The Economic Crisis: A Marxian Perspective

May 1, 2014

By Ramaa Vasudevan*

INTRODUCTION
The collapse of Lehmann, more than five years ago, heralded a profound crisis of global capitalism. The unfolding crisis continues to hold the global economy in its sway. The course of capitalist development has been punctuated by such crises – the Long Depression in the 1880s, the Great Depression in the 1930s, the Stagflation of the seventies and the current crisis. These crises are different from the busts of the regular business cycle in that they involve a profound and protracted dislocation of the machinery of capitalist accumulation.

Approaches drawing on Marx, while far from having achieved any consensus, offer a rich, institutionally and historically grounded picture of the turbulent path of capitalist development. Marxist analysis sees these recurrent crises as reflections of the inherently contradictory and turbulent nature of capitalist accumulation. They are moments when these contradictions are forcibly resolved, even as this resolution lays the seeds of future crises. This involves not just a changing balance of class forces domestically within the advanced capitalist countries but also the reconfiguration of the relations between the dominant classes in this advanced capitalist center and the less developed periphery.

The precise causal mechanisms underlying the present crisis remain subject to intense debate among Marxist scholars. This is not surprising. Despite a long engagement with the theory of crisis, Marxist scholarship has not developed a “general theory” of capitalist crisis.

The phenomena of financialization – which refers to the explosion of financial instruments that fosters a pattern where wealth is created increasingly through financial channels – is no doubt an important aspect of any account of the current crisis. Marxist explanations, while they recognizing the importance of financialization and the role of financial speculation in triggering the crisis, also seek deeper structural explanations for the rise to dominance of finance. Finance is and has always been an integral part of capitalism. We need to explain its evolution to the contemporary monstrous proportions in terms of the historical development of capitalism.

ACCOUNTS OF THE CRISIS
I’ll begin by giving a very schematic overview of some of the different explanations of the current crisis that have been put forward by Marxist writers [1].

One influential viewpoint is that of the Monthly Review School: (Stagnation under Monopoly-Finance Capital). This argument is based on the characterization of contemporary capitalism as the phase of monopoly-finance capitalism. Monopoly dampens the impetus to new innovations. The investment-seeking surplus generated by the enormous and growing productivity of the system is increasingly unable to find sufficient new profitable investment outlets. And so monopoly capitalism faces a tendency toward stagnation. There is a continual need to find new ways to profitably invest its surplus and create new sources of demand. But rather than invest in socially useful projects that would benefit the vast majority, capital has constructed a financial “casino” in order to escape the worst aspects of stagnation. The housing bubble arose from such an attempt to counteract this stagnationist tendency. With the bursting of the bubble, demand collapsed, leading to a deep crisis (see Bellamy-Foster and Magdoff, 2010).

In contrast to the monopoly-finance phase argument, Brenner’s Over-competition and Over-accumulation argument stresses globalization and the intensification of competition since the seventies as new manufacturing powers– Germany and Japan, the Newly Industrializing Countries (NICs), the South East Asian “Tigers” and, most recently China- entered the world market. This has led to a persistent tendency to overcapacity in global manufacturing and a consequent decline of the rate of return on capital investment since the seventies. The stagnation of real wages in this period has not been enough to counteract the dampening impact of chronic overcapacity on profitability. This is the source of vulnerability of the economy. The vulnerability is manifested in over-investment, a squeeze of manufacturing prices and declining profitability (see Brenner 2010).

An alternative thesis for Over-Investment also ascribes a central causal role to developing overcapacity but it is not excessive competition but asset price bubbles that foster this over-capacity. The housing bubble encouraged debt-financed consumer spending, stimulating excessive investment in relation to normal level demands. Stoked by the asset bubble and rising indebtedness, household consumer demand rose above its normal relation to household income, leading to over investment. Too much fixed capital is produced relative to demand in the economy as a whole. As the expectations about future profits and demand fail to materialize with the collapse of the bubble, capacity utilization rates fell, driving down the profit rate and the rate of investment was sharply cut back (see Kotz 2011).

The focus in other accounts of the crisis is on the growing gap between wages and profits, between increase in labor productivity and wage earnings of production workers (a proxy for exploitation). This growing gap implies both a squeeze of workers and a squeeze on demand. The squeeze on consumer demand is temporarily alleviated by rising household debt but with the crash this demand evaporates (see Resnick and Wolfe 2010).

