[PEN-L:31586] Bello on Brenner

["Ian Murray" <seamus2001@xxxxxxxxx>]

REVIEW ARTICLE
The crisis of capitalism
WALDEN BELLO



The Boom and the Bubble: the US in the World Economy by Robert Brenner;
Verso, London and New York, 2002; pages 303, $23.

THE recent work of Professor Robert Brenner of the University of California,
Los Angeles (UCLA) is a solidly argued and empirically impeccable
restatement of the centrality of overproduction in capitalism - a problem
that has preoccupied thinkers as diverse as Marx, Joseph Schumpeter, Joan
Robinson, Ernest Mandel, Paul Baran, and Paul Sweezy. Brenner's distinctive
contribution is to draw out the specific dynamics and consequences of
overproduction or underconsumption in the era of integrated, globalised
production and markets. The picture he draws is not one of corporations
denationalised by economic integration and states whose powers have been
eroded, as in much current writing on globalisation. In Brenner's global
economy, state elites battle to gain a competitive edge for their corporate
elites. But if national competition is central, so is the common interest
among the competing elites of the central economies to expand the global
economy. The trajectory of the United States economy is determined largely
by this volatile relationship of competition with and dependence on the
other global capitalist centres of Europe, Japan, and - though to a much
lesser degree - East Asia.

In Brenner's view, the post-Second World War era is divided into a period of
dynamic global economic expansion from the late 1940s to the early 1970s and
one marked by persistent crises and uneven growth since then - a relatively
dismal period broken only by the seven-year U.S. boom in the 1990s. Whereas
in the first phase, the U.S., Europe, and Japan derived mutual benefit from
global expansion, from the early 1970s on, economic growth became largely a
zero-sum game, where one centre economy's advance was purchased with
stagnation or recession in its neighbours.

Since the 1970s, the key problem for the centre economies has been a chronic
tendency towards overcapacity and thus a steady decline in profitability.
Disposing of old capital stock, increasing productivity, and regaining
profitability has been an urgent need of each centre economy, but achieving
it has run into opposition from established monopolies, organised labour,
and powerful rival centre economies.

By delinking the dollar from the gold standard and effectively devaluing it,
the Nixon administration hoped to steal a march over its rivals. It was,
however, left to the Reagan administration to restore decisively the
American economy's edge, and this it did through three mechanisms: breaking
organised labour to hold down wages, maintaining high interest rates to
attract capital to the U.S., and engineering the infamous "Plaza Accord" in
1985, which pushed up the value of the yen and set the stage for the
"relentless rise" of the mark to make the Japanese and German manufacturing
sectors bear the lion's share of adjustment. In a global economy marked by
overcapacity, the result was eventually to push both Japan and Germany to
recession and lay the ground for greater U.S. competitiveness and
profitability in the late 1980s and early 1990s.

The effect was, however, two-edged, for even as U.S. manufacturing regained
profitability, it was also threatened by the prolonged recession that
settled over Japan and Germany, which degraded the capacity of these
economies to absorb U.S. exports, which had served as a key engine of the
U.S. manufacturing recovery. In an increasingly integrated global economy,
Brenner points out, "the fact remains that while the U.S. economic revival
took place largely at the expense of its leading rivals, that it had to do
so was ultimately at the cost of the U..S economy itself". Consequently,
Washington under the Clinton administration engineered the "reverse Plaza
Accord" in the mid-1990s, when the value of the dollar was allowed to rise
relative to the yen in an effort to help spark an export-led recovery in
Japan. Just as the Plaza Accord had essentially been a rescue operation of
U.S. industry by Japan and Germany, so was the Clinton-Rubin reversal of the
rising dollar a U.S.-engineered "bailout of Japan's crisis-bound
manufacturing sector".

This move, however, failed to spark sustained economic revival in Japan. And
a great part of the reason was that the global overcapacity problem had
become even more acute owing to the Japanese conglomerates moving a great
many of their labour-intensive manufacturing operations to China and East
Asia, precisely to escape being rendered non-competitive by the rising yen.
But even as it failed to reactivate the Japanese economy, the reverse Plaza
Accord played a key role in undermining the competitiveness of the northeast
Asian and southeast Asian economies whose currencies were tied to the rising
dollar. When these economies, with their sizable markets, collapsed during
the Asian financial crisis in 1997-98, the global crisis of overproduction
intensified.

