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Crisis Regulation in Global Capitalism

The globalization euphoria waned with the 1997 Asian crisis. The policy of the IMF and the World Bank met with massive criticism and public protests in the global South in the 1980s. Hundreds of billions were needed to bailout bankrupt banks. Capital suffocates in its excess. The US with its high solvent demand stabilized the world economy for a long time, consumed more than it produced and played the role of "consumer of last resort." The US could become indebted in its own currency

From Gold Standard to G20

By Samuel Decker and Thomas Sablowski

[This excerpt from the May 2017 study is translated from the German on the Internet, www.rosallux.de.]

The development of the G20, the G7 and international organizations like the IMF, the World Bank and the WTO can only be understood in connection with the internationalization of capital... The nation-state is the most important authority in the regulation of capitalism. However, an international regulation is also necessary with the increasing internationalization of capital. Informal conversations between governments are an expression of the standardizing tendency inherent in the expansion of capital. On the other hand, the accumulation of capital brings a spatial fragmentation and hierarchization that marks international relations...

The international regulation of capitalism is not linear but subject to the crisis-laden course of accumulation on a world scale and the unequal and combined economic and political development in individual countries. Multilateral cooperation is certainly more desirable than imperialist war. However, multilateral cooperation as in the G7 or the G20 mainly serves the interests of the ruling classes more than the realization of a fictional common good of humanity.

The history of capitalism and its different ways of development must be analyzed more closely to understand the international regulation of capitalism in general and the G20 in particular. Following the regulation theory, we describe modes of capitalist development more or less stable over several decades that include a certain accumulation regime and a certain regulatory mode of contradictory social relations. The regulation of international relations is part of this way of development (Brand 2010; Lipietz 1985; Mistral 1986). In the following, we will briefly sketch with theses the capitalist development and the changes in the regulations in capitalism.

2.1 From the British to the US-American Empire

In the last third of the 18th century, the capitalist production method was carried out in England. The transition process to the dominance of the capitalist production method continued to the middle of the 19th century in France, Germany and the US. Great Britain could practice its worldwide hegemony supported on its superior labor productivity of its local clothing industry and its naval or sea power. The informal empire of the United Kingdom extended far beyond the British colonial empire in the narrow sense. The British government could determine the international regulations and norms of finance, production and exchange" (Brand 2010).

The gold standard and the pound sterling were important pillars of the growing international economic linkage (ibid). A liberal-capitalist way of development was characterized by the following features. Wages, prices and production quantities were regulated by competition and subject to intense fluctuations in the course of the cyclical crises characteristic for capitalism. The exploitation of workers was first characterized by absolute surplus value production, that is by the extension of working hours. In many areas, there was more a formal than a real subsumption of workers under capital...

A longer phase of the instability of capitalism began with the First World War. The war itself led to putting in question the capitalist order in a revolutionary way by the workers movement. In most countries, the rebellions were crushed. Nevertheless, the 1917 revolution in Russia led to a socialist government that sought to break with capitalism and for years prevailed in a civil war. Restoring the liberal order did not succeed on the international plane in the inter-war period.

Different than in the 19th century, Great Britain no longer had the capacity to enforce such an order and the US that already outstripped Great Britain economically was not ready for political hegemony. The governments long held to the political model of the past that did not function any longer under the new social conditions. For example, the state lacked a political-economic instrument to react effectively to the rotation of inflation and deflation and to stabilize capital accumulation. Instead of cooperation, the states relied on protectionism in the worldwide economic crisis from 1929 so the world market was divided into different monetary blocs and world trade ultimately came to a standstill (Brand 2010; Ziebura 1984).

New structures developed on the plane of production that no longer matched the existing regulatory mode of capitalism. The Taylorist labor organization and the increasing mechanization of the production process that developed by leaps and bounds in the first decades of the 20th century made possible enormous growth in production. However, this growth could first flow in a new accumulation regime when the political conditions were created for completely reorganizing the lifestyle of wage-earners through mass consumption of capitalist produced goods.

This required the development of industrial unions and their recognition by the capitalists, regular wage negotiations where real wage increases could be carried out that corresponded to the productivity increases and finally the social state that safeguarded the purchasing power of wage-earners in unemployment, sickness and old age. These conditions were first created in the US in the 1930s and after the Second World War in Western Europe and Japan. There, the Fordist way of development was implemented that was based on the combined development of standardized mass production and mass consumption, that is on an intensive accumulation regime while the production of consumer goods was closely interlocked with the production of the means of production and the relative surplus value production could be fully unfolded . The leadership role of the US in implementing the Fordist way of development was also the basis for the US hegemony on the international plane. As the victorious power of the Second World War and in the context of the developing Cold War, the US rose to the absolute leading power of the West to guarantee the preservation of the global capitalist order.

