McNally, David. 2009. “From financial crisis to world-slump: accumulation, financialisation, and the global slowdown.” Historical Materialism 17: 35-83.
How is capitalism reproduced? What is capitalist crisis?
McNally is arguing that Brenner’s concept of post-1973 “global turbulence” is more accurate than a “long downturn.” The Bretton Woods era (core growth (prolonged expansion; rising levels of output, wages, and employment—p. 45) + no overaccumulation crisis) was a deviation, not the capitalist norm (44). While capitalists argue that their system steadily promotes growth, promotes welfare, and does not generate its own limits, McNally argues that crisis and global turbulence is the norm in capitalism (43). Capitalist expansion throws up limits to itself, such as when it demands wage compression (45). Crisis does not prevent but rather accompanies globally-shifting growth. After 1973, capitalist expansion centered on East and South Asia (43). McNally argues that problems of overaccumulation did not manifest in the core in 1973; they manifested in the East Asian semiperiphery in 1997 (46).
[MF note—to revise: “Crisis” is understood popularly. From a popular perspective, and from a parochial capitalist political perspective, “crisis” is understood as a condition whereby capitalism is exposed as a destructive system and a conflicting class system. Local capitalist leaders are exposed as unable to rule for the common good. To talk about a crisis of accumulation that occurred after 1973 is to talk about the rise of conditions—declining profitability (people must buy more things and services, but people are only part of the cost of goods and services), cured by local wage compression and production relocation that spatially and temporally defers accumulation collapse—that expose its destructive and class-conflicted nature.]
Methodological issue: The national-state and national economies should not be the unit of analysis when analyzing the reproduction of capitalism. “…(C)apitals in the ‘core’ economies of the world-system have demonstrated a systematic tendency to move investment outside the core in search of higher rates of return,” producing higher rates of accumulation in select semi-peripheral regions, and slower rates of growth in the “dominant economies.” Because capitalism is a world-system dedicated to accumulation, frameworks attempting to explain the reproduction of capitalism must analyze the operation of capitalism as a global social relation. (44-45)
After 1973 crisis of profitability in the core, capital restructured, growth occurred in East Asia
After the recessions of 1974-75 & 80-82, the ruling class launched offensives against unions and the Global South. Generated primitive accumulation & larger reserve labor armies, introduced lean production, raised the rate of exploitation. Ruling class invested in East Asia (45).
McNally argues that 1983-2007 was a period of capitalist restructuring, that involved the destruction of capital in the core (47). Characterized by rapid de-industrialization and de-unionization in the core (47). In the US, the rate of surplus value was increased by 40% (48). Profit rates climbed between 1982 and 1997, though at their peak they remained half of mid-1960s profit rates (see confirmation by Mohun, Moseley, Wolff, Dumenil and Levy, Husson, Brenner; McNally 2009: 49-50).
Cites Ch. 13-15 of Capital v. III, discussing the tendency for rate of profit to decline and capital’s arsenal of countermeasures. Restructuring countermeasures can only be stopped by “massive organized working-class resistance.”
“In the absence of such powerful class-resistance, crises will serve as moments of reorganization that create conditions for increases in labour-productivity and rates of profit—which, in turn, make renewed expansion possible. (49)”
[MF note: TINA enters when capitalist agents insist that renewed expansion is what the working class wants.
Yet what are those restructuring countermeasures, according to Marx?
According to McNally, post-1980, restructuring countermeasures included a) re-subordinating “Global South” (peripheral countries) to promote primitive accumulation; b) using primitive accumulation (in India and China) to create huge new global labor-reserves; c) relocating accumulation to China (semi-peripheral countries); d) financial market ascendance. (55) They also included wage compression accomplished through union-busting, bifurcated wage tracks, cuts to the social wage (reduction in social rights and benefits); lean production techniques and technology to boost the relative surplus-value; and increases in work hours in the US to boost absolute surplus-value (60) This latter group of restructuring countermeasures reduced living standards of working-class people while concentrating wealth at the top of the social ladder, thereby increasing inequality within societies. In 1991 the wealthiest 1% of Americans owned 39% of corporate wealth, but 2003 they owned 57.5% (60). This creation of vast inequality produced a huge demand from the wealthy for interest-paying financial instruments; it fueled the extension of vast amounts of credit to working-class households desperate to sustain living standards (67). Now restructuring countermeasures include collapse, merger/nationalization of financial institutions, auto and electronics industries, service sector slumps, the ongoing collapse of sales and profits. With the centralization of capital we will have decline in wages, benefits and employment. With the diminishment of the dollar to act as a stable form of world currency, there will be pressures to develop an Asian currency bloc, and competition among currency blocs for greater conrol of financial markets and global monetary privileges (77). Debt loads in the emerging market economies will make countries like Turkey and South Africa vulnerable to restructuring and asset appropriation. Core governments will further regulate the movement of labor (78).
