploitation. Getting rid of taxes on capital increases profits. The capitalists will only preserve the repressive and pro-corporate aspects of the state – and perhaps fire-fighting – but everything else will be corporatized.

Makes sense to me. The leadership of both capitalist parties approve solving the profit ‘deficit’ and their own massive debt by cutting into the hides of the working class. The only difference is in just how to do that. On Wisconsin!

Like all books, the book is far more complex than any overview.

And I bought it at Mayday Books!
Red Frog, 2/28/2011

A Response to the “High Priests of Modern Economic Quackery"

“Global Slump – The Economics and Politics of Crisis and Resistance,” by David McNally, 2011.

The recent crisis in capital has brought forth a slew of new Marxist analyses, as Marxism seems to be the only tradition that is able to clearly understand what is going on. David McNally is another Marxist professor, this time from Toronto, Canada, and also seems to be a long-time activist. McNally has some differences with Mezaros’s theory of a 40-year crisis (reviewed bel0w). He also de-emphasizes the ‘financialization’ meme promoted by the Monthly Review writers (also reviewed below), and emphasizes a more traditional Marxist interpretation of booms, busts and industrial capital during the last 40 years. I do not think, however, he radically differs with either approach – he adds a more grounded nuance, and his book is a welcome and clear addition to the ‘genre.’

McNally starts off reminding of us of how absolutely crushing the collapse of the financial and credit systems were. Starting in August 2007, it lead to the collapse of Bear Stearns, IndyMac, Fannie Mae & Freddie Mac, Northern Rock, RBS, HSBC Holdings, culminating in the September 15, 2008 crash of Lehman. AIG, Washington Mutual, Wachovia, GM, Chrysler and others followed – all told 8 major banks in the U.S. and 20 in Europe went under. Tim Geithner: ‘The U.S. risked a complete collapse of our economic system.’ Greenspan suffered “shocked disbelief.” Greenspan: “The whole intellectual edifice” of modern financial economics “had collapsed.” $35T in assets disappeared in 6 months. As McNally puts it, ‘the world’s ruling class lost its swagger.’ The “Efficient Market Hypothesis” was in shambles - the all-knowing ‘market’ had a hemorrhage. But instead of dying, the patient has been transfused with the blood of many millions of workers – and now perpetual austerity is on the table for everyone in the world except the rich. So who’s eating who for dinner?

How did this happen? McNally focuses on several events not usually discussed, which lead up to the present situation. He focuses on the end of the Bretton Woods agreement in 1971, which allowed the dollar to go off the gold standard and change to a floating exchange rate. Secondly, he points to the Volcker Shocks, starting in 1979 under Carter, and then in the 80s under Reagan. McNally thinks that the 1982 Volcker shock (monetary shocks run by the Federal Reserve which consisted of raising interest rates to kill inflation) ushered in the era of neo-liberalism, which brought profit rates back up for a long time – 25 years - until 2007. And indeed, after a slumps in the 1970s (3 recessions in 10 years), corporate profits began to rise after brutal attacks on the working class. These were first administered in the U.S. by Carter against the UMW miners strike in 1979, followed by Maggie Thatcher against the English coal miners’ NUM. The period coincided with the rise of Friedman’s “Chicago Boys” after the 'success' of the first international attempt at neo-liberalism – the fascist coup in Chile in 1973.

So McNally’s pattern is:
A. Post-War Expansion – 1948-1973
B. World Slump – 1973-1982
C. Neo-Liberal Expansion – 1982-2007
D. World Slump – 2007-?

I think for the most part this fits the facts. The decline in profit rates and over-production in the 1970s (McNally prefers the term ‘over accumulation’ but I think that is a deceptive word…) could only be answered by an increase in labor productivity. That is speedup in the blue-collar world or multi-tasking in the white collar world - both mean working like a dog. Legal changes played a role as well - the increased use of the legal category 'exempt' allowed employers to work ordinary workers overtime for no extra pay. And technological changes also apply: Blackberries allowed workers to be on call at all moments. Most important, 1980 was the mass introduction of personal computers, which helped increase productivity for a time. Increased labor productivity was also achieved through the disciplining of the world workforces, from Chile to England to the U.S. No worker who lived through the 1980s will forget the severe recessions, sharp strikes and defeats of the labor movement at that time. Real wages were reduced 11% during that decade. But labor productivity was up by 2% per year – so the rate of labor exploitation increased, and profits rose.

