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