Theses on the Economic Crisis
(March-April 2009)
By Dave Winter
1. The present collapse of the international economy represents a significant stage in the inevitable decline of global capitalism. The reasons that the media as well as the left are citing as the cause of the crisis have more to do with the symptoms than with the real underlying dynamic. The crisis of Wall Street and the collapse of top mortgage firms and banks – which are holding trillions of dollars worth of so-called “toxic assets” – represent only the surface symptoms, not the causes.
2. This is not just a particularly bad case of the typical bust phase of the normal capitalist cycle, or a very bad recession. Rather, the roots of the crisis lie in a massive collapse of the productive forces, on a scale that has not occurred since the Great Depression. And this time, because of the deeper integration of the global economy, the collapse could turn out to be even worse than that of the 1930s. (“The Quiet Coup,” The Atlantic, May 2009)
3. For the sake of simplicity, I will limit my analysis of the economic and political developments that brought about this crisis to the events that have occurred since the early 1980s – just before capitalism was restored in the former Soviet Union, China, and Eastern Europe. Before these events of capitalist restoration, the entire international working class was under massive attack. In the imperialist countries, the success of these attacks manifested itself in the rise of Thatcherism and Reaganism.
The historical defeat of the British miners in 1985 brought about a significant reduction in the standard of living, and growing poverty, for the British working class. This spilled over, to a lesser degree, to other countries in Europe. In the US, the capitalists experienced phenomenal success inextracting greater surplus value from the working class (that is, achieving higher profits through more efficient levels of exploitation). In the 1950s and 1960s, only one adult in a typical family had to work outside the home, and workers had some real leisure time. By the mid 1980s, two adults in a family had to work full time, often for long hours, to achieve a comparable standard of living, and even then, the family usually had less purchasing power than it had in the 1950s. The labor unions, under the control of corrupt, craven, and “business-friendly” bureaucracies, remained very docile. The majority of humanity in the semicolonies (the third world), who had demonstrated massive resistance to imperialism in the 1970s, became relatively exhausted by the mid 1980s. Thus, from the imperialist point of view, the masses in the third world were ripe for extensive super-exploitation. The resulting flow of capital to these regions and the resulting proletarianization – that is, a big rise in the number of industrial workers accompanied by a massive decline of the peasantry – was one of the most important developments that led to the current crisis.
4. If the capitalists were able to extract more profit from the exploitation of the working class starting in the 1980s, how did this contribute to the development of today’s crisis? The reason for this is two-fold. First, due to significant advances in technology as the age of computers has progressed, capitalism has gone through a “revolution” in the means of production, which in turn shifts the balance in the forces of production increasingly toward sophisticated machines and away from workers’ labor. That means that what the capitalist needs to spend on technology to update the means of production keeps growing at a faster rate than the pure profit from exploitation of labor (surplus value). So, even as the profit from exploitation has grown, the rate of profit has kept on declining, as Marx explained. On the other hand, with less money to spend, the world’s workers, and the masses in general, could not afford to buy the commodities that were being produced at an increasing rate by more efficient machines. Hence the overproduction and the glut of commodities that developed under the surface.
5. The late 1980s and the 1990s, the period after the restoration of capitalism in all the important former workers’ states, were not the new golden age, as some bourgeois historians say. Because of the declining rate of profit, the inter-imperialist rivalry did not vanish; on the contrary, it remained rather strong. The imperialists and the major corporations thought that they had a brilliant idea about how to overcome the fundamental problem of the declining rate of profit: “Why don’t we move most of our factories to the third world, where we only need to pay the workers a few dollars a day, and in this way beat our competitors.” The movement of the means of production to the third world intensified significantly after capitalist restoration in Russia, China, and Eastern Europe. This trend marked a major turning point in the political and economic structure of world capitalism. The imperialists thought that they had found new havens for exploitation. Each imperialist power had its own backyard, of course. The Americans had Mexico and other Latin American countries. The Europeans, particularly Germany, had Eastern Europe, and to a lesser degree Russia. And all of them discovered China, which had the largest and cheapest proletariat in the world. By the time Clinton and company started directing the affairs of US imperialism, they needed new arrangements that would permit them to maximize their profit from the exploitation of cheap labor in the semicolonies. Hence NAFTA, GATT, and the other international agreements and financial institutions that were established or expanded during this period.