Another explanation focuses on profitability as the crucial driver of investment and accumulation. Specifically the focus is on the rate of profit of enterprise – the general profit rate net of the interest payments. The competitive impetus towards increasing mechanization engenders a long-term tendency towards a fall in the profit rate. However, the stagnation of wages rates since the eighties and the sharp fall in US interest rates, held back this tendency of the rate of profit to fall and fuelled the neoliberal boom. This boom, and the regime of low interest rates had the contradictory effect of stoking a surge of debt and borrowing. The boom was halted when the fall in interest rates and the rise in degree of indebtedness reached their limits. The favourable upward trend in the rate of profit of enterprise came to an end, precipitating the crisis (see Shaikh 2011).

Finally, other accounts do not see the current crisis as the outcome of falling profitability. These accounts focus on the growing disparity in the incomes of the managerial and supervisory class in relation to the production worker and the popular classes (including commercial and clerical employees). The unbridled quest for enrichment by the ruling coalition – the alliance of this managerial class with the dominant capitalist classes- spurred the process of financialization and globalization. In the process persistent tensions were generated in the form of rising indebtedness, growing US trade deficits and the slowdown of accumulation. The growth of finance and speculation is explained not through the exhaustion of investment opportunities and falling profitability but rather the changing class configuration and the establishment of the hegemony of finance (see Dumenil and Levy 2010).

This excess of conflicting explanations can be quite daunting! You have explanations pointing to over-consumption on one hand and on the other under-consumption, rising profitability according to some and falling profitability according to others – and falling profitability itself is seen as driven by monopoly in one explanation and too much competition in another!

CAPITALIST CRISES: A TYPOLOGY
But don’t throw up your hands in despair! We might not come closer to a consensus on explaining the crisis, but we can atleast have some clarity about the empirical contours of the crisis and a broad typology of the crisis.

Marxist accounts of the causal mechanisms of crisis fall very broadly into those focusing on aggregate demand and those focusing on profitability. Both accounts find support from Marx’s own writings. The former focuses on the widening gap between the growing productivity of workers and their diminishing share of the fruits of this productivity growth. The crisis expresses a core contradiction of the pattern of accumulation – what might be characterized as the ‘tendency for the rate of exploitation’ to rise [2]. The crisis of increasing exploitation is characterized by the difficulty of maintaining aggregate demand in the context of large and growing surplus value. Growing inequality and the intensification of the exploitation of workers exacerbates the problem of effective demand, with investment failing to fill the gap.

The other account focuses on the tendency of the falling rate of profit. The specific pattern of technical change induced by capitalist competition in the context of rising wages, promotes mechanization and rising capital investment as the means of increasing labor productivity. Thus the competitive pressure for technological innovation – the source of capitalism’s dynamism – also paradoxically, sets in motion a tendency for declining profitability. Profitability trends can be broken down into trends in the share of profits in income and capital productivity [3]. From a Marxian perspective capital in the sense of plant and machinery is not inherently productive but enables the extraction of greater surplus from workers by increasing their productivity. In the process, production costs rise and capital productivity – in the sense of the output generated by working on this capital – tends to fall ( despite the rise in labor productivity), pulling down the profit rate.

So we have a broad typology of capitalist crises: on one hand as crisis of demand and rising rates of exploitation and on the other as crisis of profitability [4]. There is of course a link between problems of demand and problems of profitability. Stagnation of demand could erode profitability and rates of return on capital investment, and declining profitability itself could lead to a fall in investment demand. Both crises precipitate a sharp fall in investment and disrupt the smooth path of accumulation. The two scenarios, however, have quite different implications in other political economic dimensions.

Rather than putting forward a definitive all-encompassing explanation of crisis either in terms of lack of demand or falling profitability, I will present a broad-brush narrative of the historical trajectory of capitalism to argue that capitalist dynamics faces both tendencies and both forms of crisis. What is more, the resolution of one type of crisis sows the seed for the other form. Historically, the resolution of a crisis of profitability leads to a crisis of demand and the resolution of a crisis of demand lays down the conditions for a crisis of profitability.