Tied to an increasingly integrated but keenly competitive global production
system and market, the U.S. manufacturing sector saw its profits stop
growing after 1997. By the end of the decade, practically all key industrial
sectors were suffering tremendous overcapacity, with the worst situation
existing in the telecommunications sector, where only 2.5 per cent of the
infrastructure laid down was being utilised. By 2002, the gap between
capacity and output was, according to The Economist, the largest since the
Great Depression.

With manufacturing and the rest of the "real economy" ceasing to absorb
investment profitably, capital migrated to the speculative sector, where a
period of hyperactive growth in high technology stocks was nursed carefully
by the low-interest-rate policy and "New Economy" talk of Federal Reserve
chairman Alan Greenspan. Grounded in the illusion of future profitability of
high-tech firms, the dot.com phenomenon extended by about two years. "Never
before in U.S. history," Brenner contends, "had the stock market played such
a direct, and decisive, role in financing non-financial corporations, and
thereby powering the growth of capital expenditures and in this way the real
economy. Never before had a U.S. economic expansion become so dependent upon
the stock market's ascent."

But with the profitability of the financial sector being dependent on the
underlying, actual profitability of the manufacturing sector, the
finance-driven growth ultimately had to run out of steam. The dizzying rise
in market capitalisation of non-financial corporations from $4.8 billion in
1994 to $15.6 trillion in the first quarter of 2000 represented what Brenner
characterises as an "absurd disconnection between the rise of paper wealth
and the growth of actual output, and particularly of profits, in the
underlying economy." The loss of $7 trillion in paper wealth in the stock
market collapse that began in March 2000 represented the rude reassertion of
the reality of a global economy crippled by overcapacity, overproduction,
and lack of profitability. With the mechanism of "stock-market Keynesianism"
having been exhausted, the capacity of the U.S. economy to avoid a serious
and prolonged downturn has been greatly eroded, though Brenner is cautious
about writing it off.

The Brenner canvas of post-War expansion and decline has a remarkable
affinity to the theory of the early Soviet-era economist Nikolai Kondratieff
that capitalism moves forward in 50-60-year-long "waves" that ascend, crest,
and descend into a deep trough. Yet, surprisingly, The Boom and the Bubble
does not contain a single reference to Kondratieff. This is intriguing.

Perhaps Brenner is trying to distance himself from the deterministic
interpretations of Kondratieff, which have either posited the exploitation
and exhaustion of new technologies as the central driver of long-wave
activity or proclaimed the inevitability of a massive Great Depression-like
crisis.

If this is the case, Brenner is right to be wary of sounding apocalyptic,
given the resiliency that has enabled U.S.-dominated global capitalism to
surmount crises in the past five decades. He fails, however, to discuss the
factor that should serve as the greatest reason for caution: China. China's
potential role of serving as an exit strategy for the current crisis of
overcapacity is underlined by the fact that it has absorbed an average of
$45 billion in foreign capital since the late 1990s, making it by far the
biggest recipient of foreign investment in the South. China is, however,
still focussed on export-oriented production, making it a critical
contributor to global overcapacity. Should China turn towards a strategy of
hitching capitalist growth principally to the expansion of domestic
purchasing power, it could turn into the engine that would ward off, perhaps
for a few decades, the spectre of global stagnation. Already China is the
world's largest market for cellular phones, and troubled Ericsson's move to
establish a manufacturing base there indicates that key players in the
crisis-ridden telecom sector see their salvation in China.

But barring a sharp turn by China's leaders, the likelihood of a
Kondratieff-like deflationary - if not depressive - phase is really great at
this point. One is not likely, however, to draw this grim conclusion from an
analysis that hews narrowly, as Brenner's does, to developments at the level
of production, to the dynamics of overproduction. Focused at that level, the
farthest Brenner can go is to state that "it is not easy to see what forces
exist to push the economy forward."

However, what is unique about the current conjuncture is the coming together
of a crisis of production and a crisis of reproduction of the system, the
latter referring to the recreation of the political and cultural context
necessary for global capitalism to survive and thrive. Global politics, the
dynamics of cultural hegemony, and the interplay of key institutional actors
are what is missing in Brenner's broad canvas, and these are the elements
whose interaction will determine whether or not the consequences of the
crisis of overcapacity can be contained.

Despite capitalism's famed resiliency, containment of the crisis at the
level of production is increasingly less an option owing to the current
intersection of the crisis of overproduction with three related
"superstructural" crises - a conjunction that either did not occur earlier
in the post-War period or was marked by much less intensity.