The implementation of the Fordist production method and lifestyle was framed by the monetary order of Bretton Woods negotiated in 1944 under the leadership of the US...

2.2 The Crisis of Fordism and the Neoliberal Epoch

The Fordist way of development fell into crisis at the end of the 1960s. The production increases achieved on the basis of Taylorist labor organization were abrogated (Glyn 1990). Workers began rebelling against the increasing intensification of work; strikes, absenteeism and sabotage rose. A growing organic composition of capital that accompanied the mechanization of production could no longer be compensated by greater exploitation rates so the profit rates fell. (Following Marx, we understand organic composition of capital as the relation between the capital advanced to purchase the means of production and the capital used to purchase labor power.) Overcapacities formed through the catch-up development in Western Europe and Japan. The markets for durable consumer goods in the capitalist centers were nearly satiated after the high growth rates in the 1950s and 1960s.

Moreover, the US hegemony fell into a crisis. US corporations invested massively in Western Europe in the 1960s while European and Japanese producers increasingly exported their goods to the US. Western Europe and Japan caught up which ultimately led to a balance of payments deficit in the US while dollar assets accumulated abroad on the so-called Euro-dollar markets...

The crisis of the 1970s proved to be the third great crisis of capitalism, that is it could not be overcome in the framework of the Fordist way of development. This crisis had completely new characteristics like the simultaneity of economic stagnation and higher inflation ("stagflation"). The governments first reacted to this crisis with Keynesian measures. However, these measures were not successful since they could not do justice to the causes of the crisis that were not only insufficient demand. A way out could only exist in the (socialist) radicalization of (left-) Keynesian concepts toward an economic democracy and a socialization of investments. However, a reversal of power relations that moved a progressive solution to a far distance occurred through the crisis...

Wage-rates fell in the capitalist centers since the middle of the 1970s. Social inequality is also growing in countries like China. The share in the gross domestic product shrivels. The development of real wages remains far behind the development of labor productivity. The profitability crisis of the 1970s was solved in this way. Nevertheless, tendencies of overproduction are now intensifying...

Financialization describes the strategies of businesses, the state and international economic relations. The over-accumulation of capital means that relatively little capital can be productively invested in the industrial capital cycle while more and more fallow money-capital flows in purchasing securities, that is transformed into fictional capital. The gulf between real functioning capital and fictional capital is increasingly expanded.

Institutional investors as shareholders press for short-term profit maximization... Industrial businesses cannot be indifferent to the development of their stock prices since a price drop heightens the danger of a hostile takeover. Forcing up the price is attempted with techniques of financial engineering. Stock buybacks help in this along with changes of the capital structure. Profits are poured out to shareholders and the investment rates fall correspondingly...

The state also becomes more strongly indebted because, as a national competition state, it tries to attract businesses by lowering business- and profit-taxes and taxes on high incomes and wealth. This is counter-financed by shifting taxes more strongly to wage-earners, cutting state spending and increasing state indebtedness.

Ever-greater balance of payments imbalances develop since all states are not equally successful in the international location competition. Some countries realize high balance of payments surpluses while many countries have to struggle with balance of payments deficits. The unequal trade relations are bound with a growing international indebtedness. Thus, the development of all components of effective demand is connected with an ever-higher indebtedness and the demand of wage-earners, the investments of businesses, state spending and foreign trade. This would not have been possible without the expansion of the financial markets that was based on their deregulation, liberalization and globalization. Therefore, we speak of a finance-dominated accumulation regime (Demirovic/ Sablowski 2013; cf. also Guttmann 2016).

The United States could assert its hegemony de facto in the neoliberal era. In the 1970s and 1980s, debates about the decline of the US made the rounds. The US state protected the reproduction of global capitalism economically, politically and militarily and so was a "global state" (cf. Panitch/ Gindin 2004 and 2012; Panitch/ Konings 2008)... The globalization euphoria already waned with the outbreak of the Asian crisis in 1997. This made clear again the inner contradictions of the capitalist world hegemony...

The Asian crisis did not immediately seize the capitalist centers. This was because the capital streaming into the centers from threshold countries could be invested in the newly arising Internet economy. At that time, the New Economy promised gigantic profits and a new age of high growth in which all economic laws were no longer in effect for the new industries. The speculation bubble burst and the crisis now spread in the capitalist centers from 2000 when it was first clear that many of the new dot-com businesses would never post profits and that massive over-investments occurred in the information- and technical communication sector.