In response to a crisis of profitability, capital sets in motion a process of intensifying the exploitation of workers through a variety of institutional and structural changes. These responses, if effective, revive the flagging profit rates, but in the process accentuate the gap between growing productivity and workers capacity to provide demand. Finance then comes to play a critical role in propping up demand – fuelling speculative tendencies (in fact such crisis have also been termed crisis of financial hegemony). The crisis appears with the collapse of the speculative bubble. Recovery from the crisis, then would require mobilizing demand through rising workers earnings, increased social spending, and public investment. All of which strengthens the bargaining position of workers. Eventually, the competitive impetus towards increasing mechanization in the face of rising wages dampens profitability as the tendency towards a falling rate of profit reasserts itself. The trajectory of capitalism, atleast for the past century, has veered from one type of crisis to the other.

STYLIZED FACTS ABOUT THE CURRENT CRISIS
My account of the crisis is woven around three stylized facts. The first is the widely discussed phenomena of the growing polarization of the US economy. The second is the pattern of rising capital productivity through the nineties, followed by a sharp decline after 2000. This ratio is an important driver of profitability in Marx’s analysis, as already mentioned. The recent decline in capital productivity is remarkable in that it does not occur in response to rising real wages (the classic Marxian explanation). It cannot, however, be characterized as a crisis of profitability. You can see a clear break in the trend of declining profitability in the eighties. The third feature is the tremendous growth of the financial sector in the past three decades.[5]

Figure 1: Wealth (Net Worth) and Income Shares of the Top 1 percent (%) (USA)
Ramaa_Fig1
Source: Income: Piketty and Saez dataset (updated to 2010); Wealth: Wolff (2002) Table A1; Wealth*: Wolff (2012),Table 2

Figure 2 : Private Debt as a share of GDP (%) (USA)
Ramaa_Fig2
Source: S. Keen 2009, Figure 1

Figure 3: Profit Rate and its Decomposition (USA)
Ramaa_Fig3
Source Dumenil and Levy dataset 2010
Note: Profit Rate = Profit/Total Capital; Capital Productivity = Output/Capital;
Profit Share =Profit/Output

The figures illustrate these empirical trends but place them in historical context. If you look at the first three figures, it is evident that some of the structural features bear a resemblance to the nineteen twenties. Like the current period, the twenties were marked by high levels of both income and wealth inequality (see Figure 1) and a high burden of private debt – the debt of households and business – in relation to income (Figure 2). The levels of private debt rose through this period, peaking at nearly two and half times the GDP in 1932. The growth of debt reflects the increasing importance of finance in maintaining demand in the US.

The twenties also saw favorable trends in productivity with rising capital productivity through the period from around 1920 till about 1950 (Figure 3) which shows the rate of profit and its two components the share of profit in income and capital productivity). The Great Depression marked a sharp break in this pattern. In the current period the rise in capital productivity through the nineties has been followed by nearly a decade where capital productivity has been falling.

All these are features characteristic of the tendency for a rising rate of accumulation and exploitation. The crisis of the seventies, was different. It was marked by declining inequality, declining shares of private debt and declining capital-productivity. These trends are characteristic of the tendency for declining profitability.

Marxists like to view crisis through the lens of history – the roots of the current crisis lie in the specific manner in which the crisis of the seventies was resolved. The dilemmas of seventies in turn can be traced back to the particular form taken by the resolution of the crisis of the thirties. I will now elaborate this argument.

HISTORICAL PARALLELS
The period before the Great Depression in the US had been preceded by a pattern of concentration of income that parallels the current levels. Under the leadership of finance the modern corporation evolved amidst a wave of mergers and acquisitions, between 1916-1929, forging new forms of industrial organization and a revolution of management techniques. This included the introduction of assembly line and of methods of scientific management (Taylorism) that enabled significant increases in productivity and buttressed favorable trends in profitability.

Finance was booming and commercial banks were deeply entrenched in the stock markets through a pyramid of trust companies and securities affiliates. The dizzy returns of the booming stock market years came to an abrupt end with the stock market crash in 1929, ushering the Great Depression and a prolonged period of contraction of output and employment. The “tendency of rising rate of exploitation” fuelled the growth of unproductive expenditure in the Gilded Age, but more critically it fostered the disproportionate growth of the financial system. The financial system played an integral role in the management of demand by recycling surplus into both debt fuelled consumption and investment demand, but it also stoked fragility and the building up of speculative bubbles. With the crash of the stock-market in 1929, aggregate demand evaporated precipitating the Great Depression.