“At the same time as they press for ‘free movement’ of capital, governments at the core of the system also demand tighter control and regulation of the movement of labour. With the deepening of the conomic crisis, many have already started to play the anti-immigrant card. Britain, in particular, has signaled a tightening up of immigration policy, as has Canada, and others will surely follow. As businesses fail, factories close and unemployment mounts, protectionism—‘Buy American’, ‘British Jobs for British Workers’—is likely to fuel xenophobia and immigrant bashing.’ Government officials and parties on the Right will continue to fan xenophobic sentiments…This crisis will thus put a premium on a Left for which anti-racism and defence of migrant workers are absolutely central to a politics of resistance” (78-79)]
By mid-1980s, Japanese & German capital turn to FDI (Foreign Direct Investment, rather than domestic investment) (50; data from OECD). In the 1990s, there was a 300% jump in capital-formation in East Asia (outside Japan) (63). FDI follows tractable labor; invests in East Asia, where people pushed off the land (primitive accumulation) due to rural impoverishment, dispossession and war (52). Post-1990, this contributed to a quadrupling of the world working class population (reserve army of labor) after 1980.
Primitive accumulation and higher rates of labor exploitation is the cause of 1982-1997 profitability rebound (54-55). McNally argues for Marxist basics, against a magic box view of credit.
Based on fictitious capital, the dollar creates demand for hedging risk, financialization of capitalist relations
Due to escalating debt taken on to pay for the Vietnam War, the US printed more money in 1971. The US was wreaking havoc with the value of the gold underlying the currency. Countries began demanding gold in exchange for dollars and withdrawing from the Bretton Woods system. The Nixon administration unilaterally ended the gold standard, and exchange-rates floated. This was seen as an American victory over adversaries at the time. As we shall see, by refusing to deal with the mounting costs of the Vietnam War, Nixon merely staved off a reckoning for one generation and laid the basis for a global crisis. To hedge risk in the uncertain financial system, new financial instruments were developed. These financial instruments created a large financial services market and financial sector profits, as well as large speculation. New credit instruments were created for financiers and consumers, but these credit instruments did not play an important role until after 1997. Neoliberalism is the financialization of capitalism (46).
Why the financial sector collapsed is because 1) money became volatile after early 1970s end of dollar-gold convertibility; 2) wages were compressed for 30 years; 3) the world economy is flooded with US dollars (56).
When dollar became the international credit money, it was grounded in fictitious capital (general confidence in the future increase in the dollar). This made global credit money (the dollar) a magnet for speculation (57). Now money could not measure value reliably. Value is the socially-necessary (abstract) labor-time and commodities’ market value (57-58).
To protect against this volatility, capital had to assess risk and hedge against risk, especially those capitals moving through multiple currencies. Derivatives were developed to assess and hedge against risk. Investors could buy derivatives (insurance) against risks to assets they did not own—that is, speculate. Therefore, financial instruments have been developed to capture future values—shares of surplus-value not yet produced. This is a proliferation of fictitious capitals, eg. mortgage-backed securities and Collaterialised Debt Obligations (59). Working-class debt was packaged by banks and hedge funds and sold to themselves, as well as pension funds and financialized corporations (61). During Alan Greenspan’s tenure as President of the Federal Reserve (1987-2005), private and public debt in the US quadrupled to $43 trillion (61). When the bubble burst in 2007, capital fled the US. Private capital flows were reduced by $1.1 trillion in the third quarter of 2007 (65).
1997 East Asian overaccumulation crisis at the root of core credit overextension
Capitalist expansion began to falter in 1997, with East Asian overaccumulation crisis. Rates of growth, postponement of general capitalist crisis bolstered with expansion of credit. Credit bubble burst in summer 2007.
McNally has previously argued that there was an overaccumulation of capital in East Asia by the Asian crisis of 1997. The investment boom had created excess capacity in computer chips, autos, semi-conductors, chemicals, steel, and fiber optics (62). US prices for consumer durables began to decline in the autum of 1995 and continued falling into 2008 (62). As a result East Asian economies cut local currency exchange rates, shed labor, reduced costs, and restructured industry. Still capacity was not reduced very much, as foreign investors snatched it up. East Asian firms drove down costs, but exports continued to grow. Their market was the US, which accounted for 1/5 of world exports, and which sustained $857 billion current-account deficit. Low interest rates and cheap consumer credit allowed US consumers to go into massive debt to consume imports and permit a temporary global economic recovery (63). Only the US could have built up such a current-account deficit, because it held the inconvertible world money, the dollar (64). No matter what US finances looked like, it was in countries’ interest to back the dollar.
