The Political Economy Of Global Capitalism And Crisis [1 ed.] 041584438X, 9780415844383, 0415844398, 9780415844390, 1315796686, 9781315796680, 1306530350, 9781306530354, 1317751272, 9781317751274, 1317751280, 9781317751281

The book provides a theoretically and historically informed analysis of the global economic crisis. It makes original co

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The Political Economy Of Global Capitalism And Crisis [1 ed.]
 041584438X, 9780415844383, 0415844398, 9780415844390, 1315796686, 9781315796680, 1306530350, 9781306530354, 1317751272, 9781317751274, 1317751280, 9781317751281

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Table of contents :
Half Title
Title Page
Copyright Page
Table of Contents
List of illustrations
1 | Understanding the political economy of global capitalism and crises
2 | Capitalism and other social orders
3 | Value theory in an incompletely capitalist society
4 | The heterogeneity of capital
5 | A contribution to a theory of crisis and recovery
6 | States and global capitalism
7 | The Keynesian moment and its contradictions
8 | Global restructuring: extensive accumulation and financialization
9 | The world market and the crisis
10 | Recession or renewal?
11 | Re-locating capital?

Citation preview


The book provides a theoretically and historically informed analysis of the global economic crisis. It makes original contributions to theories of value, of crisis and of the state and uses these to develop a rich empirical study of the changing character of capitalism in the twentieth century and beyond. It defends, uses and develops Marxist theory while arguing particularly against jumping too quickly from abstract concepts to a concrete understanding of the crisis. Instead, it uses what Marx described in his notebooks as an ‘obvious’ analytical ordering to progress from a general analysis of economy and society to a discussion of recent economic transformations and the specifics of the crisis and its aftermath. Dunn argues that appropriately reconceived, a critical Marxism can incorporate and enrich rather than rejecting insights from other traditions. He disputes general characterizations of capitalism to the crisis and theories which see finance and the contemporary financial crises as largely detached from other aspects of the economy and society. Providing a thoroughly socialized and historically based account, this book will be vital reading for students and scholars of political economy, international political economy, Marxism, sociology, geography and development studies. Bill Dunn is Senior Lecturer in the Department of Political Economy, University of Sydney, Australia.

RIPE series in Global Political Economy

Series Editors: Jacqueline Best (University of Ottawa, Canada), Ian Bruff (Manchester University, UK), Paul Langley (Durham University, UK) and Anna Leander (Copenhagen Business School, Denmark). Formerly edited by Leonard Seabrooke (Copenhagen Business School, Denmark), Randall Germain (Carleton University, Canada), Rorden Wilkinson (University of Manchester, UK), Otto Holman (University of Amsterdam, the Netherlands), Marianne Marchand (Universidad de las Américas-Puebla, Mexico), Henk Overbeek (Free University,Amsterdam, the Netherlands) and Marianne Franklin (Goldsmiths, University of London, UK). The RIPE series editorial board are: Mathias Albert (Bielefeld University, Germany), Mark Beeson (University of Birmingham, UK), A. Claire Cutler (University of Victoria, Canada), Marianne Franklin (Goldsmiths, University of London, UK), Randall Germain (Carleton University, Canada) Stephen Gill (York University, Canada), Jeffrey Hart (Indiana University, USA), Eric Helleiner (Trent University, Canada), Otto Holman (University of Amsterdam, the Netherlands), Marianne H. Marchand (Universidad de las Américas-Puebla, Mexico), Craig N. Murphy (Wellesley College, USA), Robert O’Brien (McMaster University, Canada), Henk Overbeek (Vrije Universiteit, the Netherlands), Anthony Payne (University of Sheffield, UK), V. Spike Peterson (University of Arizona, USA) and Rorden Wilkinson (University of Manchester, UK). This series, published in association with the Review of International Political Economy, provides a forum for current and interdisciplinary debates in international political economy. The series aims to advance understanding of the key issues in the global political economy, and to present innovative analyses of emerging topics.

The titles in the series focus on three broad themes:

• • •

the structures, processes and actors of contemporary global transformations the changing forms taken by governance, at scales from the local and everyday to the global and systemic the inseparability of economic from political, social and cultural questions, including resistance, dissent and social movements.

The RIPE Series in Global Political Economy aims to address the needs of students and teachers.Titles include: Transnational Classes and International Relations Kees van der Pijl Globalization and Governance Edited by Aseem Prakash and Jeffrey A. Hart Nation-States and Money The past, present and future of national currencies Edited by Emily Gilbert and Eric Helleiner Gender and Global Restructuring Sightings, sites and resistances Edited by Marianne H. Marchand and Anne Sisson Runyan The Global Political Economy of Intellectual Property Rights The new enclosures? Christopher May Global Political Economy Contemporary theories Edited by Ronen Palan Ideologies of Globalization Contending visions of a new world order Mark Rupert The Clash within Civilisations Coming to terms with cultural conflicts Dieter Senghaas Capitalist Restructuring, Globalisation and the Third Way Lessons from the Swedish model J. Magnus Ryner

Transnational Capitalism and the Struggle over European Integration Bastiaan van Apeldoorn World Financial Orders An historical international political economy Paul Langley Global Unions? Theory and strategies of organized labour in the global political economy Edited by Jeffrey Harrod and Robert O’Brien Political Economy of a Plural World Critical reflections on power, morals and civilizations Robert Cox with Michael Schechter The Changing Politics of Finance in Korea and Thailand From deregulation to debacle Xiaoke Zhang Anti-Immigrantism in Western Democracies Statecraft, desire and the politics of exclusion Roxanne Lynn Doty The Political Economy of European Employment European integration and the transnationalization of the (un)employment question Edited by Henk Overbeek A Critical Rewriting of Global Political Economy Integrating reproductive, productive and virtual economies V. Spike Peterson International Trade and Developing Countries Bargaining coalitions in the GATT and WTO Amrita Narlikar Rethinking Global Political Economy Emerging issues, unfolding odysseys Edited by Mary Ann Tétreault, Robert A. Denemark, Kenneth P.Thomas and Kurt Burch Global Institutions and Development Framing the world? Edited by Morten Bøås and Desmond McNeill

Contesting Globalization Space and place in the world economy André C. Drainville The Southern Cone Model The political economy of regional capitalist development in Latin America Nicola Phillips The Idea of Global Civil Society Politics and ethics of a globalizing era Edited by Randall D. Germain and Michael Kenny Global Institutions, Marginalization, and Development Craig N. Murphy Governing Financial Globalization International political economy and multi-level governance Edited by Andrew Baker, David Hudson and Richard Woodward Critical Theories, International Relations and ‘the Anti-Globalisation Movement’ The politics of global resistance Edited by Catherine Eschle and Bice Maiguashca Resisting Intellectual Property Debora J. Halbert Globalization, Governmentality, and Global Politics Regulation for the rest of us? Ronnie D. Lipschutz, with James K. Rowe Neoliberal Hegemony A global critique Edited by Dieter Plehwe, Bernhard Walpen and Gisela Neunhöffer Images of Gramsci Connections and contentions in political theory and international relations Edited by Andreas Bieler and Adam David Morton Global Standards of Market Civilization Edited by Brett Bowden and Leonard Seabrooke

Beyond Globalization Capitalism, territoriality and the international relations of modernity Hannes Lacher Global Public Policy Business and the countervailing powers of civil society Edited by Karsten Ronit The Transnational Politics of Corporate Governance Regulation Edited by Henk Overbeek, Bastiaan van Apeldoorn and Andreas Nölke Critical Perspectives on Global Governance Rights and regulation in governing regimes Jean Grugel and Nicola Piper National Currencies and Globalization Endangered specie? Paul Bowles Conflicts in Environmental Regulation and the Internationalization of the State Contested terrains Ulrich Brand, Christoph Görg, Joachim Hirsch and Markus Wissen Beyond States and Markets The challenges of social reproduction Edited by Isabella Bakker and Rachel Silvey Governing International Labour Migration Current issues, challenges and dilemmas Edited by Christina Gabriel and Hélène Pellerin The Industrial Vagina The political economy of the global sex trade Sheila Jeffreys The Child in International Political Economy A place at the table Alison M. S.Watson Capital as Power A study of order and creorder Jonathan Nitzan and Shimshon Bichler

Global Citizenship and the Legacy of Empire Marketing development April Biccum The Global Political Economy of Intellectual Property Rights Second edition The new enclosures Christopher May Corporate Power and Ownership in Contemporary Capitalism The politics of resistance and domination Susanne Soederberg Savage Economics Wealth, poverty and the temporal walls of capitalism David L. Blaney and Naeem Inayatullah Cultural Political Economy Edited by Jacqueline Best and Matthew Paterson Development, Sexual Rights and Global Governance Resisting global power Amy Lind Cosmopolitanism and Global Financial Reform A pragmatic approach to the Tobin tax James Brassett Gender and Global Restructuring Second edition Sightings, sites and resistances Edited by Marianne H. Marchand and Anne Sisson Runyan Variegated Neoliberalism EU varieties of capitalism and international political economy Huw Macartney The Politics of European Competition Regulation A critical political economy perspective Hubert Buch-Hansen and Angela Wigger The Political Economy of Global Remittances Gender and governmentality Rahel Kunz

A Critical History of the Economy On the birth of the national and international economies Ryan Walter The International Political Economy of Transition Neoliberal hegemony and Eastern Central Europe’s transformation Stuart Shields The Global Political Economy of Trade Protectionism and Liberalization Trade reform and economic adjustment in textiles and clothing Tony Heron Transnational Financial Associations and the Governance of Global Finance Assembling wealth and power Heather McKeen-Edwards and Tony Porter The Capitalist Mode of Power Critical engagements with the power theory of value Edited by Tim Di Muzio The Making of Modern Finance Liberal governance and the gold standard Samuel Knafo The State of Copyright The complex relationships of cultural creation in a globalized world Debora J. Halbert Transnational Financial Regulation after the Crisis Edited by Tony Porter The Political Economy of Global Capitalism and Crisis Bill Dunn


Bill Dunn

First published 2014 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2014 Bill Dunn The right of Bill Dunn to be identified as author of this work has been asserted by him in accordance with Sections 77 and 78 of the Copyright, Designs and Patent Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Dunn, Bill. The political economy of global capitalism and crisis / Bill Dunn. pages cm. – (RIPE series in global political economy) Includes bibliographical references and index. 1. Financial crises. 2. Capitalism. 3. Global Financial Crisis, 2008-2009. I.Title. HB3722.D867 2014 330.12'2–dc23 2013037759 ISBN: 978–0–415–84438–3 (hbk) ISBN: 978–0–415–84439–0 (pbk) ISBN: 978–1–315–79668–0 (ebk) Typeset in Bembo by Fish Books Ltd.


