1973
Redux?: Continuity and Discontinuity in the Decline of
Dollar-Centered World Accumulation
By Loren Goldner
Before entering into the class dynamic of the current world economic
situation, let us consider the manifestations of crisis on the visible
surface, which are real enough.
The world is still in the early phase of an inflationary blow-out
centered on the indebted "U.S.
consumer" as the "locomotive" of the world economy.
Every indicator in the world economy today points to a reflation-driven
boom that can ultimately
be traced back to credit expansion in the U.S., generalized to the
world by the unbelievable levels of
U.S. balance-of-payments deficits. When this world-wide Ponzi scheme
unravels, the Asian export giants (Japan,
Korea, China) will go into the tank with the U.S., as will the Third
World raw materials producers (e.g.
Latin America) currently enjoying a boom from exports to Asia, above
all China.
The parallels with the the early 1970's, just prior to the
1973-1979 inflationary surge, are uncanny:
-the U.S. bogged down in a losing, unpopular war (Vietnam
then, Iraq now)
-a scandal-ridden, foundering Republican
administration (Nixon then, Bush now)
-all commodity prices headed skyward, led by gold and
oil
-a lingering "boom" mentality in the
U.S. mainstream (the Dow Jones Industrial Average hitting finally
regaining the peak levels of early 2000, just before the dot.com
crash; in fact, the U.S. stock market has gone exactly nowhere for six
years, and has gone backward when inflation is factored in.)
-unbelievable run-up of consumer (and all kinds of)
debt in the U.S.
-a faltering dollar and growing uneasiness of the U.S.'s
international creditors, who have made the above
run-up of debt possible.
These parallels are not mere empirical coincidence, but point to an
“invariant” in world accumulation since the late 1950’s when the
worldwide “dollar standard” first began to erode. By definition, every
U.S. “expansion” since 1958 has brought about a decline in America’s
international position, and has only been possible through such a
decline. (This is what Michael Hudson, in his excellent book
Super-Imperialism, calls “managing empire through bankruptcy”. )
A brief look at basic economic realities shows this erosion has
continued unabated. As of the end of 2005, there was $33 trillion
in outstanding debt (Federal, state, local, corporate, personal) in the
U.S. economy, three times GDP. (No one knows how much is tied up in the
international hedge funds and derivatives, and the estimated $7-8
trillion in Federal debt does not include trillions more in commitments
for Social Security and Medicare.) The state (including Federal,
state and local levels) consumes 40% of GDP. The net U.S. debt abroad
is between $3 and $4 trillion (at least $11 trillion held by foreigners
minus $8 trillion in U.S. assets abroad) i.e. it is comparable (at 30%
of GDP) to the situation of crisis-ridden Third World countries.
That amount is growing by $800 billion a year at current rates.
Ominously, in late 2005, foreign income from investment in the U.S.
exceeded U.S. income from overseas investment (the one remaining strong
pillar of the U.S. international position) for the first time.
Foreigners hold an increasing percent of U.S. government debt; the four
major Asian central banks (Japan, China, South Korea, Taiwan) alone
hold nearly $2 trillion. It is the Federal government’s debt, and
hence these foreign loans, which make possible the reflationary actions
of the Federal Reserve Bank. Since the early 1980’s, a kind of
“financial arbitrage capitalism”, in which investment in increasingly
focused on different possible financial instruments instead of
production, has been put in place. Thus the old conceptualization
of the role of the banking system and the Fed’s (apparent) ability to
expand and contract credit availability through it, is
superseded; increasing amounts of “virtual” credit are created by
“securitized finance” independent of banks. One must also consider the
government-linked entities (Freddie Mac, Fannie Mae), which backed the
reflation of mortgages of the past 4 years, leading to an incredible
housing bubble. This entire edifice has depended on 1) low inflation in
the U.S., as higher inflation would scare off foreign lenders; 2) the
willingness of U.S, “consumers” to go more and more heavily into
debt (with debt service now taking 14% of incomes, as opposed to 11% a
few years ago) 3) the willingness and ability and above all the need of
foreigners to go on re-lending U.S. balance-of-payments deficits back
to the U.S., allowing increasingly indebted U.S. “consumers” to be the
“locomotive” of the world economy.
Constantly relending money to an ever-more indebted borrower to delay
the latter’s bankruptcy is the very definition of a “Ponzi scheme”, and
that is what world accumulation has come to.
There are of course important discontinuities with the early 1970’s.
The U.S. strategy of a “global leveraged buyout” of previously
protected or semi-protected regions (the ex-Soviet bloc, China, India,
East Asia, Europe) is much more advanced, bringing more than two
billion people into a global work force far less sheltered behind
previous national barriers to looting. This reality is having a major
downward pull on wages, as outsourcing from the U.S. and Europe to
these new zones (China, India, Eastern Europe) accelerates.