Since this time, the neoliberal globalization was again put in question politically even in the capitalist centers. (The policy of the IMF and the World Bank already met with massive criticism and public protests in the countries of the global South in the 1980s.) The summit meetings of the heads of government were important stages for protests against neoliberal globalization. The protests against the 1999 WTO summit in Seattle are regarded as the beginning o9f the new anti-globalization movement. A quarter-million people joined in the great demonstration against the G8 summit in Genoa in 2001. 100,000 people protested against the dominant policy at the 2007 G8 summit in Heiligendamm.

2.3 The G20 at the Limits of Globalization

... Financial measures are not sufficient to surmount the crisis. The governments in the US and the EU needed hundreds of billions of dollars or euros to bailout bankrupt banks and draw up economic packages to preserve the economy from a continuing depression. From 2008, the heads of state and government began to coordinate their crisis policy at annual summit meetings.

The state bank bailout changed private debts on a large scale into public debts. The state budget deficits grew intensely through the rise of mass unemployment, social spending and the sharp drop in state revenues. State indebtedness exploded. After the low point of the recession was overcome, many governments passed over to a policy of budget consolidation.

Capital suffocates in its success. The continuous redistribution of social wealth from wage-earners to owners of capital expressed in falling wage rates has enormously intensified the tendencies of overproduction.

The limits of globalization are now clear alongside the limits of financialization. Opening up China as the factory of the world has led to over-capacities to a tremendous degree... Even in China, the growth rates are falling and the transition from an export-oriented to a domestic-oriented model of development planned by the government is running into problems. The demand on the side of wage-earners remains very restricted and the dependence of the country on the export sector remains great since there are no free unions. The workers' movement is relatively weak and wage development depends essentially on the state minimum wage regulations.

Externalizing inner-macro-economic problems succeeds for a few countries with high balance of payments surpluses like Germany, China and Japan but cannot be continued for ever because the countries with balance of payments deficits on the other side must bear the costs. For a long time, the US through its high solvent demand stabilized the world economy and consumed more than it produced. The US helped make possible the growing export surplus in some countries of East Asia and Germany by playing the role of "consumer of last resort." The US could afford high budget- and balance of payments deficits because it could become indebted in its own currency. However, the election of Trump and his protectionist rhetoric shows that this beneficence strikes its limit. The crisis of the European monetary union and the European Union indicates that the balance of payment imbalances and the international indebtedness cannot be extended at will.

The crisis of neoliberal globalization has a geo-political dimension. With the limits of neoliberal globalization, the limits of international regulation appear above all for the EU and the US. This is manifest in the failure of the Doha trade round of the WTO and the rise of the BRICS states. While the old capitalist centers in the 1990s tried to integrate countries like Russia and China in the neoliberal world order, the relation to the up-and-coming developing countries is now becoming confrontational. The ruling classes of the old capitalist centers appreciate the developing- and threshold countries as raw material suppliers, sales markets and cheap production sites but obviously have no interest in rivals arising or that the ruling classes of those countries follow independent national development projects. Conflicts with countries like China, Russia or Iran occur increasingly because these countries are not satisfied with subordinate positions in the international division of labor and pursue their own interests internationally.

The fourth great crisis of capitalism is a political crisis, a crisis of the relations between representatives in a series of countries and is more than an economic crisis. In referring to other aspects like the crisis of social relations to nature, one can speak of a multiple crisis of capitalism (cf. Demirovic 2011; Prokla editorial 2016). What policy is chosen in the crisis - whether its causes or its symptoms are fought - is crucial for the further course of the crisis.

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(Book Review) A Predatory System 04.Sep.2018 22:42

by Leda Maria Paulani

(Apr 01, 2018)

Topics: Financialization , Political Economy

Places: Global
Instability of global finance capital

Leda Maria Paulani is a professor of economics at the University of São Paulo and a senior researcher at the Conseho Nacional de Desenvolvimento Científico e Tecnológico. With Paulo Nakatani, she edited and introduced a special section on "The State and Economy in Brazil" in the February 2007 issue of MR.

François Chesnais, Finance Capital Today: Corporations and Banks in the Lasting Global Slump (Chicago: Haymarket, 2018), 328 pages, $28.00, paperback.

Over two decades ago, the financialization of capitalism joined the list of topics most hotly discussed by intellectuals and economists who follow Marxist theory. François Chesnais was one of the first authors among them to address the topic directly. A closing chapter of his 1994 book La mondialisation du capital, which studied the reorganization of productive capital during the ongoing global wave of liberalization, was devoted entirely to the subject of financialization. That chapter would be expanded into two in the book's second edition, published three years later.