The "crisis of legitimacy" refers to the increasing inability of the
neoliberal ideology that underpins today's global capitalism to persuade
people of its viability as a system of production, exchange, and
distribution. The disaster wrought by structural adjustment in Africa and
Latin America; the chain reaction of financial crises in Mexico, Asia,
Brazil, Russia, Argentina, and Wall Street; and the combination of massive
fraud and spectacular wiping out of investors' wealth have all eaten away at
the credibility of the system. The legitimacy of the transnational
corporation - the engine of the system - is at its lowest in years, with
over 70 per cent of Americans claiming even before Enron erupted that the
corporation had too much power over their lives. Also plunged into a crisis
of credibility are those institutions that serve as capitalism's system of
global economic governance - the International Monetary Fund, the World
Bank, and the World Trade Organisation - making them the weak link in the
system.

Paralleling this crisis is the mounting disaffection with Washington or
Westminster-type liberal democracies that have served as a central
stabilisation mechanisms for global capitalism in the South - a site that
hardly makes an appearance in Brenner's stage yet has constantly been a
critical point of vulnerability in the stable reproduction of the system
globally. In places like the Philippines, Pakistan, Brazil, and Venezuela,
popular disillusionment with socially riven, economically stagnant electoral
democracies oiled by money politics is rife among the lower classes and even
the middle class, being in the case of Pakistan one of the factors that
allowed General Pervez Musharraf to seize political power.

But the crisis of legitimacy of liberal democracy is not limited to the
South. It is also shaking up the U.S., Japan, and Europe. Beneath the
post-September 11 poll popularity of George Bush continues to stir the
widespread pre-September 11 feeling in the U.S. electorate that owing to
massive corporate influence, plutocracy, and not democracy, is now the U.S.
system of government. Despite Washington's current posturing about punishing
corporate fraud, the spectacular developments in Wall Street are perceived
as a moral collapse in which both economic and political elites are
implicated.

In Japan, ineptitude is the key characteristic associated by citizens with
the interest-group ridden conservative democracy that has presided over a
decade of stagnation and decline.

While there is also much concern about corporate control of the political
party finances in Europe, an even greater subverter of democratic legitimacy
is the widespread anger over the non-transparent process that technocratic
elites allied to corporate elites have put in place, in the name of European
integration, technocratic rationality, and market rationality, eroding the
principle of subsidiarity, by funneling effective political and economic
decision-making upwards to techno-corporate structures with the European
Commission at the apex, which are largely unaccountable to electorates on
the ground. Electoral revolts like those associated with Jean-Marie Le Pen
in France and the assassinated Pim Fortuyn in the Netherlands are
manifestations of deep alienation from technocratic democracy.

Finally, there is the strategic crisis brought about by politico-military
"overextension". While there may be factions in Washington that are
espousing "military Keynesianism" as a way out of the current economic
impasse, in fact the military equation at this juncture might be more of a
potentially unravelling factor. The recent expansion of U.S. military
influence into Afghanistan, the Philippines, South Asia, and Central Asia
may communicate strength. Yet, despite all this movement, the U.S. has not
been able to consolidate victory anywhere, certainly not in Afghanistan
where anarchy and not a stable pro-U.S. regime, reigns. Indeed, it is
arguable that because of the massive disaffection they have created
throughout the Muslim world, the U.S.' political-military moves, including
its pro-Israel policies, have worsened rather than improved its strategic
situation in West Asia. This sense of being strapped in the roller-coaster
of overextension is probably what accounts for the reluctance of some
factions in the Pentagon to follow the Cheney-Rumsfeld-Wolfowitz lobby's
push to invade Iraq.

Meanwhile, even as Washington is obsessed with terrorism in West Asia,
political rebellions against neoliberalism are shaking up its Latin American
backyard.

Kondratieff's portrait of crisis was hardly deterministic. In his schema, it
was the volatile interaction of production, political, and ideological
crises that facilitated the descent of the long waves from crest to trough
in the 1880s and again in the 1930s. The situation today, over 50 years
after the beginning of the post-War economic ascent, is analogous. Brenner
provides us with an insightful guide to the roots and dynamics of the crisis
of the system of production, one that is more reliable than most of the
treatises turned out by the hotshot deserters from the collapsing
neoclassical paradigm. But his superb analysis of the crisis of production
needs to be supplemented with an exploration of the parallel crisis of the
system of reproduction to bring home both the depth of capitalism's
contemporary crisis and the volatility of the conjuncture.

Walden Bello is executive director of Focus on the Global South and
Professor of Sociology and Public Administration at the University of the
Philippines. His latest book is Deglobalization (Zed Press, London, 2002).
http://www.flonnet.com/fl1922/stories/20021108001507400.htm