List of illustrations Acknowledgements 1

Understanding the political economy of global capitalism and crises

xii xiii



Capitalism and other social orders



Value theory in an incompletely capitalist society



The heterogeneity of capital



A contribution to a theory of crisis and recovery



States and global capitalism



The Keynesian moment and its contradictions



Global restructuring: extensive accumulation and financialization 107


The world market and the crisis


10 Recession or renewal?


11 Re-locating capital?


References Index

165 180


Figures 5.1 8.1 8.2

Periods of boom and slump in the US economy, 1951–2004 Global growth, 1951–2011 (a) Growth in 24 high-income and 16 poorer Asian economies, 1951–2011; (b) Growth in other poorer country regions, 1951–2011 8.3 G5 gross capital formation on machinery and equipment as percentage of GDP 8.4 Gross fixed capital formation as a proportion of GDP, by region, 1960–2011 8.5 Industrial value added per worker, US and China, 1970–2008 ($US) 10.1 GDP growth 2004–2011 10.2 Gross fixed capital formation by region, 2005–2011 ($ billions) 10.3 China’s changing trade relations, 2006–2010 ($ billions)

63 108 109 111 113 114 141 143 151

Tables 7.1 International trade statistics, selected countries 10.1 Fortune Global 500 companies, revenues and profits 2006–2012

91 142


Chapter 3 is based on material previously published as ‘Value theory in an incomplete capitalist system: reprioritizing the centrality of social labor in Marxist political economy’, Review of Radical Political Economics, 2011, 43 (4): 488–505. Chapter 5 is based on material previously published as ‘Marxist crisis theory and the need to explain both sides of capitalism’s cyclicity’, Rethinking Marxism, 2011, 23 (4): 524–42.The argument developed in this book was introduced in an article ‘Marx’s method and the global crisis’, International Critical Thought, 2012, 2 (3): 341–53. Some of the arguments around uneven and combined development were made in a paper I co-wrote with Tom Barnes,‘The status of uneven and combined development’, presented to the Historical Materialism Australasia conference, Sydney, July 2012. I am particularly grateful to Tom for references in this to the work of Michael Burawoy. Many thanks to Hugo Radice, particularly for his comments on Chapter 6. The usual disclaimers apply. Above all, my thanks to Carmen Vicos for her help with the manuscript and for so much else.

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Introduction We live in turbulent times. In the years following the sub-prime crash of 2007–08, the global economy remained remarkably fragile. Protests flare up in cities and countries across the world. Some of these protests demand radical social change. Some reassert nationalism and racism. Governments push austerity and batter down what is left of welfare capitalism.A century of American pre-eminence looks precarious. Rising powers threaten the geopolitical balance.Volatility and uncertainty appear to have become the norm and it seems impossible to predict even the near future.This book ends with some comments about where we might be heading but is necessarily tentative. Fortunately, it is now possible to be more confident about how and why the crisis happened. What follows is a Marxist account. Marxism needs some introduction and the next few pages will describe, in very general terms, how it is being understood here, before explaining what it means for the argument and structure of the book. Existing accounts of the crisis, and for that matter of social life in general, tend to fall into one of two camps. The first camp is that of over-simplification. It is tempting to reduce complex social phenomena to a few formulae. At best, this ignores interesting people and processes. At its worst, in neo-classical economics, it tries to force a recalcitrant world to conform to facile theoretical constructs. Our models only understand free markets, so free markets there must be. On the other hand, oaths are sworn against determinism and deductivism and prohibitions made against attempting to impose analytical order on what is acknowledged as a complex social existence. We are left with unexamined prejudices; with various mixtures of intuition, insight, observation and opinion (Tabb 1999).This division is, of course, a caricature and there are many honourable exceptions, but existing accounts of the crisis do often fall somewhere close to one or other of these alternatives.

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The story of the crisis is fascinating and many writers tell it well.The main plot is familiar, involving financialization, particularly the predatory character of ‘subprime’ lending in the US but also its repackaging and the speed and greed with which financiers from around the world jumped onto an ultimately unsustainable round of speculation. Important sub-plots involve ideological and political changes and issues of financial deregulation. Other narratives identify the role of imbalances in the global economy, particularly vast US trade deficits and Chinese and other surpluses and the currency recycling needed to sustain them. All this, and much else in similar vein, is important. However, without addition, identifying such features actually explains very little. Rich financiers did not only recently discover the benefits of ripping-off the poor. Legislative changes were not some whimsical folly. Nor is there anything new about trade imbalances. In each case it is necessary to go beyond the story to ask why these things happened, why they took the form they did and why they had these particular consequences at this conjuncture. The opposite danger is that the search for underlying causes leaves us with useless sweeping generalizations.The silliest, and alas still the most influential, again come from mainstream economics. Having celebrated market efficiency and the retreat of government interference, bad policy is re-introduced as a catch-all explanation when things go wrong (Schwartz 2009). Alternatively, from a US perspective, the blame is passed to inefficient financial systems and the excess savings of foreigners (Bernanke 2005, Wolf 2010). However, simplification also seduces many critics who characterize capitalism and its problems in such broad terms that they, too, fail to capture adequately the specifics of this crisis. Some theories of financial cycles of Keynesian or Minskyian provenance do this while also sometimes reducing the crisis to one of misregulation and poor policy (Ivanova 2013). Many Marxist accounts have also tended to jump rather precipitously from what they find in Marx’s Capital, even from favourite passages in Marx’s Capital, to an explanation of economic crises in general and thence of the current crisis. The interpretation here is different. As the next section elaborates, Marxism is taken to involve developing an anti-determinist and anti-teleological account which can acknowledge the specificities, from financial volatility to policy change, but which is theorized, historical and which understands the crisis in the context of broader, pre-existing or underlying dislocations of global capitalism. This book therefore becomes simultaneously an account of the recent crisis, which I will henceforth refer to as a capitalized ‘Crisis’, about political economy and crises in general, and a critique of prevailing Marxist theories. It is inspired by, and organized around, a famous passage in Marx’s Grundrisse. Marx writes that the appropriate method of political economy involves an obvious ordering of the levels of analysis: (1) the general, abstract determinants which obtain in more or less all forms of society…(2) The categories which make up the inner structure of bourgeois society and on which the fundamental classes rise. Capital, wage labour, landed property. Their interrelation…(3) Concentration of

The political economy of global capitalism 3

bourgeois society in the form of the state…(4) The international relation of production. International division of labour. International exchange. Export and import. Rates of exchange. (5) The world market and crises. (1973:108, emphasis added) Marx’s schema immediately raises themes that seem relevant to the current situation but the ordering is rather less than ‘obvious’. Nor is anyone obliged to follow it.The Grundrisse is no sacred text, just a set of rapidly compiled notebooks never intended for publication. Rosenberg describes this passage as a ‘back-of-theenvelope’ formulation (Callinicos and Rosenberg 2008: 99) and this is right, in that its contents are never rigorously defended. Some of the detail raises significant problems, notably in relation to where it situates the state and the international system. However, there are good reasons for taking this proposed method seriously. For Marx it is more than a throwaway comment and he offers similar formulations in other places (Marx 1970, Marx and Engels 1983: 52, 57, Nicolaus 1973). Rosdolsky (1977) makes a strong case that such a method continues to inform both Capital and that work’s place in Marx’s wider project.The specific content of the particular levels is questionable and will be questioned here, but the conceptual distinctions and movement between levels of abstraction constitute an important difference between Marxism and both a crude materialist reductionism and liberal eclecticism. Crucial to the argument here is that the schema identifies several layers of mediation between Marx’s second level, which would become that of Capital, and the appearance of crises only at the fifth. Capital cannot provide, and was never intended to provide, a sufficient explanation of crises (Rosdolsky 1977). Marx never wrote the planned books at the other levels and it would probably be foolish even to attempt to re-envisage what he might have written had he done so; let alone to try to update the ‘missing’ volumes. Nevertheless, this movement between levels of abstraction can help Marxists avoid reproducing the gap between grand theorizing and empirical commentary criticized above. Of course, existing Marxist accounts usually mention the state, international relations of production and trade, but without necessarily bridging the conceptual gulf between Capital and the specifics of things like sub-prime mortgages and the financial meltdown. For some the gap is simply too wide.The Crisis this time is a Minsky crisis not a Marx crisis in Moseley’s (2008) phrase. Others are more guarded but broadly agree. For Panitch and Gindin, the Crisis ‘was not caused by either domestic industrial “overaccumulation” or international trade and capital “imbalances”, but rather by the volatility of capitalist finance’ (2012: 311, see also Gowan 2009, Lapavitsas 2009). Before consigning Marxism to empty incantation or, once again, pronouncing it redundant, it is worth investigating how satisfactory an account can be provided by a systematic application of Marx’s own professed method. The approach identified in the Grundrisse allows the assimilation of insights from other traditions. It is quite right, for example, to point to inherent financial volatility and to rotten policies. It is also necessary to tie these to broader economic changes and dislocations. Here again, making such connections is not an

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exclusively Marxist preoccupation. Many other traditions, for example, emphasize the inseparability of politics and economics, and make links between finance, trade, inequality and everyday life. The method being suggested therefore implies building bridges with other approaches and perhaps makes Marxism sound, as Anderson described, like a ‘kind of common sense’ (1988: 337).The point is nevertheless to encourage people to cross the bridges in a Marxist direction, to argue that Marxism’s analytical ordering produces the most convincing explanations.This requires a brief explication and defence of Marx’s method and means lingering a while on some rather dry theory and moving through some ‘big picture’ issues before detailing who sold how many dodgy derivatives to whom.

Marx’s method and the crisis Social life is complex. Marx employed different methods and insisted there was ‘no royal road to science’ (1976: 104). Of course, everything influences everything else but, recognizing this, it is easy to slip into a facile ‘dialectic balancing of concepts and not the grasping of real relations’ (Marx 1973: 90).Those who learn Marx from hostile critics might reasonably imagine that Marxism then falls back into an economic or structural determinism. Marx uses some unfortunate phrases but there is now such a substantial literature contesting accusations of determinism that the suspicion must be that those who continue to make them are either profoundly ignorant or deeply mischievous. A particularly common mischief is to posit determinism as a demon from which we can only be rescued by running into the arms of a complete indeterminism or lazy eclecticism. Alternatively, we resist arbitrary prioritization by insisting on analytical symmetry (Germain 2011). Marxists, on the contrary, have little confidence in a formal democracy of determinants and search for analytical priorities (Foley 1986). The important questions are often ones of relation and of relative importance. Social structures, existing institutions and practices, shape and limit human action but in ways that are highly mediated, dependent on all sorts of contingencies and particularities.We may be more or less able or willing to resist. Clearly, different things vary in their importance over time and space. However, questions of priority, of the relations between structure and agency, between politics and economics and so on are ones with which it is worth grappling. How then is it possible to identify and justify conceptual priorities, where to start and how to proceed (Arthur 1997)? Marxists, like everybody else, first experience the world concretely or immediately. However, were our sensory perceptions sufficient, there would be no need for science (Marx 1981: 956). Almost all science involves some process of abstraction. However, to make matters worse, within capitalism, processes variously described as alienation or fetishism actively mask the underlying reality. In particular, everything seems to hang on money and the market, obscuring underlying social relations. For Marx, mainstream economics is ‘vulgar’ precisely in apologetically accepting capitalism’s visible forms. It operates in a superficial realm of ‘Freedom, Equality, Property and