McNally backs up his thesis with discussions of increases in world growth in some major 3rd world economies during this period, like India & China. This coincides with the shift of part of the productive capacity of the advanced capitalist countries to the global “South” – something we all experienced. He contends that no explanation of capital can be limited to the U.S and Europe alone, as the system works as one. However, he does not specifically discuss what role the non-capitalist sectors of the world economy played at the time – the USSR, Eastern Europe and China. These accounted during this period for almost 40% of world economic production, and that would seem to be a significant fact. This is a common failing among western Marxist economists. He does later address some events in China during this period, however.

McNally contends that when Nixon went off the gold standard to protect the outflow of gold to other countries in 1971, this move actually introduced ‘financialization’ into the economic body. It ended a stable world price system. Trading in minute currency fluctuations created a new, massive, purely speculative market. Currency trading later had a bigger volume than trading in goods and services. The first derivatives were currency derivatives. Later, it lead to liquid assets being able to flow in and out of economies in days. This is his answer to those who think only ‘deregulation’ brought the 2007 crash on. The end of Bretton Woods predates ‘deregulation’ by many years. After currencies, anything could become a part of the speculative economy – even disaster ‘puts’ could be sold.

During the neo-liberal period, the IMF/World Bank-induced debt of the “Third” world / global “South’ was derived from ‘enclosing the commons’ - seizing common or individually-owned land, public property, public resources. It also included enriching western bankers with massive debt repayments – and that process is still going on. After 15 years of ‘free trade,’ 80% of Mexicans live below the poverty line, and .3% of the population owns 50% of Mexican wealth. When neo-liberalism was imposed on the USSR and eastern Europe, massive public goods were sold to private investors - including former 'Communists" - for a song. McNally’s contribution is including China in his analysis – starting first in 1978 when land in China was privatized and the communes ended, public health-care eliminated, state enterprises sold off, and “Special Economic Zones’ run by foreign capital instituted. 35 million workers lost their jobs in state-owned enterprises during this period.

Presently the Chinese working-class is double the working-class of the G7 industrial nations – it is the largest in the world. Yet the Chinese working-class' own wages and conditions have been deteriorating due the global slump too. Millions have lost their jobs and been sent back to the countryside. The working-class share of the GNP has dropped from 50% to 37%. China’s 250,000 millionaires now control 70% of the countries wealth. And as any Marxist knows, (even if you already believe China is capitalist) the growth of such a monied capitalist class indicates that they are growing in power, and quite clearly overlap with the bureaucracy. A transition to full capitalism can easily be made by a bureaucracy with these kind of contacts, because they themselves have the inside track on ownership of state and private assets. This is what happened in the USSR before and after its dissolution in 1989. The dynamics in China are crucial in some sense to what is happening in the world economy and the dearth of information from pro-China organizations is a telling indicator of trouble. Certainly, defenders of Chinese 'socialism' who cannot explain what is going on in China now don't deserve the name.

McNally ends his book with a role call of the struggles against neo-liberalism that are occurring now, and have occurred in the recent past: The Cochabamba uprising in Bolivia in 2000 (which lead to the presidential victory of Evo Morales); the Oaxaca Commune in Mexico in 2006; the sit-downs at Republic Windows & Doors in Chicago in 2008, and similar sit-downs in Iceland, China, Britain, Ireland and numerous ‘boss-nappings’ in France; the worker uprisings in Martinique and Guadalupe in 2009; the 2010 mass resistance in Greece and general strikes across Europe in answer to the sovereign debt crisis. We can now add the 2011 mass revolt in Egypt and other middle-eastern countries to the list.

Whether these struggles can be broadened and linked together is key. Capital operates on an international scale, with international cooperation. McNally points out that a Commune in one city like Oaxaca for 5 months cannot withstand the death-dealing police and military, without aid from the working-class in the rest of the nation, and other nations. He praises recent efforts of the left to build united fronts - such as the joint block of left organizations in Greece and the French Anti-Capitalist Party - as promising attempts against sectarianism.

As Lula, the former leader of the Brazilian Workers Party said last week, “Capitalism is dead.” However, perhaps the frequency of zombie movies in American culture has something to say in answer to that.

And I bought it at Mayday Books!
Red Frog, February 9, 2011