Also in 1997, in Monthly Review, Paul Sweezy published the article "More (or Less) on Globalization," in which he pointed to the links between the stagnation of the world's major economies, the growth of multinational corporate production, and "the financialization of the capital accumulation process." Given the succession of financial crises wracking the world, and conventional economic theory's flailing before them, the term would soon be popularized, inspiring a growing range of studies and research projects, many along Marxist lines.

Chesnais's latest book, Finance Capital Today, emerges as the most polished attempt yet to clarify a number of lingering questions around the matter. Chesnais is well-equipped to confront these problems: he provides an exhaustive review of the debate over financialization, drawing on a vast institutional and non-institutional financial literature and tackling conceptual issues head-on. His book takes the discussion to a new level entirely.

Chesnais's main thesis is that financialization is the profound, widespread dissemination of the characteristics of interest-bearing capital (as identified by Marx in volume 3 of Capital) throughout the capitalist system as a whole, through which its activity becomes "organically embedded in the fabric of social life." The omnipresence of interest-bearing capital—the most flagrant form of the mystification of capital, in Marx's view—thus cannot be dissociated from a consideration of the extreme degree of the concentration and centralization of capital that now characterizes the accumulation process.

Chesnais treats these concepts with clarifying precision, arguing that we must distinguish "finance capital" from "financial capital." The former, in the definition made famous by Rudolf Hilferding—though its meaning may have since shifted—refers to the simultaneous, interconnected processes of the concentration and centralization of capital. Through the intensification of mergers and acquisitions, this phenomenon has produced today's internationalized global banks, major transnational industrial and service corporations, and global commerce giants, all of them closely intertwined. Financial capital, meanwhile, denotes finance stricto sensu—or, as Chesnais puts it, "finance qua finance": the process associated with the spectacular growth, over the last forty years, of the assets (bonds, stocks, derivatives) held and traded by financial corporations (major banks and funds) and by the financial departments of major corporations and transnational businesses.

According to Chesnais, finance capital and financial capital refer to distinct but related dimensions of contemporary capitalism. The most important result of their combined influence is that a general vision of capital as property has come to permeate that of capital as function. From the perspective of the substance of value, this means that the appropriation of surplus value grows increasingly distant from its source—whether because highly concentrated industrial capital holds outsized market power and the capacity for monopsony, because the predatory appropriation of the surplus value of weaker businesses comes to prevail over the direct exploitation of labor, or because the search for valorization has come to rest on fictitious assets whose connection to the production of surplus value is increasingly remote.

The swelling of financial markets, in parallel with their growing complexity and interdependence, has only deepened the immanent tendency of capital to become autonomous from its material supports—or, as Marx put it, "the autonomization of the form of surplus-value, the ossification of its form as against its substance, its essence." For Chesnais, this push toward autonomy by financial capital has reached heights never before seen in the history of capitalism, bolstered by the support of central banks and governments. But we are left with the question: how did we get here? What led financial capital to this degree of autonomization?

The answer is complex, because it is directly related to the nature of the crisis the capitalist system has been experiencing for more than four decades—that of very low or even negative GDP growth. This in turn prompts another, equally crucial question: whether financialization is here to stay, inaugurating a new stage in the history of the system, or is instead a passing (perhaps cyclical) phenomenon, meaning that we might see a resumption of relatively sustained accumulation rooted in the production and direct extraction of surplus value.

Chesnais answers firmly that financialization is a new stage in the history of the capitalist system. His argument, however, does not merely rubberstamp circulationist interpretations, much less those which allege that theories of financialization affirm the full autonomization of the accumulation of capital in relation to the exploitation of labor and the appropriation of surplus value—quite the contrary.

As Chesnais sees it, the crisis of the last forty years is one of overaccumulation and overproduction, aggravated by a declining rate of profit. He views overaccumulation as an excess of production capacity in relation to its valorization, indicating problems of realization and the overproduction of goods; this comes alongside the persistent and growing plethora of capital seeking interest and to transform itself into "fictitious capital."

In his retrospective, Chesnais recalls that the crisis of the 1970s may be explained by the rise in the organic composition of capital and the emergence of overproduction among national economies that, while interdependent, remained self-centered and autonomous. The system responded to this crisis in three ways: what Chesnais calls the neoconservative revolution, with the creation and implementation of global policies of liberalization and the deregulation of finance, commerce, and foreign direct investment (in effect, taking autonomy away from national economies); staunch support for China's entry into the capitalist system; and, after the run of crises in the late 1990s, mass recourse to the creation of credit, with the implementation of a "debt-led growth regime."