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Bentham’ (Marx 1976: 280), unable to see beneath money and the market to the exploitative production relations on which capitalist exchange is built.This in turn justifies and naturalizes existing relations. It is necessary to pierce beyond the phenomenal forms. At the same time, Marx (1968: 437) criticized what he regarded as the ‘forced abstractions’ that characterized Ricardo’s method. Just before the five-part plan from the Grundrisse cited above, Marx makes clear his method involved both a ‘forwards’ and ‘backwards’ ordering (Marx 1973,Arthur 2004).The first step develops the more simple, abstract concepts from the more complex, real phenomena. They are more like propositions that require investigating, than truths to which the world can be reduced.The method described in the Grundrisse is then a secondary process of movement back to the concrete. It implies testing the results at any one level as they are applied to progressively more concrete determinations (Sayer 1987, Fine and Harris 1979). The social world is increasingly complex in its concreteness and never fully predictable. Therefore, we should beware a naïve falsificationism, where a single mistaken prediction invalidates the whole theory. However, the method implies that each move from one level of abstraction to the next applies and tests the earlier results (Rosdolsky 1977, Sayer 1983). It leads to the production of deeper explanations of the phenomena. Conversely, if enough evidence contradicts what has gone before, the theory needs to be jettisoned or at least substantially revised. Here it seems useful to invoke Lakatos’s (1970) arguments about research programmes. An irrefutable ‘hard core’ of theory should generate auxiliary hypotheses. He then uses the term ‘degenerating research programme’ to describe situations where a growing number of auxiliary hypotheses are needed to explain (away) predictive failures. He contrasts this with a ‘progressive research programme’ in which new theoretical explanations are introduced to enhance the explanatory power of the hard core. The ‘positive heuristic’ of science accounted for novel attempts to explain anomalies in ways that were logically and theoretically consistent with the hard core.‘In other words, a progressive defence of the hard core takes the form of an expanding belt of theories that increase the corroborated empirical content and solve successive puzzles’ (Burawoy 1989: 761). This implies an ongoing mutual interrogation of theory and evidence and that we should be cautious about jumping too far or too fast between the abstract and general and the concrete and specific. All this requires concepts that are inherently approximate and flexible rather than scholastically accurate, susceptible to the process of progressive elaboration (Thompson 1978, Arthur 2004). This is a theoretically risky business, which can lead to all sorts of more or less conscious slippages in meaning. But the problems really only become intractable if the analysis stays strictly theoretical. Murray suggests a ‘redoubled empiricism’ involving ‘the empirical scrutiny and fixing of concepts in relation to other concepts’ (1997: 42). Some of the problems with Marx’s schema in the Grundrisse will be discussed below but this conceptual flexibility also means that any prior insistence on the particular content at the different

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levels of abstraction would itself reify Marx’s method.We understand the progressively more concrete and complex in the light of what is already established more generally, but this often requires us to reflect on and return to the prior levels. Each level does have a moment of its own. More complex, real world, phenomena can be informed by but are not simply determined by, and cannot simply be deduced from, abstract general theory. Sometimes translated as ‘sublate’, Hegel identifies a double meaning in the ‘German word aufheben (to put by, or set aside).We mean by it (1) to clear away, or annul…(2) to keep, or preserve: in which sense we use it when we say: something is well put by’ (1975: 142).What is true at one level remains true at the next, gets inside it as it were, yet each level has a specific moment of its own, irreducible to the prior levels. Meszaros (1994) differentiates this from methods affording degrees of ‘autonomy’. People are not ‘autonomous’ of the air they breathe but nor are they reducible to their atmosphere. Each level ‘sublates’ the previous one (T. Smith 1997). We need to remember, as Bruff warns, with reference to Gramsci, that the distinctions are ‘methodological and not ontological or “real”’ (2011: 82). Marx’s method is not about gluing together separate components but a way of establishing and testing conceptual priorities to analyse the mutual constitution of the complex social whole. This leaves room for accident and contingency. It also means that Marx’s method cannot explain everything.We would not, as Eagleton (2003) memorably insists, expect it to tell us how to delouse a cocker spaniel. Any particular crisis could have entirely specific causes. However, the subject of economic crises is something more obviously within Marxism’s usual remit than canine hygiene.And accidents should not be confused with miracles.Accidents are more likely to occur and to have significant effects in some situations than others. However, the relative uncertainty again warns against reading the suggested ordering deductively. Between some of the levels this is probably obvious. Nobody would imagine we could simply deduce Capital from the prior ‘general, abstract determinants’. Nor should we risk the direct jump from Capital to the Crisis. However, it seems at least plausible that an investigation of the general characteristics of capitalism can inform concrete investigations, including concrete investigations of the current situation.

The book’s argument and the structure This section summarizes the argument and describes the structure of the book, outlining how it applies the method outlined above and some of the problems involved.The book has ten further chapters.These are informed by Marx’s ordering, without following it rigidly. Chapter 2 discusses ‘the general, abstract determinants which obtain in more or less all forms of society’ (1973: 108). It begins by defending the inclusion of this level, which Marx drops from some alternative formulations (Marx 1970, Marx and Engels 1983). Many later Marxists have also played down these social generalities. They oppose tendencies to perceive social processes as natural, whether in eternal

The political economy of global capitalism 7

laws of economic competitiveness, power seeking states, or ethnic incompatibilities. Such things are recent arrivals, often at least roughly concurrent with capitalism.The very generality of this level, it is suggested, makes it unable to offer critical purchase to specifically capitalist processes (Sayer 1987, Ashman 2009). However, while there may be fewer general determinants than popularly presumed, appreciating what is common to all human societies is necessary to justify the methodological starting points and actually helps to avoid reifying what is specific to capitalism. As Holloway and Picciotto write ‘it makes little sense to talk of the capitalist “forms” of social relations at all unless one has other forms in mind, unless one regards these as transitory’ (1978: 27). The demonstration of the distinctiveness of capitalism logically requires a simultaneous evaluation of what it has in common with other societies.Without some discussion at this level, Marxists also become vulnerable to institutionalist and constructivist criticisms (more appropriately directed at mainstream economics) that all economic relations are ultimately embedded in social processes irreducible to capitalism and that it is at this level that explanations of economic dislocations must be sought. As Fracchia writes, Marxist categorization should avoid a binary whereby ‘either categories are transhistorical and ontological, or they are historically specific and determinate’ (2004: 128). Instead, as suggested above, each level gains a ‘more comprehensive determinacy as it is systematically brought into relation with richer content’ (Arthur 2004: 18).The chapter concentrates on three broad areas, which highlight the importance of this level and inform what follows in the rest of the book. First, it discusses social labour, class struggle and Marxist history. It emphasizes the importance of social labour to Marx’s understanding of what it is to be human, how this means a highly qualified form of materialism, one from which human consciousness is ineliminable and why this predisposes Marxists to start social and historical enquiry with questions about social labour and exploitation. Marxist historiographers have little difficulty dealing with other societies in a recognizably Marxist way, identifying central questions about class and the development of the forces and relations of production. They have debated the collapse of feudalism with particular vitality.The various perspectives all presuppose that Marxist methods are applicable to societies in which capitalism remained at most a minority pursuit and they are also often informed by the idea that an understanding of the collapse of feudalism might tell us something useful about the possibilities of transforming capitalism. Second, Chapter 2 briefly discusses ecology and the ineliminable materiality of all social activity. Society exists within nature, shapes the rest of nature and is shaped by it. Environmental changes are important in themselves but also have economic consequences that Marxists have recently considered through concepts like the ‘metabolic rift’ (Foster 2000) and the ‘second contradiction of capitalism’ (O’Connor 1988). It is argued that these ideas should be treated cautiously but taken seriously; discussed not dismissed simply because they rely in part on an explanatory element exterior to capitalism. More broadly, social life occurs in distinct places and involves the production of goods whose physical properties and

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general social utility underpin important tensions with the apparent immateriality and unlimited demands of capitalism and the money economy. Third, following Rosenberg (2006, 2009, 2010), the concept of uneven and combined development (UCD) is also introduced at this unfashionably early analytical stage. It is argued that social relations should be conceived globally from the beginning and that there is ‘development’, not as a march towards enlightenment but in an unavoidable historical directionality that (not logically but in practice) occurs unevenly across space. Recognizing this interconnected but inherently uneven development provides a useful basis for theorizing the origins of economic concentration and political division and how changing economic and social processes assert themselves within and across borders. Chapter 3 develops the argument about the importance of social labour to a Marxist understanding of the world with a discussion of the crucial concept of value. There is then continuity between Marx’s broader epistemology and the centrality of the labour theory of value to an analysis of capitalism (Campbell 1993). The chapter argues that value takes on specific forms, and perhaps ‘purer’ forms with the establishment of capitalism. However, understanding the commonalities with work and exploitation in other societies is necessary to pierce the particular veil of commodity forms under capitalism, which also, despite its apparently relentless encroachment on other areas of social life remains an ongoing, resisted and incomplete process. Not everything is marketized, nor, as narrower understandings of value tend to imply, are markets efficient. Interpreted in this broader than usual sense, the concept of value can bridge between the abstract and general importance of social labour and Marx’s particular understanding of capitalism. Chapters 4 and 5 occupy the same conceptual level as Marx’s Capital. Neither supporters nor opponents should assume that Capital’s profound and complex argument can be adequately summarized in a few lines, let alone a few formulae and the ambition here is more limited. Chapter 4 emphasizes capitalism’s heterogeneity or ‘lumpiness’. It describes how Marx moves from an analysis of capital in general to one of many capitals, and stresses that both the generality and particularity need to be kept in sight. Capitalism involves competing specific interests, different firms, industries and forms of capital. It includes the production of consumption goods, producer goods and a great deal of rubbish, which can nonetheless suck resources from the rest of the economy and claim its share of the profits. Capitalism changes its character over time and varies enormously across space. Amongst other things, all this lumpiness means that while, in Marx’s phrase, capital ‘wends its way’ to wherever profits are highest, this is seldom a smooth process. Importantly, this analytical level is not of capital as a thing but of capital, wage labour, landed property and their interrelation. It depicts contested social processes. Chapter 5 considers what Marx’s analysis means for understanding crises and identifies problems with the ways in which Capital has sometimes been used. Crises, it is emphasized, are literally ‘turning points’ and many of the competing interpretations struggle to explain capitalism’s cyclicity and its ability to recover from crises. Unwittingly mirroring the mainstream, there is a tendency to see only

The political economy of global capitalism 9

disequilibrium where orthodox economics sees harmony and to see exogenous shocks as necessary to restore growth (Mandel 1984). Even presented as mere tendencies, it is argued that the level of generality of some theories of crisis, particularly those based on insufficiencies of demand (e.g. Sweezy 1970, Foster and Magdoff 2009) and on falling profit rates based on changing capital compositions (e.g. Freeman 1999, Harman 2009, Kliman 2012) appear to leave capitalism with problems so inexorable and of such long standing that it is hard to see how it ever crawled out of the nineteenth century.The chapter suggests that it is misleading to think of Capital supplying a single simple and sufficient crisis theory. However, nor should Marxism offer an off-the-peg selection, suitable as circumstances change. Capital’s three volumes need to be read as a whole.What many authors have taken as alternative theories are better read as complementary elements that identify what Harvey (in a slightly different context) called ‘Limits of Capital’ (1982, see also Harvey 2010, Panitch et al. 2010). Capitalism can recover from particular crises but then lurches down new and ultimately unsustainable trajectories. This book is emphasizing that Marx’s work remained incomplete. Capital was literally unfinished when Marx died, provoking controversy over the quality of Engels’ reconstruction. Capital is also incomplete in the inevitable sense that much has changed over the subsequent 150 years. Capitalism is a uniquely dynamic system and however much Marx captured vital and enduringly salient features, it is simple dogmatism to imagine that he would have altered nothing had he seen how capitalism developed. Finally, the central argument here is that Capital was incomplete in the sense that the volumes we have were intended as part of a broader project. Marx did not even begin the proposed volumes on the state, international relations and trade and the world market. Even the most integrated abstract theory of crisis provides only the basis for more concrete historical investigations of capitalism’s turbulent history. Chapter 6 moves to Marx’s next conceptual level and a discussion of the state. It does not purport to offer a ‘solution’ to the many controversies around Marxist state theory, but suggests that placing the state within this schema provides some useful basic principles. States are not independent of underlying social relations but have a vital moment of their own. It is an important Marxist truism that states are not neutral arbiters, apart from or above society. Politics and economics are not separable and in a society dominated by capitalism, the state is inherently capitalist. However this does not mean that states can be simply ideal collective capitalists, ‘but a committee for managing the common affairs of the whole bourgeoisie’ (Marx and Engels 1975: 35). First, states are founded not only on capitalism but on more general abstract determinants. Most societies, and all class societies, have systems of social and political organization including more or less formal laws and customs, and mechanisms for their enforcement, for securing social order, delivering certain services, and for redistribution (if only from the direct producers to unproductive elites). The modern (capitalist) state commandeers many of these roles but some, at least, of what states do is irreducible to the requirements of capital accumulation even as