Asset values dramatically departed from wealth creation after 1996. Eg. The NYSE continued to rise while profits turned down (53-54). Gargantuan credit expansion and low interest rates “’financialized’ (“embedded in interest-paying financial transactions”) relations between capital and labor’” as well as between capitals (55-56). Lines between industrial capital and financial capital blurred. Firms financialized themselves during neoliberal period because finance was more profitable (56). Bewteen 1980 and 2004, FIRE (Finance, Real Estate, and Insurance) doubled to capture nearly 50% of US profits.
By the mid-2000s, due to overinvestment, China was experiencing overcapacity, in steel, iron-alloy, auto, aluminum, cement, coke, and home appliances (64). Overcapacity again weighed down profit rates (65). The US appears to be exhausted as a source of demand sufficient to restart sustained global capital growth (66). Real capital is destroyed because there’s no sufficient engine of demand (67). Fictitious capital, based on expectations of obtaining future from working class Americans, has deflated and will continue to decline: there is not working class income to pay much credit card debt; as corporate profits sink, corporations cannot repay the IOUs they used to finance Leveraged Buy Outs (LBOs); commercial mortgages are in trouble; Credit Default Swaps (CDS) were used for speculation, and the sellers of CDSs have to pay not just the creditors insuring against debtor default, but the army of speculators as well (that’s why the US bailed out AIG to the tune of $150 billion, most of which has been used to cover losses in the CDS market.) There remain $54 trillion in CDSs (67-68). Most derivatives including CDSs are not regulated. No one can tell where they are, and this destroys banks’ confidence in each other, so markets remain illiquid (69).
The violent abstraction of the capitalist value form v. sensuous, concrete working-class values
So: As money became more volatile, its measure of value has become troubled (69). The solution that the fearless capitalist leaders came up with was derivatives. But they translate all risk onto a single, abstract metric. Value at Risk (VaR) is used to assess risk, and as a risk-assessment instrument, VaR assumes that all history, social, political, climatological and economic relations are the same, there are no qualitative breaks; so for example to calculate housing prices in 2007, VaR used price data from a period of soaring housing prices. VaR is a typical capitalist “violent abstraction” (Marx) (71). Yet, “during every crisis, value measurement is radically disrupted and destabilized. Pressures of overaccumulation and declining profitability induce a destruction of values…” We don’t know the value of “trillions of dollars worth” of financial assets. This is a systematic problem, exacerbated by the financialization of neoliberal capitalism. Derivatives are a primary symptom of a crisis of value measurement. But value collapse is caused by “overaccumulation, falling profits, and unsustainable build-ups in fictitious capitals” (72).
Systemic crises are moments of both great danger and opportunity (72). Debt—the financialization of relations between capital and labor—disciplines the working class in the Global North. Debt also permits capital to accumulate by dispossessing the working class, and the Global South (72). The only alternative to unfreedom is to repudiate debts (73). Yet without capitalist investment, there is no source of livelihood for workers under capitalism (73).
As well, the working class can struggle against the violently abstract, volatile capitalist value form, instead asserting life values—land, water, food, housing, income (74).
From the perspective of capital, value abstraction, the commodity (the exchanged object without sensuous, concrete working class use-value) is the point of all human activity, because of its capacity to promote accumulation (capitalist use value) (74-75). [M-C-M’.]
A commodity’s capacity to promote accumulation is not simply a matter of whether there is an unmodified demand for it. Rather, the preferred commodity removes wealth into the exclusive control of capital. That’s what accumulation is.
Value-abstraction shifted valuation, to the demise of feudalism. It got rid of patriarchal aristocracy. Then, in using the commodity value form to distance economic prices from sensual, concrete working class values, it removed valuation to spheres which only the capitalist neo-aristocracy manages under the scarce-capital conditions of capitalism.]
Even if capitalists can be indifferent to the sensuous, concrete use-values of commodities, the working class cannot be indifferent to such use-values of commodities (75). There are value struggles at the heart of capitalism.
The crisis puts a premium not only on anti-racism and defence of migrant workers, but also on socialist organization. “Leashed capitalism” is a false construction. To build the capacity of workers to remake the world, they must have access to socialist ideas and to socialism, to a systemic transformation that breaks the hold of the capitalist value form over human life (79).