The early 1970’s was the final phase of the last worldwide
working-class upsurge, against which the entire post-1973 period
must be understood as a conscious counter-offensive. It took the
worldwide working-class movement nearly three decades to learn how to
struggle offensively on the new terrain of neo-liberalism, and the new
wave of struggles can be dated from the 1997 UPS strike in the U.S. and
the Seattle anti-globalization riot of 1999, against which Sept. 11
marked a major turning point in capitalist, above all American
counter-strategy. More recently, this new recomposition of the
working class can be seen in a palpable strike wave in western Europe
or, most recently, the May 1 mobilization of the Latino working
class in the U.S. over immigrant rights.
It is true that Chinese exports are exerting a deflationary drag
globally, which is different from the 1970's. But wages are rapidly
rising in Shenzhen and in Guandong province to attract workers, and
Bangladesh has now edged out China as the low-wage champion of the
Third World. Further, the relentless boom in China is pulling up all
commodity prices by its seemingly bottomless demand for raw materials,
now spreading the boom to Latin America, and to African oil producers.
Last but not least, one must not forget geopolitical dislocation, led
by the brewing Iran crisis, one of several dimensions that takes the
preceding out of purely economic considerations.
One plausible counter-scenario to the preceding is the downward turn of
the U.S. housing market, now underway, plunges the U.S. (and, by a
fall-off of U.S.
demand, the world) into a deflationary crash faster than otherwise
anticipate. In my opinion,
the Federal Reserve Bank will not allow this to happen without first
pulling out all stops on reflation with the famous "helicopter money"
theorized by its new chairman, Benjamin Bernanke. True, the Fed is
hardly
omnipotent and there would be a huge run out of the dollar, forcing a
rapid rise in U.S. interest rates,
which would in turn further act to kill off the housing bubble. For the
moment, all the capitalists can do is continue expanding the debt
pyramid, and intensify their attacks on the working class.
What is a “global leveraged buyout”? Accumulation is threatened because
the totality of capitalist paper claims to wealth (profit, interest and
ground rent), starting with the $3-4 trillion “nomad dollars” held
outside the U.S., exceed the surplus value available for their
valorization. This excess of fictitious claims is, as sketched above,
the result of decades of debt pyramiding aimed at delaying a
deflationary crisis, and can be maintained only by reducing the global
wage and through “primitive accumulation” (non-reproduction or
non-exchange) from incorporating petty producers from Third World
agriculture into the global working class, the running down of capital
plant and infrastructure, and the looting of nature. It is quite
different from earlier, “normal” capitalist expansions in which these
claims grow alongside the expanded reproduction of society. Today,
capitalist paper expands and social reproduction contracts.
Global leveraged buyout has meant, since 1973, opening national or
regional zones of assets to the U.S.-centered credit bubble, much in
the same way that Germany’s military expansion after 1938 aimed
at propping up the 1933-1938 credit pyramid created by Hjalmar
Schacht’s “Mefo bill” (Mefowechsel, issued by the
Metallforschungsgesellschaft which financed German rearmament)
.In the 1997-98 Asian financial crisis, for example, American capital,
through the International Monetary Fund (IMF) opened relatively closed
Asian economies such as Korea to “vulture capitalist” buyouts of
greatly discounted real assets which were later restructured and resold
at a significant profit. The opening of the ex-Soviet bloc, China and
India presents the global leveraged buyout with tremendous
possibilities of exploiting highly-educated, cheap labor power and
natural resources which might keep this process going for years. Behind
these empirical manifestations we see the classic cycle of
valorization- devalorization- revalorization described in vol. III of
Marx’s Capital.
Two major powers, the European Union and China, represent
obstacles to America’s strategy of global leveraged buyout. Both are
vulnerable to America’s current dominance of world petroleum resources,
and are increasingly challenging the U.S. in the worldwide race to
control them, from disagreements over Iran to the competition for new
oil sources in Africa.
Europe is far from being able to challenge the U.S. Because capital is
not merely an economic and social relationship but also a political and
military one, history has shown that monetary and economic union
without political unification is unviable, and Europe’s political
unification is currently dead in the water.
Consider the euro’s challenge to the dollar as an international reserve
currency. While Europe’s net global position, both in trade and
finance, has none of the problems of the foreign
indebtedness of the U.S., a worldwide flight from the dollar would
strongly revalue the euro and weigh heavily on Europe’s international
competitive position. (This already alarmed the European capitalists
with the post-2002 rise of the euro to .80 to the dollar, a 40%
revaluation in 18 months.) But this problem would pale next to a major
Mideast crisis that threatened Europe’s access to oil, to say nothing
of a military confrontation (of which the Yugoslav wars were an
excellent foretaste) that would reveal Europe’s profound disarray in
foreign and military policy.