10 The political economy of global capitalism

the performance of these more general tasks helps to establish states’ legitimacy (Draper 1977). States (and the inter-state system) existed before capitalism, and were the context in which capitalism developed and are not reducible to capitalism. Second, states now need capitalism, need to protect its fundamental priorities of private property and of the exclusion of labour from ownership of private property (in the Marxist sense of needing to work for others). States need to foster accumulation within their borders. However, the immediately prior level on which states depend is also one of capitalist particularity and of land and labour.There is no way from this of states discerning some ‘objective’ capitalist end. The end of capitalism is its own destruction, whether in socialism or barbarism.This is not just a play on words; there is much that all capitalists share but broader ends can only be the outcome of the push and pull from real individuals, competing capitalists and existing institutions. States also respond to, contain and if necessary yield a little to, labour’s insubordination. States create and maintain land as a commodity but also respond to the specific interests of landed property. Third, conceived systemically, capitalism’s particularity includes the division into competing nation states.This is taken here to require a break with the content of Marx’s Grundrisse schema; international relations cannot be left to a later analytical stage but need to be brought into the analysis of states themselves.The whole bourgeoisie is supranational. Capital is intrinsically transnational, it is in its nature to move, including across political borders (Barker 1978a, 1978b, Braunmuhl 1978, Holloway 1995, Rosenberg 2006). Fourth, states have a moment and vital interests of their own.This was the young Marx’s original point against Hegel, an argument on which he later put less emphasis but never abandoned. States are complex, powerful institutions, which in some circumstances can apparently rise above contending classes but are, at least, a force with which to be reckoned. This last point is emphasized by the state’s situation within this analytical ordering. States are irreducible to the preceding levels. At times, Marx writes as if the national economy is the unit of analysis but, in principle, Capital treats the economy as a whole, in abstraction from the state and the inter-state system, which would only be reintroduced to the analysis at a later stage. Different capitalist forms may be conducive to distinct state forms and policy orientations but politics cannot simply be read-off from changes in economic structures. States have histories and structures of their own and are themselves vital in the constitution and concrete organization of both their national economies and global capitalism. States have power to organize capitalism within their borders and can themselves become capitalists, owning or controlling large swathes of production. Domestically, they can overcome some of Capital’s dislocations and there is much about the concrete organization of capitalism that can only be understood once the state is introduced to the analysis. For example, Marx says much on money and credit but his analysis remains (as befits Capital’s level of analysis) abstract. It says little about how states reproduce money or intervene in monetary and financial affairs to (partially) regu-

The political economy of global capitalism 11

late their national economies. At the same time, states are limited and particular institutions – especially when considered within the global economy. They are subject to changing forms of international relations, for example through imperialist rivalry, shifting patterns of trade and protection and currency regimes. In a world of many national currencies, they manifestly cannot all be universally equivalent. States actively contribute to, but cannot stand above the essentially global anarchy of the money economy and value’s production and distribution. Finally, the chapter re-emphasizes that this is a more concrete level of analysis and it becomes necessary to consider the mutual (but asymmetrical) development of states and capitalism in their historical concreteness.The chapter ends with some schematic comments about the origins of capitalism, mercantilism and the development of supposedly laissez-faire capitalism in the nineteenth century. This provides a background for the more detailed narratives of global capitalism and crises developed in the subsequent chapters. Chapter 7 outlines the rise and fall of Keynesianism in the middle of the twentieth century. It describes how capitalism went into crisis in the 1930s, how it recovered to do spectacularly well in the post-WWII period but again went into crisis in the 1970s. The story will be familiar to many readers – the main analytical point is about changing forms of capital accumulation and their implications. Following the analysis of the previous chapters, it is shown how an understanding of the history can be informed by the earlier theory.The solutions of one crisis produced fresh contradictions and ultimately fresh crises but on different bases. So, for example, crises are not simply predicated on falling rates of profit (that of the 1930s manifestly was not – that of the 1970s in large part was) and nor should the boom be understood as the product of wise policy (however much states were able to make real and important interventions favouring capitalist growth). It was more the unintended outcome of class struggles of the 1930s and the immediate post-war period (Armstrong et al. 1984, De Angelis 2000, Harman 2009), but made possible by the pre-existing character of capital accumulation.The chapter begins with a discussion of labour intensive forms of accumulation within leading economies after WWI, the substantial international variations and the asymmetries in the international system that contributed to the crash of 1929 and the subsequent depression. The chapter then describes the coming of Keynesianism; the heightened class struggle (particularly in the US), which formed the background to the New Deal; intensified international competition and war; the post-war settlement; and the period of sustained growth on a new capital intensive basis. Finally, the chapter looks at contradictions of the boom and its unravelling in the 1970s. Chapter 8 turns to the period since the 1970s but begins with an empirical discussion of growth over the whole post-WWII period, identifying a long downturn before recovery in the 1990s. It argues against sweeping characterizations of the period in terms of ‘globalization’ or a ‘new economy’ but identifies and quantifies significant and highly patterned changes in the geography of accumulation. Declining investment within productive sectors in many rich countries is

12 The political economy of global capitalism

contrasted with, and explained in relation to, more labour-intensive growth elsewhere, notably in China. The changing role of land and of primary exports, and thence of speculation in them, is also explained in this context. It argues that recent change (including financialization and the development of ‘global imbalances’) were less the product of neo-liberal ideology or an assertion of the special interests of finance than a strategic response of capital to the real crisis of accumulation in the 1970s. That crisis was resolved (albeit only ever incompletely) on the basis of new forms of accumulation, which were now more extensive than intensive, and on labour’s (partial) defeats. Chapter 9 turns finally to the Crisis. Drawing on the already vast literature, the empirical story is briefly summarized.This is now informed and deepened by the conceptual analyses of capital accumulation, class relations and of inter-capitalist and inter-state cooperation and competition. As is now widely recognized, the Crisis was not simply a phenomenon of the US financial market but was underpinned, amongst other things, by trade imbalances and by the accumulation and recycling of dollar reserves this required (Callinicos 2010, IMF 2011a,Wade 2009, Wolf 2010).The prior analysis here also highlights that these ‘imbalances’, however important, were themselves not simply an unfortunate maladjustment but the product of the predominant trajectories of capital accumulation and class struggle, and of the attempts by states to manage this. The chapter outlines the immediate policy responses to the Crisis in leading economies. Chapter 10 considers the unevenness of the fall-out from the Crisis and alternative reactions to it. It reiterates that crises are literally ‘turning points’ and that hitherto even the deepest have been followed by periods of recovery. Crises are never bad for everybody and are certainly not experienced evenly or equally.They involve a reorganization of class and other social relations and often of international relations. The chapter investigates the fragile recovery in leading economies, particularly in the US and Europe. It discusses the political economy of government debt and the turn to austerity, examining the strategic interests behind this and its likely implications. It identifies inherent contradictions within the Eurozone but argues that austerity was fundamentally a ‘reasonable’ strategy of class struggle rather than a policy error, however much it exacerbated the downturn. The chapter then considers the apparently healthier economies and stronger recovery in many poorer countries, notably in China but also in Brazil, Russia and India, the other so-called ‘BRIC’ economies, and elsewhere in Asia, Latin America and Africa. It argues that this stronger growth mainly involved deepening earlier forms of extensive accumulation, which, as the following chapter continues, leads to questions of its sustainability. The final chapter discusses the prospects for global capitalism after the Crisis. It is necessary to be cautious but knowing something about the processes that brought us here can tell us something about where we might be heading.The main trends in high-income countries exacerbated the dislocations that brought the Crisis.This does not mean imminent collapse but makes sustained renewal unlikely. The Crisis did spur increased levels of state intervention but vested interests in

The political economy of global capitalism 13

restoring profit and financial health in the short-term meant hopes of a broader Keynesian reorientation were quickly dashed. Stimulus turned to austerity. There seemed to be stronger bases for the establishment of new growth poles in major poorer countries. However, the forms of exploitation and accumulation and evidence of deepening global integration suggest that these economies’ fate remains linked to, and limited by, the problems in high-income countries, the fragile maintenance of US import markets and the international use of the US dollar. The dominant trajectories and most powerful forces continued to drive capitalism down unattractive and unsustainable paths. The chapter finally considers the prospects for more radical change. Although relatively weak, there are countertendencies, forces and spaces of resistance. Crises are usually periods of intensified social contest, which open new and perhaps as yet unimagined alternatives.


Introduction This chapter argues that it is useful to consider what Marx calls ‘general, abstract determinants which obtain in more or less all forms of society’ (1973: 108) before looking at what is specific to capitalism. Continuity, as much as change, is endemic to social life and understanding capitalism’s specificity relies on appreciating that which is generally human and social. The next section makes this argument very generally. Understanding what is common can inform studies of contemporary society as well as pointing to its limits and historical specificity. The following sections consider three interrelated areas.The first discusses why, for Marx, social labour is the defining character of our distinctiveness as a species and how this provides the basis for a Marxist epistemology and (qualified, historical) materialism. It justifies a priority of questions (without pre-supposing the answers) of work, class and exploitation in Marxist social enquiry. Second, there is a commentary on ecology and materialism, emphasizing that people are part of nature and the need to develop a genuinely social and properly material historical materialism. This is discussed in a broad sense of there being a necessary relationship between ecological and economic change, and more narrowly in the ineliminable importance of the physical characteristics and geography of economic activity. It also gives a criterion by which it is useful to talk of ‘development’, of productive but not necessarily social improvement. Third, drawing on the work of Rosenberg (2006, 2009, 2010) and Burawoy (1989), it is suggested that the idea of uneven and combined development (UCD) provides a potentially useful basis for analysing the mutual construction of economic space and political boundaries.

Capitalism and other social orders 15

Social life is characterized by novelty and continuity Many Marxists downplay any continuity between capitalism and other societies and for good reasons. Sayer says that ‘at this level of generality the only truths are virtual truisms’ (1983: 88). Capitalism is different from other forms of society and Marxists are particularly critical of vulgar economics that posits uniquely capitalist characteristics, like competitive individualism and a propensity to truck, barter and exchange, as timeless human properties. Mainstream political science similarly misconstrues and de-socializes, for example in depicting timeless laws of international relations. These mainstream approaches read back other societies as if they were fundamentally like capitalism, understand the rest of the world as if it was modelled on Western Europe and the past on the present. Our visions of the future become similarly limited (Draper 1977, Gibson-Graham 1996). Instead, all human history is characterized by change, and capitalism has been particularly dynamic; recent in origin and unlikely to be around for long. Marx finishes the line about needing to begin with these general and abstract categories with the qualifier ‘in the above-explained sense’ (1973: 108), having earlier given the example of labour [which] shows strikingly how even the most abstract categories, despite their validity – precisely because of their abstractness – for all epochs, are nevertheless, in the specific character of this abstraction, themselves likewise a product of historical relations, and possess their full validity only for and within these relations. (1973: 105) In some alternative formulations Marx drops this level from his plans. At the very least, care is needed applying categories across different historical periods. However, there are also important reasons for identifying continuities. As Lawson (1997) writes, change can have no ontological priority over continuity. Banaji (2010: 103) advocates ‘suspending belief ’ in the hypothesis of discontinuity…the conception that the real or alleged differences between economic regimes and historical periods are in some sense (never explicitly discussed) more fundamental to their interpretation than the factors which they have in common. We only recognize change and movement in relation to what is static. Indeed, a philosophy of radical transformation can itself have conservative implications. As Berman (1983) makes clear, if we take the idea ‘that all that is solid melts into air’ too seriously, we undermine any secure bases for our own knowledge and social action. The Marxist – and before that Hegelian – insight that all is novelty and change can flip into conservative philosophies of poststructuralism and political economies that parallel corporate propaganda telling workers that there is nothing to learn from the past and no secure basis for challenging power in an essentially

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disorganized capitalism.‘[T]he ideology of endless novelty…is an important aspect of how contemporary capitalism presents itself ’ (Callinicos 2010: 1). We should therefore also be wary of exaggerating rupture and difference.A materialism that is historical requires understanding continuities with earlier forms. There are important commonalities across societies and indeed many things that humans have in common with other species. Much of this perhaps forms an unspoken taken-for-granted background to the numerous Marxist accounts that do not dwell on these general features. However, almost any attempt to pin down what is specific to capitalism reveals longstanding continuities. Commodity production has an ancient history but even today is far from universal.Wage labour has existed in Europe for thousands of years, while, again, huge amounts of work in subsistence agriculture, domestic labour and in self-employment remains unwaged (Banaji 2010). There has long been some separation of politics and economics, nor is this now complete.There was competition between rival powers before capitalism, which could produce at least some of the pressures towards innovation, which became so prevalent. Nor is accumulation now unconstrained. It becomes unsurprising that scholars disagree about the date of capitalism’s establishment by many centuries. We might insist on the dominance of specifically capitalist forms but this too forces us to evaluate questions of quantity and quality, to look at history and the present in terms of relative continuity and difference.

