Understanding the Crisis

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This article is a response to the review by NC of The Failure of Capitalist Production by Andrew Kliman in the January issue of Socialist Voice. It was originally published in the April issue of the Socialist Voice.

Part 1
Understanding the crisis is the key to addressing the political challenges we are facing today. A clear understanding of the forces behind the crisis and the contradictions that exploded in 2007 will help communists and class-conscious trade unionists to evolve the correct strategies and tactics for building class solidarity and consciousness, for pushing forward our class interests and the interests of humanity and the planet as a whole.

There are many great thinkers and activists who bring up to date and develop classic Marxist concepts to explain current events: the journal Monthly Review, the author of the book reviewed in January, Andrew Kliman, Michael Hudson, Samir Amin and researchers at RMF (Research on Money and Finance), to name but a few.

They may differ on some points in emphasis or on others in more fundamental understanding. But the aim should not be to choose one view over another and stick blindly to that view: it should be a concrete analysis of a concrete situation. And this is being achieved by using our collective knowledge and experience, combined with the most developed and coherent analysis of the system, placing it firmly in the historical trajectory of this country.

In short, it is to take the best critiques of the capitalist system today and add our experience to them.

Academics and professional economists (no offence intended) have a tendency to exaggerate differences in order to differentiate themselves from other thinkers. While they may lead the way in developing theories and providing the research that others can use, they cannot be relied on exclusively in explaining events, especially the present crisis. It is not about saying Kliman is right and Monthly Review is wrong but rather, in the best tradition of Marxism, taking the best features of the most advanced scientific thought to explain the world around us, and using this to help us change the world.

Financialisation of the accumulation process

The review seems to counterpose Kliman’s view of the declining rate of profit and the destruction of capital (or failure to destroy sufficient capital) to financialisation theory (in particular Monthly Reviewwriters) in explaining the crisis and to suggest that it is either one or the other.

The reviewer writes:

“The thesis presented in the book stands out in a number of ways from many contemporary radical interpretations (notably the financialised-underconsumptionist thesis advanced by the influential Monthly Review, which melds together a particular Marxian/post-Keynesian viewpoint and that of the Marxist political geographer David Harvey).”

I do not agree that either financialisation or insufficient destruction of capital is the root cause of the crisis.

The system itself is the root cause, and both financialisation and insufficient destruction of capital in previous recessions are essential features of monopoly capitalism. Accepting both is not necessarily a contradiction when one understands them as features of monopoly capitalism in its current state.

Kliman’s calculations of the declining rate of profit for the system as a whole, I suggest, do not necessarily contradict the evidence that after-tax profits and wealth have been concentrating and monopolising, leading to an abundance of capital in fewer hands that required investment in financial innovations and that blew up speculative bubbles to avoid global stagnation.

The failure to destroy capital en masse since the Second World War has driven capital to these financial avenues as other, more productive avenues are shut off by over-production and the cheapening of production.

My understanding, for what it is worth, is that the financialisation of the accumulation process (finance as the main avenue for investment of excess capital and source of profit and growth within the system today) is a product of the very crisis Kliman explains so well. It is a result, not a cause, of the generally stagnating economy. It has been a systemic response to divert after-tax profits (and after what capital can be reinvested in the monopolies that finance controls) to financial or (in the case of property bubbles) finance-led investment avenues.

Financialisation was not a misled policy choice but rather a solution to the problem of excess capital in the system, which, without a massive destruction of capital, had no home to go to.

Take GE Capital, Pfizer International Bank or the Volkswagen Bank as examples. These are the banking arms of global manufacturing monopolies. They were not set up as a policy choice by those companies to divert their capital to finance and away from manufacturing: they were set up because even after tax (what little they pay), bonuses and reinvestment, global monopolies still had masses of capital to invest, and financial products offered an avenue.

But financialisation, or the failure to destroy enough capital, do not by themselves explain the crisis; because what drove them as processes?

To try to find this out it might be worth while looking at more of the dominant features and how they connect to financialisation and the declining rate of profit in order to better understand the crisis and the establishment’s response.

The monopolisation of power

Wealth, income and control are all features of power, and power is being monopolised and concentrated in fewer and fewer hands globally. Power over productive relations that mould the shape of society, human relations and indeed the environment are increasingly centralised in the hands of the big monopolies and their biggest shareholders.

Even during this recession, global wealth increased, from $195 trillion in 2010 to $231 trillion in 2011, with the top 1 per cent-those with more than $712,000-accounting for 44 per cent of that $231 trillion and the top 10 per cent owning 84 per cent, while the bottom 50 per cent have barely 1 per cent.

Recent research found that of 43,060 transnational corporations analysed, a little over 730 entities control 80 per cent of these corporations, and a mere 147 control more than 40 per cent. Of these 147 controlling entities, 75 per cent are financial institutions.

This is how monopolised and uncompetitive production is. The automobile industry is dominated by about six companies, semiconductors by about twelve, music production about four; there are about ten big pharmaceutical companies, three soft drinks companies, and only two major commercial aviation companies.

And, as described above, these are then controlled by a few-often the same-large shareholders. This would suggest that a willing destruction of capital (or devaluation of assets) will be unlikely, given the power possessed by this handful of people who would take the biggest hit.

The internationalisation of production

Hand in hand with the process of monopolisation, and driven by the same accumulation process, production has become internationalised.

The dominant form of production and exchange is not local: it is truly global. A pair of Nike shoes contains about fifty parts, which are made in dozens of different factories in half a dozen countries. The total cost of a pair of Nike runners is about $1.50; they sell for over $100.

This means that workers are pitted against each other globally in a race to the bottom, with only one winner: profit. The amount of money big monopolies can accumulate through the internationalisation of production is huge. This is what has led to an over-accumulation of capital in the system.

The increasing size of monopolies means they can control the production and distribution networks within their field, and pit one against another. Labour becomes de-skilled as workers merely complete one task rather than completing an entire commodity. And more and more is produced through this cheapening and fragmentation of the production process.

However, the drive to pursue profits and ensure a return for shareholders does not pass on price reductions to consumers, as seen in the Nike example; and as workers in the “West” are cheapened by this process, consumption and demand are weakened, resulting in a continuous state of over-production.

Supply is not driven by demand but by the creation of surplus value through the application of labour in the production process. Capital emphasises the need to get the most out of labour, increase and cheapen production. Demand often suffers as a result and rarely meets supply. The extension of debt, or credit, has been a useful tool in artificially trying to match demand to supply. However, it is like putting a plaster over a gunshot wound and cannot seriously create an equilibrium between contradictory forces.


The second part of this contribution will be published in the next issue of Socialist Voice.