6. Ultimately, however, the massive flow of capital and factories from the developed world to the third world did not resolve the problem of the declining rate of profit. The movement of manufacturing into the semicolonies did not ease the competition between Europe and the US. Because everyone was taking more or less equal advantage of cheap overseas labor, each multinational corporation was still limited to extracting roughly the same profit as its competitors. At the same time, they all had to pay more for machinery, facilities, and transportation. Because the decline in the rate of profit kept intensifying, so did the inter-imperialist competition. As for US imperialism, the massive movement of manufacturing from the US to the third world undermined its position as the unquestioned hegemon of world imperialism. During the 1980s and 1990s, the US economy evolved into a service economy, with a drastic decline in manufacturing. No country can undergo such a profound transformation, in an era when overproduction is intensifying globally and the rate of profit is declining, and remain the dominant imperialist empire. The basic laws that Marx outlined in Das Capital remain true today. To remain the dominant force in the global economy, one needs a strong manufacturing base in one’s own country. Hence the beginning of the evident decline of the US as the dominant imperialist power.
7. So what happened when the growing global population (including approximately one billion starving people in the third word) could not afford the commodities produced by machines of an efficiency that Capital could only dream about 50 years ago? In a sane society, the increased efficiency of production would mean that workers could work shorter hours, as the machines did their old jobs. But under the regime of global capitalism, it only meant more global unemployment – which, in turn, pressured the “lucky” workers who remained employed to make wage concessions, resulting in salaries that were too low to enable them to buy the growing surplus of commodities.
8. With overproduction and the decline in the rate of profit, capitalism became limited in its ability to expand the means of production (new factories and manufacturing). Starting in the 1990s, a vast quantity of capital was accumulated, but it was not used to expand and develop the means of production. Instead, it was invested in unproductive financial manipulations. Trillions of dollars were made available to Wall Street and other financial institutions around the world. As a result, the world economy became more and more a bubble economy, based on debt and financial games. With the click of a mouse, the new barons of finance moved hundreds of billions of dollars from one area of the world to another in a matter of seconds. It did not matter that these greedy games of speculating on unproductive money contributed to the severe crisis in Asia in the 1990s. More important to the degenerated imperialist bourgeoisie was the fact that the speculators, equipped with proprietary software, sustained by hubris, and fueled by overweening greed, could accumulate billions chasing non-productive capital in one bubble after another. The Clinton and Bush administrations made sure that regulatory control over Wall Street was eased in order to facilitate the process of using unproductive money to make even more unproductive money. The oversupply of capital led to the easy availability of home loans and other forms of consumer credit. This, in turn, fueled the development of a global middle class (located primarily in the imperialist countries) that lived on massive debt as it drove from one shopping mall to another, using credit cards and home equity loans to fill its bottomless desire for more and more high-tech toys and other consumer goods. This also occurred to a lesser degree in the privileged layers of the working class. Over time, the bubble economy became an overinflated balloon based on unproductive debt and speculation.