Social labour, class struggle and Marxist history As the next section will discuss, people are part of nature. For Marx, even limited by the science of the mid-nineteenth century, this never means a crude materialist determinism.That would have implied a political quietism quite alien to his project and more generally would deny people’s active and transformative role in reshaping the environment, the economy and themselves. Precisely because we are within nature, there is a necessary metabolism between people and (the rest of ) nature. As Avineri insists, this ‘becomes the major premise for an enquiry into the nature of human history’ (1968: 71). People are much like other species that communicate, that often have what we can recognize as intelligence, that can transform their environment, make use of other species and so on. The first premise of all human history is, of course, the existence of living human individuals. Thus the first fact to be established is the physical organisation of these individuals and their consequent relation to the rest of nature…The writing of history must always set out from these natural bases and their modification in the course of history through the action of men. (Marx and Engels 1974: 42) Marx inverts not just Hegelian idealism but the materialist inversion of the young Hegelians. So ‘[w]here Feuerbach naturalizes man, Marx humanizes nature’

Capitalism and other social orders 17

(Avineri 1968: 72). Nevertheless, each species is distinct. Marx and Engels (1974: 42) continue: Men can be distinguished from animals by consciousness, by religion or anything else you like. They themselves begin to distinguish themselves from animals as soon as they begin to produce their means of subsistence, a step which is conditioned by their physical organisation. By producing their means of subsistence men are indirectly producing their actual material life.

Social life, in its differentiation from the activities of other animals, is thus a conscious process as Marx’s famous comparison of the best of the bees and worst of architects makes clear. ‘[T]he whole of what is called world history is nothing more than the creation of man through human labour’ (Marx 1975: 357). Social labour and consequently what it is to be human, constantly changes, albeit often gradually and over generations. ‘Whatever the social form of production, workers and means of production always remain its factors. …The particular form and mode in which th[eir] connection is effected is what distinguishes the various economic epochs of social structure’ (Marx 1978a: 120). Labour is thus the foundation of Marx’s social ontology. This appears to be contradicted by the presentation in Capital which begins, instead, with that particularly capitalist presence, the commodity. However, Marx explains, the reasons for the shift were tactical rather than analytic. His real starting point was withheld for ‘political reasons…I thought it advisable not to frighten anyone off from the very beginning’ (Marx and Engels 1983: 68). Later in Capital, through to his last work, Marx reaffirms the vital starting point of social labour (Carver 1975). The most fundamental distinction between societies is, then, the form of exploitation. A specifically Marxist historiography is perfectly possible in relation to non-capitalist societies, distinguished by the priority of such questions. What distinguishes the various economic formations of society – the distinction between for example a society based on slave labour and a society based on wage-labour – is the form in which this surplus is in each case extorted from the immediate producer, the worker. (Marx 1976: 325) With capitalism, exploitation becomes hidden by the monetary form and the apparently free sale of labour-power (Marx 1976: 170). Here the comparisons with exploitation in slavery and serfdom help reveal the source of surpluses in extractions from the direct producers. As Banaji writes, we should not be seduced by the ‘dichotomy between “free” and “unfree” labour, as if these categories were actually opposites…Thus bondage and wage-labour are not contrasting systems but one simply the most reified form of the other’ (2010: 13, 114).The transformation is ‘a mere change of form’ (Marx 1976: 927). Capitalist freedom is ‘at the same time the

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most complete suppression of all individual freedom, and the most complete subjugation of individuality under social conditions which assume the form of objective powers’ (Marx 1973: 652). Despite appearances, work remains a directly social process and market relations only ever represent one aspect even of capitalism’s organization. Exploitation in production remains fundamental to what drives societies and thereof to how they should be understood. Marx’s blunt language about extortion makes clear that economic processes are always about power. ‘In actual history, it is a notorious fact that conquest, enslavement, robbery, murder, in short, force, play the greatest part’ (Marx 1976: 874). Power relations do often become veiled under capitalism. But earlier, too, various social mores and religious ideas had helped people to know their place. Witch doctors and priests could be more or less separate from the formal rulers. The separation under capitalism is itself a political cover-up, however unconscious. Exploitation is concealed and the market economy naturalized. Work is transformed, becoming something to be avoided like the plague, reduced to a means to the capitalist end of making money.This realm of surplus extraction in production is similarly avoided like the plague by bourgeois theory, in economics – never mind political science. But power necessarily pervades economic life and the separation of the state form of political power from economic processes (itself always partial and fragile) reminds us that the state is not the essence of politics. Of course, politics and economics are not simple synonyms, and the forms of wealth and power change, but any attempt to radically separate them is misleading. Amongst other things, this means class is never an ‘objective’ position, a measure of wealth and income, but about power and social relations. Famously Marx and Engels (1975: 32–33) write: The history of all hitherto existing society is the history of class struggles. Freeman and slave, patrician and plebeian, lord and serf, guild-master and journeyman, in a word, oppressor and oppressed, stood in constant opposition to one another, carried on an uninterrupted, now hidden, now open fight, a fight that each time ended, either in a revolutionary reconstitution of society at large, or in the common ruin of the contending classes. The polemical character of the passage should be borne in mind. It can be taken to suggest a priority of agency and consciousness. This view is probably strongest in Thompson’s (1968) discussion of class as something achieved, rather than as an objective economic category.This is seized upon by postmodern understandings of class, which accept only agents’ own expressed interests and quickly deny any real or underlying exploitation (Laclau and Mouffe 1985). The discussion of precapitalist societies makes the problems with this particularly clear.Applied to earlier societies, any notion of ‘class consciousness’ in a modern, Marxist sense, would be grossly misleading, even amidst slave and peasant revolts. But this does not require us to jettison ideas of class based exploitation. Perhaps the classic definition of class comes from De Ste. Croix (1983: 43), a scholar of antiquity, for whom it is:

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the collective social expression of the fact of exploitation…a group of persons in a community identified by their position in the whole system of social production, defined above all according to their relationship…to the conditions of production…and other classes. Class is then about social relations, however the participants perceive them. Engels, in later life, paraphrases an earlier formulation to insist ‘Men make their own history, but until now they have not done so with a collective will according to a collective plan or even in a clearly defined society’ (Marx and Engels 1983: 282). Exploitation (with or without any consciousness of it) does mean incessant class struggle.As even the formulations of the Manifesto allowed, this could be hidden as well as open.

Society and economy within nature This section begins with a simple argument that societies, including ones dominated by capitalism, remain inextricably part of nature and considers some of the implications of this. We now evade many of nature’s immediate impacts. We produce far more food than that which occurs ‘naturally’. Umbrellas keep off the rain. But we never really escape. There is no ‘outside’ and, however sophisticated, human relations do not therefore become unnatural. One of the achievements of a renewed environmental movement has been to reinstate ‘the material’. Not long ago, left-liberal social scientists could seriously insist that everything was textual and mock the naiveté of a concept as outmoded as ‘reality’. Perhaps some people still think such things; of climate change and nuclear meltdown, for example. If so, they have been keeping mercifully quiet about it. We do not ‘overcome’ nature. I will return to the idea of a ‘metabolic rift’ (Foster 2000) below. The concept helps to highlight how capitalism’s destructive power has reached extraordinary levels. However, we are always within nature, a part of its metabolism, and ecology is therefore an ever-present part of social development.Without reverting to a crude determinism, social relations retain an inextricable materiality. This is not a book about ecology and this is not pursued far in what follows but it is useful to recall that the physical characteristics of economic relations matter and that ecological transformations have economic implications.The use values on which any economy depends – the music download as much as the oil well – have resolutely natural, physical properties which can present both opportunities and obstacles to further economic transformation. There are dangers of extrapolating too quickly from theories of ecology to economic crisis but analyses of economic change do need to incorporate the role of ecological transformation and capitalism’s materiality. Finally, the discussion of ecology and materialism enables a return to discussions of the importance of ‘progress’ in the sense of technical innovation. There has been sufficient revisiting of Marx to refute claims that he ignored ecology (Foster 2000, Kovel 2002). People are just one particular evolutionary quirk, not something apart from nature. Humans, as a species but like all other species, have

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complex and changing relations with (the rest of ) nature. Interdependent ecosystems and ‘metabolism’ within nature do not involve a simple static symbiosis. Nor are humans in an incessant struggle with nature. Natural history was evolutionary and human development also substantially reflects our situation within nature. There is an ancient history of human-induced environmental change and of this having important economic repercussions. We know of non-capitalist societies that destroyed resources and themselves. Prehistoric people wiped out large mammals. Poor irrigation and salination at least contributed to the decay of great civilizations in Mesopotamia (Dauvergne 2008). Over-farming destroyed the environment of once prosperous societies on Tahiti. Elsewhere, deforestation and irrigation increased productive potentials over prolonged periods. Many historians see demographic crises as having played a crucial role in the dissolution of feudalism and the eventual establishment of capitalism in Europe (Postan and Hatcher 1985, Ladurie 1985). Of course, a crude Malthusian demography was already wrong. Even feudal crises were never simply demographic but also social in cause and effect. Levels of exploitation and of productivity influenced sustainability and the points at which famine set in and peasant populations became vulnerable to disease. The outcome of crises also varied depending on organization and class struggle between lords and peasants (Brenner 1985a). Capitalism’s productive and destructive capacity and global reach are vastly increased. Demographic and environmental issues now take different and potentially more devastating forms, shaped profoundly by capitalism, but there is an important sense in which they represent another version of the same thing. In recent decades, Marxist ecologists have become increasingly aware of the mutual interaction of the capitalist economy and the environment. Foster’s (2000) reading of Marx identifies a ‘metabolic rift’ as a by-product of capitalism. Rather than sustainable relations, as occurred even with rural class societies, the development of towns produced a cleavage whereby something as simple as human excrement was not returned to the soil. Capitalism has subsequently created any number of unsustainable environmental destructions and depletions. With still greater theoretical ambition, O’Connor (1988, 1998) diagnoses a second contradiction of capitalism. Capitalism’s own logic produces the first contradiction. However, ‘some barriers are “general” not “specific” to capitalism’ (O’Connor 1988: 13).There are physical limits to labour’s productivity. Resource depletion, in particular, increases the costs of production, undermines profits and pushes towards the second contradiction. These are important but are also potentially ambiguous ideas. Of the second contradiction, Foster argues,‘[w]e should not underestimate capitalism’s capacity to accumulate in the midst of the most blatant ecological destruction’ (2002: 4). Capitalism does not give a hoot about the extinction of song birds and it is far from obvious that it will about climate change, unless or until it reaches catastrophic proportions. The destruction of the Great Barrier Reef will put a few North Queensland hoteliers out of business without threatening corporate capitalism more generally. Some environmental changes may have huge impacts and it is certainly possible to imagine resource depletion and increasing costs having severe