The resolution of this crisis was by no means a smooth or uncontested process. While the Glass-Steagall Legislation of the thirties sought to restrain finance, the New Deal program sought to restore demand. The ferment of the thirties set the stage for what has been called capital-labor accord of the golden age of capitalism. This accord committed the workers, through their unions, to maintaining high levels of productivity while also sharing in the gains of this rising productivity though rising wages and benefits. This compromise along with the wide acceptance of the role of the state in regulating demand – what can be called the Keynesian consensus – helped widen the domestic market for mass consumer goods that the mass production factory system was producing. The decline in inequality in the post-war period was an outcome of this shift.

After peaking around 1965, profitability in USA began declining. Rising wages drove capital-deepening technical change as capitalists used mechanization as a way to raise the productivity of labor while substituting capital equipment for labor. This gave rise to the “tendency for the rate of profit to fall”, as production costs begin to rise and capital productivity falls. By the end of the sixties, inflationary pressures began to build up as labor began to resist further intensification of work. It was a moment of crisis of capitalist accumulation not seen since the Great Depression years. If the crisis in the thirties was rooted in rising rates of exploitation and the relative stagnation of wages, the seventies crisis was one of declining profitability.

The civil rights and women’s movement brought the pressing concerns of those who were excluded from the prosperity of the golden age to the fore. The grievances of the rank and file workers and the wider populace of the working poor pressed against the constraints of the system of national pattern bargaining characteristic of the large business unions. The compulsions of productivity bargains to keep pace with rising costs met increasing resistance from shop floor workers. The capital-labor accord that was the center-piece of the Fordist mode of regulation began to break down in the face of these pressures. Wild-cat strikes like that of postal workers and the teamsters in 1970, and other forms resistance including absenteeism, slowdowns and even sabotage spread in the face of the relentless pressure to increase productivity. The Great Society programs – the ‘war on poverty’, federal aid and spending on public education and health – were all launched in the wake of these growing tensions.

But for corporate capital the resistance to intensification of work was seen as an obstacle to the revival of profitability. Capital began to regroup and gather its forces to launch a full-scale offensive and push back against its declining share in wealth in post-war period. The imperative need, from the point of view of capital, was to force concessions from the unions and put a lid on rising wages. A sharp increase in unemployment was necessary in order to undermine worker security and the power of unions so as to intensify exploitation and ensure the restoration of profitability. This imperative also required attacking the premises of the Keynesian consensus. This the crux of the anti-worker, supply-side economics of Reagan and Thatcher.

The fight against inflation became a tool for restructuring class relations domestically. The role of state interventions and spending on welfare programs was called into question. The Federal Reserve under Volcker raised the interest rates dramatically in 1979 heralding the structural changes underway. The raising of interest rates put a brake on investment, precipitating a sharp rise in unemployment, which doubled from 5% in 1979 to 10% by 1982. This growth in unemployment enabled a squeeze on workers’ wages and union power.
The bailout of Chrysler, one of the big car companies which was on the verge of bankruptcy in 1979, reflects this shift. The conditions of the bail-out put together by the US Federal Government and the creditor banks forced United Autoworkers Union to accept massive wage freezes and cuts in benefits. These bank-enforced wage concessions paved the way for reordering capital-labor relations and the retreat of unions, as this pattern of concessions spread. A decisive moment in this process of restructuring class relations was the smashing of the Air Traffic Controllers’ strike in 1981 by Reagan.

This neoliberal backlash ushered in a period of consolidation of the power of financial and corporate capital in the US alongside a concerted attack on labor – what has been called the coup of finance. Through the eighties, backed by the big banks, momentum gathered on initiatives to dismantle the regulatory structure that had attempted to tame finance. The steady dilution of anti-trust policies and the regulatory framework fuelled a new wave of mergers and acquisitions in the eighties and again in the nineties, when there was a surge in cross border acquisitions – and also after 2002.

FINANCIALIZATION AND INEQUALITY
Financialization facilitated the process of concentration and centralization that created global corporate behemoths. The impetus to expand through acquisition rather than investment was often driven not by strategic considerations but rather the prospect of enrichment they afforded to all concerned parties – other than the workers. The goal was to inflate the stock of the company and then sell it for a profit. In the process, the buy-out firm and the investment banks involved in the deal made hefty earnings, while the workers of these target companies faced pay-cuts and downsizing as a consequence of restructuring and rationalization. This involved laying off workers, stripping away benefits, selling underperforming units and piling on debt.
The coup of finance has thus paved way for the polarization of the US economy and an immense concentration of wealth and income – as can be seen in Figure 1. The top one percent of households in the US cornered about 62% of the income gains since the nineties (Table 1). This polarization reflects two trends. First, the growth of finance has fuelled the extraordinary enrichment of the top one percent. This elite 1% has commanded more than 50% of capital income and controlled about 40% of financial wealth in the US since 2001.