9. Perhaps the most important development in the last 50 years is the entry of China into the global capitalist economy, where it has become a colossal factor, and its accompanying rise in importance as a player in world politics. Here is not the place to elaborate on how capitalism was restored in China. We will soon publish our analysis of this important question. What is important, however, is that while capitalism was being restored in the former Soviet Union and Eastern Europe, it was also being restored in China. But during the 1990s (continuing a process that really started in the late 1980s), capitalist China evolved very differently than the other countries in which capitalism was being restored. The task of comprehending China’s evolution clearly requires the flexibility of the dialectic method. The laws of the theory of permanent revolution1 remain in place for almost all semicolonies, but they cannot be understood through the narrow lens of formal logic, which freezes historical processes, and cannot admit of exceptions to the rules. The developments in China have not thrown the rules of permanent revolution out the window. But a correct understanding of these developments demonstrates the profound logic of the dialectical method, which is capable of enhancing the theory of permanent revolution.
Within the period of about a decade that has elapsed since the restoration of capitalism in China, that nation transitioned through a state capitalist stage – during which it, as a semicolony, was a prime target for imperialist exploitation – into one of the leading imperialist countries! What made this possible was the law of combined and uneven development acting in concert with the principle that quantitative change (here, rapid industrial development in a semicolony) can be transformed at the speed of light into qualitative change (here, the change from a semicolony to an imperialist country). Thus, China took only a decade to accomplish a process that took 150 years in the US. Ironically, one of the main reasons China was able to accomplish this was the superiority of the productive forces of the workers’ state. As deformed as the planned economy was under the yoke of Stalinism, its mechanisms allowed China’s new industrial economy to develop better and faster than has been possible for other poor countries. Taking root in the ruins of the workers’ state, the new capitalist class (consisting, at first, of the very same people who had been Party bureaucrats) took firm control, using the iron fist when necessary, of the accelerated process of capitalist development in China. Once that process was under way, tens of thousands of additional, new factories were established by people not necessary directly connected to the former Stalinist bureaucracy.
China has now the same contradictory character that Russia had before the 1917 revolution, combining features of an imperialist country with those of a semicolony. China remains a semicolony in that it is still one of the cheapest places for imperialist exploitation, and increasingly also for the exploitation by the rising Chinese bourgeoisie. At the same time, China is an imperialist country in that it exports massive amount of capital to the semicolonies (“Deals Help China Expand Sway in Latin America,” New York Times, April 15, 2009) – and even to Europe and the US. (Lenin identified the export of capital as a critical feature of imperialism.) Yet unlike Russia before the 1917 revolution, China plays a much more important role in the global capitalist economy and in world politics. A new capitalist class has arisen in China through the transformation of a vast number of state-owned factories into private enterprises owned and run by former Stalinist bureaucrats. As a result, the former Stalinist bureaucracy – transmogrified into a new capitalist class – remains in firm control of China’s economy. The scope of their control includes not only the factories, but also the banks. Thus, the state capitalist stage, while no longer in full force, still plays an important role in enabling China to become a major player in global politics.
The 1980s and early 1990s were an extraordinary historical period, because the dominant imperialist countries moved their manufacturing into the third world. They were welcomed with open arms in China. At first the emerging capitalist class flashed a come-hither look to the players in the world market. The imperialists could not resist the temptation, and moved a massive amount of their productive forces into China. But China’s rising capitalist class had no intention of maintaining China solely as a playground for the major imperialist countries. The Chinese took full advantage of the weakness in the established imperialist economies caused by the massive movement of their productive forces into China. The US in particular was vulnerable after its capitalists stripped their own country of the bulk of its means of production. The Chinese soon turned the table on the imperialist fools, and took over control of most of the manufacturing. As manufacturing in the US shrank dramatically, it expanded exponentially in China. By the mid-1990s, Chinese capitalists had collectively outstripped the leading manufacturers in the developed world. As a result, China’s foreign reserves rose quickly, and the Chinese accumulated loads of capital with which to make massive investments in Africa and Latin America, with plenty still left to invest in US treasury notes.