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economic repercussions. But there are other possibilities. Changes may be longterm and gradual rather than pushing the system into crisis. What is a limit to accumulation at one point may cease to be one at another (Moore 2011). The exhaustion of peat as a fuel source no longer eats deep into corporate accounts. The depletion of water resources can provide great opportunities for their privatization and for profit. Similarly, the idea of a ‘rift’ might imply too straightforward a relation, that before capitalism there was a simple equilibrium while capitalism somehow puts human society outside nature. As above, all societies remain within nature; human history is a part of natural history (Wittfogel 1985). Moore (2011) rejects what he insists remains a ‘Cartesian’ dualism inherent in the idea of metabolic rift. None of which lessens the importance of an analysis of environmental changes, including their potentially substantial economic impacts. The broader ecological debates also remind us that the natural and material properties of economic activity matter. Marx (1974: 341) insisted: Labour is not the source of all wealth. Nature is just as much the source of use-values (and surely these are what make up material wealth!) as labour. Labour is itself only the manifestation of a force of nature, human labour power. Production always utilizes physical properties. Demand, however much it is socially constituted and changeable, is always for goods with real, physical properties. Capitalism may appear to be just about making money. For the capitalist, the ‘production of commodities is simply a means to [an] end’ and ‘whether as a steamengine, dung heap or silk, so too the worker looks upon the particular content of his labour with equal indifference’ (Marx 1976: 1016, 1013). This might imply reducing the use value of goods, at least under capitalism, to a completely passive role, as it tended to do for Marx’s classical forebears, Smith and Ricardo. People grew turnips to feed themselves, now they do so only to make money.There must be a use, otherwise the turnips would not sell, but this is simply an inactive, necessary condition. However, any capitalist indifference quickly runs up against the real physicality of the economy. As will be discussed in Chapter 4, capitalism needs to bring prices and use values into sync, and this is always the source of potential dislocation. For example, if one branch of industry doubles its productivity, will it conquer the markets once supplied by other sectors or will it reduce its inputs and disrupt the industries that supply it? Economic changes disrupt any momentary settlement of where the resources come from and where they go. Amongst other things, the physical characteristics of production mean that geography, the specifics of space and place and distance are intrinsic to social relations (not just capitalist ones) and continue to matter; any amount of nonsense about globalization as deterritorialization or the death of distance notwithstanding. How they matter is continually changing, whether in leaps and bounds or at a crawl.The point is not simply that weighty goods are still mined or manufactured in vast quantities (Huws 1999). The weightless – the futures’ trade or the piano concert – is

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performed in a particular social and geographic location. In recent years, social choices have been made towards deeper integration, to overcoming natural obstacles, particularly through an enormous increase in the employment of transport and communications workers (Dunn 2004b). If anything, this shows distance’s increasing social and economic importance. Harvey’s (1982) proposed renaming of the Marxist project as one of ‘historical, geographical materialism’ identifies this enduring, if shifting, geographical significance. From the perspective here it involves a certain redundancy; the geographical is implied by the material. However labelled, place, space and distance are an essential part of political economy. Finally, the necessarily physical character of all social life allows the idea of ‘development’ in the sense of technical progress. Ideas of progress and development have a bad name. They have been used as part of a westernizing, imperialist project. They have justified a complacent, teleological ‘Whig history’ and some appalling, nominally Marxist, theory which offered comfort in historical progress as it excised notions of workers’ self-emancipation.There is, nevertheless, a tendency to increase productive power, present prior to capitalism, however much it has been enhanced (Marx 1963). Any progress is not linear and it can be interrupted.There are many examples of societies which have declined and their technical achievements been lost (Mann 1986). Forty years ago people walked on the moon and flew across the Atlantic in supersonic passenger planes. But economic time is irreversible and it is probably harder to unlearn than to learn.Technology makes possible (but of course does not automatically produce) different social forms. From an early stage, the earth itself becomes an instrument of labour in agriculture but even its use ‘presupposes…a comparatively high stage in the development of labour-power’ (Marx 1976: 285). Increased productivity can enable surpluses and allow the separation of workers and non-workers and social choices about where new resources should go. Such progress is far from universal and does not imply social improvement; well-built slave ships and nuclear bombs both exemplify technical advance. This technical progress itself both conditions and is conditioned by class relations.This does not reduce class and, still less, class struggle to a function of technical development or suppose universal ‘laws’. However, productive forces condition feasible types of human cooperation and exploitation (Howard and King 2008), and asking questions of how the surplus is pumped out of the direct producers necessarily includes issues of technical capacity and levels of productivity.

Uneven and combined development Drawing substantially on Rosenberg’s (2006, 2009, 2010) recent work, this section introduces the concept of uneven and combined development (UCD), extending the meaning it originally had in Trotsky. Rosenberg shifts the concept from the combination of different historical stages to geographical integration in an attempt to develop a genuinely social theory of the international.The section then suggests, following Burawoy (1989, Barnes and Dunn 2012), that UCD should be able to generate testable hypotheses about economic and political relations.

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Trotsky theorized development in a novel way. As discussed above, there is an important sense of human ‘development’ of irreversible time and technological progress. However, Trotsky developed the clearest formulation why this did not mean that the features of the capitalist mode of production appeared in a predictable order. He particularly wanted to explain how features of European industrial capitalism flourished in Russia’s otherwise agriculturally dependent economy.The internationalization of capital and pressures of political competition meant poor countries did not develop in stages, copying the path laid by the Western European powers (Trotsky 1969, 1977). Strictly, Trotsky’s original ideas were therefore temporal, describing the prospects for national capitalist development and social change in at least some ‘backward’ countries (Barker 2006). Some sympathetic interpretations limit UCD to this. Davidson acknowledges unevenness as existing between countries but insists it is ‘meaningless to talk about combined development’ in a geographical sense. ‘The significance of the process is precisely the tensions and conflicts to which it gives rise within the territorial boundaries of particular states’ (2006: 23). However, from the start, UCD relied on recognizing capitalism as a world system. It was predicated both on how international political economy shaped Russia and on the potential for any Russian revolution to spread beyond its borders. Again, there has been considerable debate around the appropriate level of abstraction at which the concept is useful.This is the substantive core of arguments between Callinicos and Rosenberg (2008). Callinicos and others, perhaps most forcefully Ashman (2009), insist UCD should be reserved for the unique dynamism of capitalism. Following Trotsky (1969), it is specifically capitalism’s universalizing character which means the productive forces outgrow national boundaries. In contrast, Rosenberg’s use of the term is very general and he rejects at a methodological level ‘the national’ as the basis of political economy. Instead, UCD provides the basis for an explanation of the multiplicity of states, which long predates modern capitalism. For Rosenberg, if we are to understand relations of production in their totality, ‘international’ dynamics must be conceived as internal to the overall process of social development prior to capitalism. The international therefore ‘cannot be figured by extrapolation from any “domestic analogy” of social causation’ (Rosenberg 2006: 322).This is a simple point, which might be dismissed as a banal truism, were it not so seldom accepted. Notorious here is the extension within International Relations scholarship of the assumptions of rational individualism to the behaviour of states within the international system. But the point is more general. Time and again – under several rubrics of ‘methodological nationalism’ in sociology, the ‘territorial trap’ in geography, the ‘myth of the primitive isolate’ in anthropology and the ‘prejudice of the nation-state’ in political theory – this premise has been exposed as empirically untenable and conceptually dysfunctional. (Rosenberg 2010: 169)

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Rosenberg (2006: 325) returns to Trotsky’s Russian example: ‘combined development’ in this sense was not something that happened ‘to’ Russia; there had, after all, never existed a ‘pre-combination’ Russia. …The consequence is that one would have to abandon at the deepest theoretical level any notion of the constitution of society as analytically prior to its interaction with other societies. Inter-societal relations and societies are coeval (see also Ashman 2006). There might be some practical experiences of separateness. In pre-history, rising sea-levels split humanity into distinct and isolated societies, which had no contact with each other – most obvious in the separation of the Americas from AfroEurasia. However, most ‘separate societies’, groups of people in different places, continued to interact. Rosenberg (2010) draws on recent archaeology to emphasize that even hunter-gatherer bands were materially and ideationally interactive across continental distances. Even deliberate acts of isolation are testimony to the powerful influence of the ‘outside’ and profoundly shape internal development. Beginning with an ontological whole in this way still allows the empirically infinite complexity of the world economy but perceives it not ‘as a patternless jumble, but as inner differentiation of parts, across many dimensions’ (Rosenberg 2006: 316). Rosenberg wants to theorize the existence of international relations, the existence of societal and political multiplicity. It is ‘too perennial and too consequential a circumstance to be left as a “historically given”’ (Rosenberg 2010: 169). As Rosenberg (2006) initially posited, state formation is a product of intrinsic unevenness. Social and economic relations tend to be more concentrated in some places than others. Recalling Davidson’s (2009) objection that unevenness also exists within national boundaries (without producing ever more political formations), Rosenberg digs down a theoretical level using the work of Buzan and Little.This identified social structuring as vital to state formation. Rosenberg adds the spatial and inter-societal elements. So, for example, grain stores both allowed social hierarchy and trade with other societies. In the two processes, we can discern the grounds for the formation of distinct political entities.These are familiar themes to Marxists. For example Draper (1977) sees Marx and Engels’s explanation of the origin of states as lying in a combination of a societal struggle with nature, the need to resolve internal antagonisms but also in struggles with other communities.With capitalism, the previous functions do not disappear.‘The state really does have nonclass tasks, and it carries them out. But it carries them out inevitably in class-distorted ways, for class ends, with class consequences’ (Draper 1977: 260). Rosenberg rejects the idea that in invoking unevenness he is constructing a general theory from parti-culars, pointing out that his argument is instead constructed on the generality of particularity. On this basis he concludes that ‘[u]neven and combined development is not only the enduring substance of the international today: it is also its antediluvian source’ (2010:187). There remains

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dispute whether something as universal as ‘unevenness’ can properly be the basis for a theory but at least it reminds us of the dual internal-external logic through which national social relations are constructed. One relevant example might be in the long, pre-capitalist history of money. Indeed, money is ‘as old as history’ and even more advanced credit systems can be traced back over something like 1,000 years (Nesvatailova 2007). Money is especially useful in dealing with ‘foreigners’, people with whom customary relations of trust were lacking (Mandel 1969, Lapavitsas 2005). However, local rulers could assert their authority over territories in part by issuing currency but then, if their authority was sufficiently well established, enrich themselves through seigniorage, issuing conventional money, coins and later notes whose face value differed from its declared monetary base.At the same time, the soundest, most trusted, commodity money could cross borders and become accepted within foreign territories. Capitalism makes foreigners of us all in this sense but already by the early nineteenth century, national economies could depend on state-backed non-commodity or ‘artificial money’ (Polanyi 2001), while international commerce relied on metals. Money’s conflicting roles as medium of exchange and store of value already pulled in different ways, in different dimensions at home and abroad. Without addition, this does not tell us how it worked, does not allow us to predict development or how they might be changed. UCD seems, at best, a ‘framework’, which usefully enough reminds us to consider both the global and the local, both the political and the economic, and their interrelations, but hardly warrants the grand title of ‘theory’. Again, there are potential problems of losing critical purchase in attempting to ‘translate’ general ideas into anything applicable to capitalism’s specificity. However, UCD may at least provide the basis of a specifically Marxist research agenda. Burawoy argued that Trotsky’s approach represented a pre-emptive example of what, as discussed in the previous chapter, Lakatos called a ‘progressive research program’ (Burawoy 1989, 1998, Lakatos 1970). Marxism’s ‘irrefutable’ hard core was a historical materialist view of long-term class formation, economic development, and social change. People act in the context of established social relations of production over which they have little control. This proposition was the foundation of any given society. At a ‘certain stage of development’ the interaction of people and economic forces undermined the stability of this structure. Conflict between the material ‘base’ of production and the configuration of social relations was expressed as class struggle. The conflict was ultimately resolved in some way during a period of ‘social revolution’. According to this view, history progresses through different modes of production (Marx 1970). For Trotsky, like many of his political peers, the hard core of Marxism was summarized by this description of conflict and transition. For Trotsky, there is no doubt that ‘the central principle that inspires the Marxist problem-solving machinery is the view that history is the history of class struggle’ (Burawoy 1989: 782). Others have similarly pointed out that Trotsky’s approach represented a modified continuation of Marx’s method (Davidson 2006, Löwy 1981).