Table 1: Gains of Income Growth (USA)

PeriodBottom 99% (Growth)

 

Top 1%

(Growth)

Share of Growth captured by top 1%
1993-200020.398.7

45

2000-2002-6.8-30.8

57

2002-20076.561.8

65

2007-2009-11.6-36.3

49

2009-2011-0.411.2

121

1993-20115.857.5

62

Source: Piketty and Saez (2013) http://elsa.berkeley.edu/users/saez/lecture_saez_arrow.pdf

The second trend relates to growing wage inequality. While wages for the average worker have remained relatively stagnant, compensation paid to the upper end of the corporate hierarchy has grown over the past decades. The compensation paid to the average CEO increased from 40 times that paid to the average worker in 1980, to nearly 300 times in 2000, before declining slightly to 240 times in 2008.[6] The average compensation of top 1% rose from around 6-7 times the average wage of the bottom 90 percent in the sixties to around 13 times in the nineties and further to 15 times in the next decade.[7] However, any characterization of the top 1% as ‘the working rich’ misses the fact that a significant and increasing proportion of executive pay is in the form of stock related compensation like stock options – and represents rentier income. The share of stock related pay in the compensation package of the 100 highest paid CEO’s in the Forbes 800, rose from an average of around 15% before 1979 to nearly 60% in the eighties and even further to an average of around 77% in the nineties.[8]

With this financialization of top managerial salaries, managerial prerogatives too have been transformed. Firms and factories are increasingly treated as part of the vast financial portfolio of the corporation, existing primarily for short-term gains and enrichment of the managers and shareholders. Short-term returns from speculative activities are favored at the expense of the longer-term profitability of concrete productive ventures.

A stark implication of this transformation is in the amount of cash that firms disgorged to the shareholders. Shares and stocks are the means by which firms finance their investment. Before the eighties, US nonfinancial corporations were net sellers of equity shares . This changed in the eighties, when share buybacks – repurchase of shares by the corporation itself – became a common corporate strategy. Apart from a steep rise in dividend payouts, these share buy-backs by pumping up stock prices- have enabled a massive extraction of cash from these companies in the past decades. Till the eighties (1946 to 1980) these payouts were about 30-35% of profits after tax. There was a sharp rise in payouts in the mid-eighties, with payouts rising to more than double the after-tax profits in 1986. In the nineties payouts were on average about 93% of after-tax profits and rose to an average of 112% in the next decade. Shareholders and managerial executives were milking the companies of amounts in excess of profits![9]

Enterprises have become cash cows for the enrichment of managerial and capitalist classes. With the entrenchment of the logic of finance, investment decisions have also tended to become increasingly subordinated to the prior claims of the shareholders and the managerial executive class. A stark manifestation of this is that there has been a clear deceleration in real fixed investment in the US after 2001. After growing at an annual average of over 9% between 1993-2001, the rate of growth of real fixed investment has turned slightly negative in the subsequent decade.[10] The sources of surplus extraction of US corporate capital have become increasingly delinked from the domestic economy.

The ‘financialized’ strategies of the ‘rentier-managers’ for accumulation have also reshaped the workplace. The ‘management offensive’ launched in the eighties squeezed real wages, eroded union power and promoted the use of casual and flexible workers. A crucial piece of the offensive was aimed at increasing productivity and getting rid of excess capacity. In place of the capital-labor accord that had allowed workers to share in the productivity gains of technological innovations and progress during the post-war period, the new emphasis was on the aggressive paring down of costs and the rationalization of production. Productivity increases were effected through the adoption of just-in time production systems that minimized inventory costs. Labor was deployed flexibly – using casual and part-time workers in order to skimp on benefits and other overheads in these lean and mean production systems. Strategies like ‘speed-up’ and ‘stretching of work’ enabled the extraction of larger productivity gains per worker hour. The pervasive adoption and growth of information technology has facilitated greater surveillance and control of the worker and the further rationalization of production to “computerize” and automate certain tasks. These productivity gains have been achieved with smaller increases in investment and significant cost reductions so that capital productivity increased through the nineties ( as can be seen in the Figure 3).