10. Thus, the conditions that led to the present crisis have been bubbling under the surface since the 1990s, due to the decline of US imperialism and the concomitant rise of the new hooligan on the block – albeit still a teenager – China. China has one huge advantage over its competitors. It has a huge pool, within its own country, of labor available at a price so low that no other imperialist country can possibly compete. According to the New York Times, by 2006 China had become the fourth biggest economy, after the US, Japan, and Germany (“Chinese Economy Grows to 4th Largest in the World,” New York Times, January 25, 2006); other sources think that it is now becoming the second (after the US). But what is important is not the exact pecking order but the dialectic dynamic. The changes in the global economic situation are so earthshaking that in reality the US has become completely dependent on Chinese investments – a situation that was so unexpected 20 years ago that people would have considered anyone who predicted it to be completely crazy.
Dialectically speaking, however, the fact that the Chinese managed to accumulate trillions of dollars in surplus capital only contributed to the present massive crisis. This is so because the world has been glutted with an overproduction of commodities, a condition that we explained earlier. So China, like the rest of the imperialist countries, could not transform its surplus capital into productive capital (factories, machinery, and other elements of the means of production). Instead, the Chinese – known for being cautious – put their money into long-term, low-yield, but presumably “safe” US treasury notes. Some of these billions of unproductive dollars were used by US imperialism to finance its wars in Iraq and Afghanistan. The rest went to Wall Street and the European banks – with disastrous results. Incapable of using this influx of capital productively, the American and European banks and other financial institutions instead used it, in effect, as stake money to fund an elaborate gambling frenzy, as discussed in more detail below.
11. To some degree, China and the US have changed positions over the last 15 years. From a subordinated semicolony, China has started to assert itself as the new boss. It is the US and Wall Street that have become dependent, primarily on China and to a lesser degree on other leading manufacturing countries, to keep the artificial bubble of the American economy going, based on debts and credit cards. During this period, a very symbiotic relationship developed between the US and China. On one hand, China dumped its cheap commodities into American markets. On the other hand, billions of dollars of Chinese profits could not be invested in new productive projects because the markets were glutted with products that the workers and the impoverished masses could not buy. These dollars were put into US treasury notes. Both countries had no choice but to accept their symbiotic relationship. China was dependent on the enormous and wide-open American market to bolster its mass surplus of capital, expand its imperialist ambitions, and become America’s most serious challenger. And America depended on China’s mass of accumulated unproductive dollars to keep its bubble economy going for the middle class (who lived on credit to a great extent) and to fuel the gambling of the billionaires in Wall Street. And since Wall Street was still the financial king, all the big players in Europe were involved in these unproductive games as well. In short, the US became dependent on Chinese super-profits, and transformed itself from a mighty tiger into a paper tiger. What kind of imperialist power are you if the wars you are fighting (in Iraq, Afghanistan, and Pakistan) in order to retain your global dominance are financed by your rising rival? Indeed, just as the US is losing its world economic domination, the might of its military has also become subject to billions of dollars of debt, primarily to China.
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1 Marxists use the term “semicolony” to describe a country that, while formally an independent political entity, is in reality economically dependent on one or more dominant capitalist (i.e., imperialist) countries. One of the principal tenets of the theory of permanent revolution is that because of a semicolony’s dependency on imperialism, the bourgeoisie in an oppressed semicolony cannot develop the productive forces enough to transform the semicolony into an advanced capitalist country. The Imperialist yoke keeps the semicolony economically backward relative to the advanced capitalist countries. The betrayals of the bourgeoisie and Social Democracy in mass struggles against imperialism guarantee the continuation of this status. Thus, according to the theory of permanent revolution, only the proletariat and its revolutionary leadership can transform a semicolony’s status, by combining the tasks of breaking the yoke of imperialism (thus creating the conditions for developing the economy and raising the masses' standard of living to the level of those in the advanced countries and beyond) with the tasks of the socialist revolution (the creation of worker-based political institutions to run a planned economy and prepare the ground for the development of socialism). In short, the permanent revolution completes the democratic tasks undertaken by the bourgeois in the oppressed country and combines them with the tasks of the proletariat via the socialist revolution.