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Like Marx,Trotsky was prepared to challenge and test old assumptions.Trotsky identified several factors in the development of capitalism and its establishment from and in relation to non-capitalist societies that cast doubt upon ideas widely accepted by Marxists. Development is perceived as a whole. The reasons for Russia’s distinct developmental path were not, or not simply, internal to Russia. The country was exposed to the ‘whip of external necessity’ but also enjoyed ‘privileges of backwardness’, able to assimilate the latest ‘moral and intellectual conquests’ from abroad (Trotsky 1977). In this international context, capitalism would not develop through stages following a similar historical order to that of capitalism in Western Europe. However, the internal character of Russian political economy mattered too. For example, it was only the relative strength of the state that allowed it to respond and mobilize resources as it did. Progress in the development of productive forces and the disruptive effect this has on social relations should not be seen as producing ‘laws’ but at most pressures that operate in a highly mediated way. It then makes sense to treat the ‘protective belt’ as a series of propositions about the character of economic and political change. ‘Development’ in a technical sense is itself hugely uneven both temporally and spatially and its impact varies according to the character of local political economies. Trotsky’s questioning of familiar assumptions remained based on Marxist methods and core theoretical postulates. For Burawoy, it was an example of refutation that ‘does not lead to the rejection of the Marxist research program but to the construction of new theories on the same Marxist foundation’ (1989: 764). Trotsky’s ideas have been applied particularly to less-developed countries but have broader implications for contemporary Marxist research. For example, UCD would anticipate differences within countries depending on spatial and sectoral distinctions, according to, say, rural and urban regions and between industry and agriculture. Some actors within countries – particularly within key state institutions and among the dominant classes of industry and finance – are likely to take steps to adopt, but in the different circumstances necessarily adapt, certain advanced features from outside. Some social forces will seek to deepen their integration into the global economy on existing bases, others to resist, either to enable integration on better terms or through strategies of more independent national development. Finally, if the research program’s historical materialist core pertains to the transition between different kinds of society, then the terrain and possibilities for class conflict are crucial.A research programme of this type should produce empirically testable propositions, which explain or ‘retroduce’ (Lawson 1997) what has happened and predictions about the future dynamics of economic changes and class conflict.Against some attempts to transform Trotsky’s analysis of Russia into a universal programme, this raises the possibility that the findings of any given study of development might be unfavourable to radicals and revolutionaries. It is better to conceive the research program as producing hypotheses about the potential for class conflict and for that class conflict to generate radical changes.

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Conclusions This chapter highlighted why questions about work and exploitation are central to Marxist investigations of the world and the development of a properly historical materialist epistemology, how human societies need to be understood in their material and ecological context and how development should be understood systemically but in its inherent unevenness. The analysis of capitalism’s internal dynamics will temporarily set aside some of these features but there is much evidence for the importance of this level of abstract general determinations in Marx’s own writings. His arguments about the centrality of labour, and persistent interests in nature, the state and different societies were all repeatedly concerned with forms that were not specifically capitalist. It is right to caution against reading back other societies as versions (too often inferior versions) of our own but the entirely reasonable emphasis in much Marxist scholarship on the historical specificity of capitalism can, more than occasionally, lose sight of the continuities between this and other forms of society, particularly other class societies. Capitalism has profoundly transformed the world but it is possible to identify all sorts of precedents. If capitalism were incomparable to other societies we could not understand its distinctiveness. There is much to learn from what is more general, even as we move on to study the specifics of capitalism, the capitalist state and contemporary political economy and crises.


Introduction This chapter argues for a Marxist concept of value based on the epistemological priority of social labour.Value is determined in Marx’s words, by ‘objectified labor time whatever form it may take’ (1973: 532).Value is not then uniquely applicable to capitalism and is useful in a capitalist system which itself remains incompletely commodified.This unfashionably broad understanding does not mean that value is simply a quantity of work, but one aspect of labour time reflecting its social utility (Elson 1979: 132). Nor are value and price simple equivalents. Capitalism does indeed tend to compare the output of labour on the market and to reflect value through price, but similar use-values continue to be produced in different ways and through the interaction of different combinations of different forms of social labour; and to understand this, a consistent conceptual framework is needed. The proposed interpretation sees value as a conceptual bridge or pivot between, on the one side, work and its products and, on the other, their distribution and the determination of socially necessary levels of labour time. We cannot understand either production or distribution if we think of them as worlds apart. Nor does one simply determine the other. Against Marx’s own warnings, a crude Ricardian/ Marxist approach posits labour as the sole source of value and thence price. Alternatively a crude orthodoxy sees subjective utility determining price and overcoming any disutility to work. A notion of value as ‘socially necessary’ labour time potentially bridges the gap. Diverse human labours produce value but social organization decides what work will be done and, at least in capitalism, continually compares and reappraises different values. The price mechanism is now crucial to the form of this social decision making but distribution also operates through many other processes, for example allocating mechanisms organized within firms, by the state and within families. Such processes are not simply aberrations, falling short of

Value theory in a partly capitalist society 29

(and needing to be reconciled with) market mechanisms. It is important to investigate the effects of the price mechanism on production, and of work on prices, but neither one simply mirrors the other. Were the relation that straightforward there would be no science.Work would beget price or price beget work, resolving everything in a simple circularity but failing to capture anything of the real economy’s disruptive dynamics. The next section revisits controversies around value theory, explains the perspective presented here and identifies its antecedents within the Marxist tradition. It argues for the priority of work and production rather than exchange as the basis of value and for Marxist categories amenable to concretization. Insisting too dogmatically on the specificity of capitalist forms, makes it impossible to investigate an incompletely commodified world.The following section stresses the prevalence of organization over free markets. Little of the economy is directly commodified and there is often economic gain in taking production processes out of the market. Notably, nationalized industries can be economically important, even efficient, and theories of ‘state capitalism’ provide a significant precedent for interpreting incompletely commodified labour in value-theoretic terms. The importance of non-market mechanisms and for a consistent conceptual framework becomes particularly clear in the case of sectors (re-)producing labour-power like health and education. The chapter then argues that domestic labour should accordingly also be regarded as value producing.This overcomes conceptual anomalies produced by conventional readings and enables concrete investigations of the economic role of domestic labour and its dynamic relations with paid work. Finally, it is concluded that the broader, less market-dependent, reinterpretation of value is both more logical than conventional readings and opens useful lines of empirical enquiry.

The problem of value This section outlines a somewhat unorthodox interpretation of value theory based on the conceptual priority of human labour in Marxist epistemology.This involves seeing value as analytically prior to capitalism. However, value is not simply a measure of work, irrespective of its usefulness or the society in which it is performed. Value reflects work’s social necessity and is an inherently imperfect abstraction, implying the equivalence of different forms of labour. It can remain more or less concealed and economically unimportant in non-capitalist societies. Even in capitalism, value is reflected only in a distorted and incomplete way through the price system because capitalism remains (inherently) incompletely commodified. Socially necessary labour time can produce outputs that are not (even cannot be) sold for money, for example components within larger production processes, work providing what mainstream economists term ‘public goods’, for example building infrastructure, and work producing labour-power; teaching, health work and domestic labour.These incompletely commodified labours may be quantitatively as well as qualitatively important to the economy. They interact with the money economy and need to be understood within the same conceptual framework.

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The objective here is not textual faithfulness but there are many precedents for this in Marx and Marxism and a methodological basis in the centrality of human labour to the materialist conception of history. In several places, Marx says that value exists in different forms of society. His famous letter about value to Kugelmann insisted that ‘every child knows that the volume of products corresponding to the various needs calls for various and quantitatively determined amounts of total social labour’ (Marx and Engels 1983: 148).Value exists in subsistence societies (Marx 1963: 49) and would do so in socialist ones (Marx 1981: 288–9, 991). Our understanding of capitalism is increased precisely by considering the way value is expressed as a particular form of exploitation involving wagelabour and competition. It becomes entirely appropriate to ask how value is specifically manifested.This manifestation includes – is even primarily – price. But price is an emergent property.This form also uniquely conceals exploitation; with market relations apparently those between equals. With a consistent concept, it becomes possible to contest this apparent equality, to compare the hidden exploitation under capitalism with the direct, naked exploitation of earlier societies. As writes Campbell,‘Marx’s point is that capitalism is another form of the same thing, the difference between it and the others being that capitalism is indirectly rather than directly collective’ (1993: 151). This is anathema to mainstream approaches who instead demand a theory of price. Marxism is, accordingly, found wanting. When Marxists do interpret value theory as one of price, it can lead to circularity that mirrors mainstream economics (McDermott 2004). As will be discussed below, the problems become particularly acute in relation to the production and re-production of that most crucial of commodities, labour-power. Marxists have conventionally read its value backwards from its price, from the wage level.This mirrors Smith’s method, rather than that of Marx, and reproduces the neo-classical fetishism of price relations. As a theory of price, the concept of value becomes vulnerable to mainstream criticisms while adding little to our comprehension of the complexity of a capitalist economy, which necessarily remains incompletely commodified. However, the opposite danger is that analysis remains uselessly abstract. Concepts have to be amenable to concretization. Kicillof and Starosta (2007), for example, accuse Rubin’s ‘value-form’ approach of becoming an abstract formalism, unable to reconcile the connections between materiality and social form.This, too, precludes an adequate understanding of the interconnection of different forms of work and the concrete specificities of capitalist economy.Value is interpreted here as a ‘mediating concept’ or conceptual ‘pivot’ (McDermott 2004) between work’s general necessity and the specific forms, including quantitative price forms, that it takes. In a sense, this follows simply from an anti-determinist method. Marx thought ‘the production relations of every society form a whole’ (1978b: 103).The whole is at the same time uneven, internally differentiated. The parts, individuals and groups of people, are not reducible to, and are not reduced to nothing by, the structures of the global economy. People find different ways of dealing with the