The dualism in the labor market in the US has been reinforced by the trend to a global reorganization of production. US corporations are off-shoring more and more blue-collar manufacturing jobs. In the 1990s US non- financial multinationals added 4.4 million jobs in the US and 2.7 million jobs overseas – that is for every one outsourced job about two jobs were being created in the US. The pattern changed drastically in the 2000s. 2.1 million jobs were axed in the US even as 2.5 million jobs were added abroad between 2000-2008.[11] US corporations have been investing and creating jobs overseas at the expense of domestic employment. The deal that General Motors recently reached with the United Auto-Workers union, offering lower-paid, entry-level jobs with fewer benefits as the way of retaining jobs within the country, might well be the template for a new capital-labor accord.[12] Chrysler and Ford have already followed suit. These on-shoring deals, do not however offer the same promise of ‘middle class’ life to workers that had been characteristic of the post-war “golden age”.

The critical problem during the crisis of profitability of the sixties was the need to restore profitability. The strategies deployed achieved this by ratcheting up the extraction of surplus through the managerial techniques that sought to cut down overheads and capital costs while enforcing more intensive work discipline and relocating production globally. As a result of both the leaner and tighter managerial control over labor in the US and the relocation of the low value- added segments of production to developing countries, productivity and profitability in the US showed signs of improvement in the nineties. The gap between the rate of growth of earnings of production-workers and labor productivity growth widened sharply through the eighties and nineties, reflecting the intensification of exploitation.

AN IMPASSE
The current crisis reflects the impasse this strategy has reached. The favorable trends in capital productivity did not last beyond the nineties. The “tendency for a rising rate of exploitation”, also poses the problem of how to manage the large and growing surpluses extracted from workers globally and channel these into aggregate demand.

Debt played a critical role in maintaining consumption in the face of eroding earnings of working class families in the US. With the rise in private debt to around 3 times GDP in the past decade (see Figure 2), debt has become a significant driver of demand. Changes in debt level have a greater effect on demand as the debt to GDP ratio rises. Private debt contributed to about 25% of the increase in demand in the decade before the crash. Debt-deflation and the bursting of the housing boom led to a collapse of demand.

‘Asset-keynesianism’ – stimulating demand by fostering asset bubbles – has become the US state’s favored mode of stimulating demand. This is not surprising with the consolidation of finance’s domination. In the wake of the dot-com bust in 2000-1, policy initiatives, including the low interst rate regime, deliberately stoked the housing bubble as the means of revival. The current recession displays a similar pattern. The bank- bailouts and credit-easing are geared towards kick-starting the financial machinery rather than direct creation of jobs or the direct alleviation of the travails of those facing huge debt burdens, the threat of foreclosure, long term unemployment and the disappearance of benefits.

This path of managing demand is not without pitfalls. It promotes speculation. The tenuous basis of this mode of maintaining demand is brought home during busts. Ever since finance launched its coup, the US economy has been marked by huge upswings and downswings – in the eighties there was the savings and loans crisis and the debacle of the junk bonds, the nineties ended with the dot-com bust and the Enron and Worldcom scandals, and the 2000s more recently the collapse of the complex financial architecture constructed around predatory sub-prime mortgage loans after a period of what was touted as unstoppable boom. This increasing volatility has also had global repercussions.

The US state has had to play the role of the rescuer of the financial system in the wake of each catastrophic bust. In the process it has also become more deeply implicated in the imperative to shore up the financial system. The US state is increasingly hostage to the corporate financial oligarchy. The concentration and growing size of the institutions that need to be bailed out has led to a dramatic scaling up of its support to the financial system, even as regulatory control has been weakened. Financial transactions and instruments are increasingly resembling bets – and that that too with other people’s money. As the bets keep increasing in size, the scope of the necessary intervention has also grown, giving rise to perverse incentives to undertake even larger bets, so that the cost of each successive meltdown becomes even larger – a doom loop to borrow a phrase.