The latter two measures seemed to have prolonged the life of the system somewhat, until the international financial crisis of 2007-08 set in. Unlike the depression of the 1930s, however, this period did not clear the way for a new phase of accumulation. Chesnais recalls that at the first G20 meeting after the peak of the crisis and the drastic interventions of the U.S. Federal Reserve, world elites and their governments were unanimous in their belief that they would not survive the political consequences of a large-scale purging of overaccumulation. That is why he sees the current crisis as one of capitalism tout court, marked above all by the completion of the world market (with the integration of China) and the deepening of financialization.

Turning to the tendency of the rate of profit to fall, and its importance in diagnosing the current crisis, Chesnais observes that ample attention has been paid to the rate itself, but hardly any to the mass of profit. However slowly it may rise, as long as overaccumulation persists, that mass must go somewhere in its attempt to grow. The expansion of capital looking to be transformed into fictitious capital—which the resolution of the 2007-08 crisis only accelerated—thus appears as the fuel that continues to drive the financialization process and to strengthen the financial corporations at the reins of these immense masses of money capital.

The power of this process can be seen today in two elements discussed at length and illustrated with a profusion of examples in Chesnais's book. The first is that major transnational corporations that produce goods and services have expanded their financial operations so spectacularly that in some cases they have created their own banks; meanwhile, financial corporations have been venturing into commerce, with some even turning out key goods in the production process, such as aluminum. All these entangled operations, often involving derivatives, can make it quite difficult to distinguish financial and non-financial operations. Furthermore, we might recall here that, as Chesnais shows, it is the financial sphere which provides the instruments used to speed up the centralization of capital. The mergers and acquisitions that make this process possible—especially through the annexation of small capital companies by large transnational corporations—have benefited enormously from the work of private equity funds, whose leveraged buyout operations are among the most predatory forms of capital.

The second element showing the strength of "financial capital's pretension to autonomy" is what Chesnais, in a deliberate pleonasm, dubs the "financialization of financial capital." This is the exacerbation of the disintermediation of the credit system, a process ongoing since the mid-1980s, alongside the ascent of hedge funds, mutual funds, and even pension funds—and the simultaneous transformation of traditional banks into universal banks authorized to carry out all sorts of operations. Chesnais writes that the prevalence of direct finance and the consequent deterioration of the credit system, along with the massive spread of securitization processes, are at the root of the so-called shadow banking system, which played such a key role in the crisis sparked in 2007-08 by the U.S. housing market.

The completion of the world market with the full integration of China and the persistence and deepening of the process of the financialization of capital are together reproducing the overaccumulation crisis that has defined the system for several decades. According to Chesnais, this explains the disparity between the dynamism of financial markets and the lethargy of GDP growth, and for the stark contrast between this lethargy and the intensity of the exploitation of labor. The latter has been increasingly facilitated by the vertical structuring of major transnational corporations, the global oligopolies that now predominate in international markets, and the growth of the global industrial reserve army, thanks to the incorporation of the massive Chinese labor force. Capital's greatest acquisition in the last forty years, Chesnais observes, was the creation of a global labor force.

The persistence of financialization in all its dimensions suggests that capitalism is increasingly running up against the limits created by its own development. In his conclusion, Chesnais wonders where a new surge of capitalist accumulation might arise. After investigating several possibilities, such as the complete commodification of public services, the growth of the middle classes in developing countries, and the technological changes wrought by the relentless growth of information and communication technology, his conclusion is less than sanguine: there seems to be no adjustment process capable of restoring capital accumulation and its necessary conditions.

Nevertheless, as Chesnais observes, capitalism comes out just fine. Its expiration date is nowhere in sight. In other words, the current situation may persist for a long time, in an increasingly unstable system that produces little growth and ever deeper inequality, brutally accelerating the exploitation of labor and the expropriation of surplus value. What is at stake, Chesnais concludes, is not the future of capitalism, but that of civilization itself.

It is increasingly clear that human society today is facing the consequences of capitalism's historical limits. In Chesnais's vision, the social and political effects of low growth and endemic financial instability, along with the political chaos already unleashed in certain regions and which may spread to others, will combine with the social and political fallout from climate change and the exhaustion of natural resources, making a descent into barbarism a real possibility. Desperate attempts to boost profitability, headed up by global oligopolies, will lead to increasingly destructive forms of agriculture, mining, and oil extraction. Ecological collapse, the signs of which have become impossible to ignore, and which may be accompanied by wars as well as ideological and cultural breakdown, stands here as the absolute limit of the system—one nonetheless produced by capital itself. Chesnais concedes that this is not a very encouraging way to end a book. But he concludes with Gramsci: "telling the truth is a revolutionary act."