China is in fact the real problem for U.S. world hegemony, as recent
CIA reports have frankly stated. Sometimes it seems as if all U.S.
foreign policy since at least the late 1970’s (e.g. Afghanistan) has
been aimed at controlling the periphery of Russia and China, and since
the collapse of the Soviet bloc, the encirclement of China. The
emergence of an East Asian capitalist bloc capable of replacing the
U.S. as the world hegemon is the nightmare of American capital. China,
in contrast to the European Union, is still too closed for the
capitalists’ satisfaction, and “global leveraged buyout” there is still
in its early stages. Asian nationalisms (China, Korea, Japan) as well
as the lingering Cold War questions (Taiwan, the division of Korea) are
still major obstacles to anything resembling an “Asian Union”, but the
U.S. is using every means in its power to stoke these fires and prevent
such a union from forming.
In the currently accelerating world reflation, Germany and Japan, the
two previous “locomotives” of Europe and East Asia respectively,
recently eclipsed by the creation of the euro and the rise of China,
are showing the highest “capitalist confidence” in 15 years. But both
countries are highly vulnerable to the rising international interest
rates necessary to control the return of inflation, as well as to the
currency revaluation mentioned previously. In early May, the European
Central Bank avoided raising interest rates both to prevent such a
revaluation and to avoid choking off signs of recovery, particularly in
Germany.
Both countries (and particularly Japan) also show signs of the
“demographic crisis” touted in the capitalist press around the
incipient pension bankruptcy. The recent capitalist hue and cry over
this crisis could not be more hypocritical. Within a capitalist
framework, this crisis only exists because the restructuring of the
past 30 years has narrowed the “active population” (i.e. the population
capable of producing surplus value) to people between the ages of 25
and 50. France, for example, has in recent years seen the gamut of
excluded or potentially excluded groups struggle against this
downsizing: public employees went into the streets over pensions
(May-June 2003), immigrant youth rioted over their total exclusion and
criminalization (November 2005) and most recently students struck for
two months (March-April 2006) to prevent the gutting of labor
protection for young people. The retired, the unemployable and
the soon-to-be-exploited have all moved, while the surplus-value
producing population, the group with the greatest power to resist
capital, has remained largely immobile.
The “demographic crisis” exists only because of the demands of
capitalist valorization. It expresses the fact that productive forces
exist today which could enable a higher form of society to both greatly
decrease socially-necessary labor and to transform the remaining
necessary labor into the
“…development of the rich individuality which is as all-sided in its
production as in its consumption, and whose labor also therefore no
longers appears as labor, but as the full development of activity
itself…” (Marx, Grundisse)
Further, the “demographic crisis” in Europe and Japan reflects the
actual contraction of population (Japan has negative population growth
in 2005, Germany has been close to zero growth) because of the greatly
increased cost, in capitalist terms, of reproducing the next
generation.
Finally, on a world scale, there is no “demographic crisis” whatsoever.
It is only a crisis because of the persistence of value production and
of the nation-state. The crisis in the advanced capitalist sector since
the early 1970’s has produced an aging population-for-capital, and the
same crisis in the less-developed world has produced a huge young
population (as among poor peasants, where a large family is
indispensable for the elderly where no pensions exist). These
complementary imbalances are only two signs of the same coin, the
crisis of capital’s recomposition for a possible new expansion.
This brings us to the final dimension of the analysis. Why has capital,
since the early 1970’s, had to resort to such fictitious development
and launch such (at least in the U.S.) a class war in which only one
side was fighting?
The early 1970’s crisis erupted, as mentioned, at the end of a period
of rising working-class insurgency. Underneath all appearances, this
crisis expressed the superannuation of value as a form through which
society could reproduce itself. In the proletarian eruption in Europe
and the U.S. from the mid-1960’s (wildcat movement in the U.S. and the
U.K.) to the mid-1970’s (Italy, Portugal, Spain) by way of May 1968 in
France, the working class (as well as other social strata) were groping
toward the “full development of activity itself” made possible and
necessary by the previous development of capitalism. The capitalists,
on the other hand, needed to oversee a general devalorization of
capital and of labor power such that a new expansion could begin on a
profitable basis. In contrast to the first phase of capitalist history
(1815-1914) this could not occur through a rapid deflation, depression
and recovery. Global society was TOO productive for the value form, and
hence not merely capitalist paper but actual productive forces, and
above all labor power, had to be destroyed and rolled back, as had
occurred in the 1914-1945 transition from British-centered to
America-centered world accumulation. The emergence of the “neo-liberal”
phase of capitalism in the late 1970’s was the attempt to protect the
capitalist titles to profit, interest and ground rent from excessive
devalorization through the global “Ponzi scheme” described previously,
and at the same time to oversee a “slow-motion crash landing” in the
grinding down of working-class living standards globally.
As a result, the world today is poised between the U.S. and East Asian
centered phases of capitalist expansion. But the latter can only
triumph by a far greater, more violent shakeout than has occurred to
date. And like the early years of the last shakeout (1917-1921), before
the new American dominance was in place, this is creating a new opening
for the “old mole”, in which the old slogan “socialism or barbarism”
will not be a romantic battle cry, but the most rigorous necessity.
This text is from the
Break Their Haughty Power web site http://home.earthlink.net/~lrgoldner