The crisis has revealed structural vulnerabilities of globalized financial capitalism under US hegemony. While this regime has had a huge success in intensifying exploitation and creating surplus value – it is plagued by its overwhelming failure in solving the problem of aggregate demand.[13]

The trend towards concentration of income has accelerated with the crisis. The incomes of the top 1 percent grew by 11% between 2009-2011 even as that of the remaining 99% declined. The top 1 percent captured 121% of the recovery of income between 2009-2011 ( See Table 1). The contradiction posed by the tendency towards increasing exploitation has not been resolved. The neo-liberal framework of finance led accumulation and unregulated speculative asset bubbles cannot provide a viable basis for re-firing the engines of capitalist accumulation – and the stranglehold of finance is thwarting a more fundamental restructuring that would stem rising inequality and allow workers to claim a larger share of productivity gains. It is still early to say how things are going to turn out and how the contradictory tendency towards increasing exploitation will be resolved and whether the pattern of alternating crisis will continue.

Unemployment is the US remains intractable. The recent dip to less than 7% is not a sign of recovery in job growth, but rather a reflection of workers who have now been unemployed a long periods simply dropping out. Recovery in the Eurozone remains thwarted – with overall unemployment in the euro-area around 12% and that of youth a startling 24%. Greece and Spain continue to be the hardest hit with overall unemployment in Greece at 27.4 % that of youth unemployment at 54.8% and overall unemployment in Spain around 26.7% and that of youth 57.7%.[14]

We are not yet out of the woods.

[*] Talk prepared for Center of Marxist Studies, New Delhi, January 11, 2014. The talk draws on ongoing conversations with Duncan Foley and work done in collaboration with Deepankar Basu.

——————————

Notes:
1. This brief survey is drawn from Basu and Vasudevan (2013)
2. The rate of exploitation refers to the ratio of the surplus produced by workers to what they are paid as wages ( This can be represented in the aggregate as [Value added –Aggregate Wages]/ Aggregate Wages ). The gap between productivity growth and the growth of real wages reflects a rising rate of exploitation.
3. The Profit rate = Profit/Capital = Profit/Output ( Profit share) * Output/Capital ( Capital Productivity)
4. This typology is based on Foley (2010)
5. The argument and account that follows is based on Vasudevan (2013)
6. Source Economic Policy Institute (http://stateofworkingamerica.org/chart/swa-wages-table-4-43-ceo-compensation-ceo).
7. Pikketty and Saez dataset (http://elsa.berkeley.edu/users/saez/)
8. Pikketty and Saez dataset (http://elsa.berkeley.edu/users/saez/)
9. The data is from Flow of Funds: Nonfinancial corporate business F102. See Vasudevan (2013)
10. From Bureau of Economic Analysis NIPA data (see Vasudevan 2013)
11. BEA (Direct Investment and MNC’s ) See Basu and Vasudevan 2013
12. Ashcoff 2013
13. Foley 2010
14. Eurostat data.

References
Nicole Ashcoff, A Tale of Two crisis: Labor Capital and restructuring in the US auto-industry, Socialist Register, 2013: The Crisis and the Left.

D. Basu and R. Vasudevan, Technology, Distribution and the Rate of Profit in the US, Cambridge Journal of Economics 2013

Bellamy-Foster, J. and H. Magdoff. The Great Financial Crisis: Causes and Consequences. New York: Monthly Review Press. 2009

Brenner, R.“What is Good for Goldman Sachs is Good for America: The origins of the Current Crisis,” Prologue to the Spanish Translation of Economics of Global Turbulence, Akal, 2010.

Dumenil G. and Levy. The Crisis of Neoliberalism. Harvard University Press: MA, 2010a.

Foley, D. The Political Economy of Post-crisis Global Capitalism, A talk for the Chicago Center for Contemporary Thought conference on Global Crisis: Rethinking Economy and Society, December 3–4, 2010

Shaikh A. , “The First Great Depression of the 21st Century,” in The Crisis this Time: Socialist Register 2011, edited by L. Panitch, G. Albo and V. Chibber, Merlin Press, 2011.

Kotz, D. “Overinvestment and the Crisis of 2008,” Available for download at: http://people.umass.edu/dmkotz/OverInvestment_and_the_Crisis_11_01.pdf, 2011.

Resnick, S., and R. Wolff. “The economic Crisis: A Marxian explanation”, Rethinking Marxism, 22(2), 170-86, 2010.

Vasudevan R. Managerial Capitalism, finance and the contradictions of neoliberal phase of capitalism, manuscript 2013

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