Value theory in a partly capitalist society 31

pressures, of resisting them and (at least occasionally) of altering them.There is no single, rational response. Even leaving aside more or less direct forms of resistance and rejection, people respond to the logic of capitalism in different ways. Individuals, groups, firms, national economies, do things differently, or employ different mixes of things at the same time. Hence, there are constant processes of restructuring and open-ended struggle, for example within and between industries to capture a greater share of the surplus. ‘The economy’ cannot be studied simply ‘as a whole’ but also in its unevenness. Of course, this is easier said than done. Comparing different inputs and outputs in terms other than price presents a formidable empirical challenge. We cannot analyse and somehow sum the billions of qualitatively different activities that make up the world’s work. However much money’s homogenizing ubiquity obscures, it is tempting to fall in with price measures so richly provisioned with conventional statistics.The later sections of this book cannot avoid doing so. Nevertheless, at least in principle but also in much useful existing research, it is possible to study not only how work is paid and how the products of work are priced but also the work and the workers themselves; their skills and the sorts of activities they perform as well as the work involved in their own reproduction. Different forms of economic organization interact. In particular, the contribution of incompletely commodified labour in state-owned sectors of the economy and in domestic work may be economically as well as socially, quantitatively as well as qualitatively, vital. Understanding the economy’s dynamics and its often hidden relations of power requires digging beneath assumptions of equivalence and market perfection. The economic centrality of work has long been recognized. As is well known, labour theories of value predate Marx who develops ideas already in Smith and Ricardo. However, viewed under the influence of Hegelian philosophy (even in an inverted form) and of radical socialist democracy, the questions as much as the answers are transformed.There may, in Marx’s reinterpretation, be transcendence at least as much as continuity. Smith’s starting point in the Wealth of Nations is ‘the annual labour of every nation’ (1997: 104). Slightly later he confirms ‘the real price of everything is the toil and trouble of acquiring it’ (1997: 133). However, the work required to produce commodities exactly represented their value only in primitive society without profit or rent. Smith switches his interpretation of value in commercial society from production to exchange; to the quantity of labour ‘commanded’.What matters is how much labour goods can buy. Profits, which are assumed not explained, allow this to exceed the labour expended in production.The conceptual priority of labour disappears (Rubin 1979). Ricardo (1951: 11–51) returns to labour expended in production as the sole source of exchangeable value (excluding some rare goods whose value is determined by scarcity). He includes not only the labour immediately involved but also that bestowed on the implements that assist such labour.Value therefore also varies according to the quality and durability of fixed capital. Thus, even if the physical output doubles there is no increase in the value if it is the product of the same

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amount of labour. However, to anticipate elements of Marx’s critique, first, although wages and profit are now explicitly opposed, for Ricardo the source of profits remains obscure. Second, he does not adequately explain the practical variation of prices from embodied labour ratios.Third, while insisting precisely on its relevance even in capitalist society, Ricardo gives value a trans-historical character. Thus he advanced beyond Smith but still in terms that, in their different ways, both neo-classical economists and Marx would find unsatisfactory. Marx’s critique of the classical texts is familiar. First, he offers a powerful explanation of profit. He suggests that, under capitalism, labour takes on an abstractly universal form.The ability to work, labour-power, is bought and sold as a commodity but then employed in particular concrete labours. Like other commodities, labour-power (in general) exchanges at its value but, uniquely, once this exchange is made, labour-power can be employed longer than is needed to reproduce its own value. Labour thus produces not only value but also surplus-value and thence profit. Marx thus probes beneath the realm of exchange to re-situate the core of political economy in labour and the sphere of production. Second, he emphasizes that value and surplus-value do not directly produce the prices and profits of the individual capitals where they are created. Instead, (as Ricardo was of course aware) market mechanisms mediate the relationship to determine ‘socially necessary’ levels of work. If the inefficient must labour longer, they do not thereby produce more value than would someone working with average social skill and intensity. Capitalist competition also distributes a common pool of value and surplus-value both within and between industries.Thus, the determination of prices according to value is inherently approximate and ‘an average of perpetual fluctuations’ (Marx 1981: 261). Marx’s articulation even of these approximate relationships remains incomplete. Amongst other things, with market mechanisms determining the price and profits of the goods bought as much as those sold by capitalists, two sets of transformation from value to price would be needed and simple algebra shows that total value and surplus-value cannot equal total price and profit, except occasionally and accidentally (Fine 1986). For neo-classical critics, this is fatal to Marx’s system. It does present Marxists with a dilemma. Many follow the route of Sraffa, Steedman and the ‘neo-Ricardians’ (Steedman 1977). With enough assumptions and enough simultaneous equations, it perhaps remains possible to show a consistent relation between production and price.This might be read as simply demonstrating that the operations Marx suggested can be developed consistently. However, because it has capitalists both buying and selling according only to price, value tends to drop out of the picture altogether. It may lurk as a metaphysical presence but the practical economics re-approaches that of the mainstream (McDermott 2004). Other Marxists change the question, reinterpreting the tasks of political economy and Marx’s methodology. Starting with labour and moving forwards through value to price rather than the other way round, the labour theory of value becomes a theory of price in, at most, a weak sense (Rubin 1973: 81). This avoids pursuing the labyrinthine controversies that attempt to prove even their approximate

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identity; as Marx acknowledged, even ‘the average price of commodities is always different from their value’ (1963: 95).This now admits to failing the criteria of bourgeois economics.This is broadly the interpretation here but the stress on value form rather than on its specific content and manifestation as prices, can sometimes be stretched still further to deny any practical application, even any content. Radically abstracted from the workings of the real economy, value theory becomes almost the antithesis of the classical concept.To say anything about capitalism, rather than about bourgeois characterizations of it, is to objectify, to render what is actual, rational (Holloway 2002). An effective conceptual ‘pivot’ needs to stand between the two poles it mediates. Too abstract, and the concept of value simply repeats truisms about the importance and interaction of work.Too specific, and it simply records the vicissitudes of the world market and crises. To address the appropriate level of abstraction and generality requires a comment on the third of Marx’s objections to Ricardo, and Marx’s emphasis on the historical specificity of capitalism. Once again, for many authors, this specificity implies that value is a uniquely capitalist phenomenon. The labour theory of value is socially specific. It refers only to capitalist processes; it comes into being with capitalism and will disappear with its passing (Pilling 1986a, Fine 1986). At most, ‘lower forms of value’ may be admitted in pre-capitalist societies (Weeks 1981: 38). Only the market makes equivalent otherwise dissimilar use-values, turning the concrete labour of making them into the abstract labour of making commodities to make money. Without a market system, concrete labours remain qualitatively different and incomparable. In particular, wage labour under capitalism is unique. Free labour becomes wholly dependent on the market and the value of labour-power or variable capital is accordingly that of the necessary consumption commodities.‘The worker spends the value or price of the labor-power he has sold on means of subsistence, on the means to reproduce his labor-power. A sum of money equal to the variable capital forms his income’ (Marx 1978a: 455). Failure to distinguish wagelabour from non-capitalist work, slave labour, peasant labour, domestic labour, can blur capitalism’s distinctiveness and upset Marxist characterizations of its incomparable processes of production, reproduction and accumulation. Insisting too rigidly on this distinctiveness, the concept of value becomes applicable only to a purely capitalist system; a world that cannot exist. By definitional fiat, Marxists can say nothing – or at least nothing value theoretic, nothing analytical rather than descriptive – about a real world in which all sorts of noncommodified labours stubbornly persist. Such work is deeply, but only more or less directly, implicated in contemporary capitalist production and reproduction. It would also seem useful to have analytical tools with which to understand other societies and perhaps particularly the transition between different economic systems.The money economy was never wholly absent in feudalism; lords bought luxury goods and even the poor would have to buy basics like salt and iron, exchanged for local products or money these could raise (Takahashi 1976, Hilton 1990). It seems reasonable to believe such goods were priced, at least approximately,

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according to the toil and trouble of acquiring them. However, market relations were relatively peripheral and work in peasant households was not radically separate from ‘life’ in the way achieved by capitalism. Therefore, as will be discussed below in the case of housework, even if we knew for how long people worked, it would be hard to discern ‘socially necessary’ levels for any particular process. The category of value, as socially necessary labour, might still, retrospectively have critical purchase. For example it might inform discussion of the relation between crudely ‘demographic’ inabilities of societies to reproduce themselves, and particular questions of the (lack of ) agricultural innovation or of levels of exploitation within those societies (Bois 1985, Brenner 1985a, 1985b, Harman 1989). Within feudalism, surplus extraction also took different forms, as demesne labour and tithes, for example. It also changed form, with money becoming increasingly important even while still coerced through ‘extra-economic’ means.Whether these represented a quantitative lessening or intensification, seem at least appropriate questions, which might be addressed through a consistent concept of value. Historians also debate how or whether capitalism emerged from within European feudalism or from without. Various theories of imperialism point to surpluses extracted from the ‘periphery’ as vital to the success of the ‘core’.There is controversy over whether, or to what extent, modern capitalism succeeds through its own inherent dynamism (and exploitative practices) or through its ability to appropriate resources from elsewhere. Processes of ‘primitive’ and capital accumulation continue to co-exist, the former not relegated to some primordial stage (Marx 1976, Harvey 2003). In each case, a precondition for understanding the interaction of these different processes would appear to be the adoption of concepts that render them analytically comparable. The broader understanding of value allows for, and helps interpret, important differences between societies. For Marx, value changes form and ‘requires for its pure development a mode of production founded on capital’ (1973: 251). In capitalism, it asserts itself as exchange value so ‘the labour process itself is no more than the instrument of the valorization process – in the sense of the process of creating surplus value and not, as previously, in the sense of simply creating value’ (1976: 1017). Moreover, the ‘concept of value is entirely peculiar to the most modern economy’ (Marx 1973: 776 emphasis added). Markets simultaneously reveal individual equivalence and obscure the exchange of social labour behind the monetized form; precisely the source of Smith’s ambiguity, which Ricardo begins to overcome (Rubin 1979). Meanwhile a greater or lesser distance from the market allows more or less freedom from the law of value, practical variation or what mainstream economists might describe as ‘inefficiency’. However, these are often differences of degree rather than of kind.Value takes different social forms in different societies and science ‘consists precisely in working out how the law of value asserts itself ’ (Marx and Engels 1983: 148). This seems particularly pertinent to questions of the value of labour-power itself. Marx (1976: 274) wrote that its value:

Value theory in a partly capitalist society 35

is determined, as in the case of every other commodity, by the labour-time necessary for the production and consequently also the reproduction, of this specific article. In as far as it has value, it represents no more than a definite quantity of the average social labour objectified in it. This very general characterization would appear to imply that the parenting, teaching and household production that contribute to the labour-time necessary for the production and reproduction of this specific article add to its value (Quick 2004). This contrasts with the more usual view, which sees the value of labour-power as simply equal to the labour embodied in the commodities purchased with the wage. However, in practice, the ability to work, can be produced through different relative amounts of domestic and commodity labour. This recalls a familiar criticism of labour theories of value that note that concrete labours are always different. Skilled labour, for example, requires skilled labour for its own reproduction and cannot be a straightforward multiple of simple, abstract labour.The social ensemble is irreducible and the concrete labours are qualitatively as well as quantitatively different (McDermott 2004).Yet the reality of social immobility does not preclude us from believing, for example, that most miners could judge, and most judges mine, if only they had the training.Value involves an abstraction but not an arbitrary categorization. ‘Social necessity’ is always historically specific, but there is something recognizably homologous about people’s social labour, similarities between the work and exploitation of people in different situations. Only with capitalism, Marx argued, does value become apparent, the ‘price of labour-power…expressed as the value or price of labour itself, i.e. as wages’ (1981: 121 emphasis added). It was opaque to Aristotle, for example, because he lived in slave society lacking notions of human equality but becomes manifest through exchange (Marx 1976: 152). It would seem unfortunate if contemporary radical democrats, remembering the criticisms of Ricardo too well, forget even the bourgeois prejudice of equivalence, of a basic, if approximate, human equality.

Capital, the state and value Capitalism is not characterized by free markets. Marxists and other critical political economists have long seen an irony in the timing of neo-classical economics’ triumph; free market ideology established in the late nineteenth century just as giant trusts and robber barons strengthened their grip on the real economies of Europe and America. Levels of state planning and bureaucracy had also begun to rise. These trends towards the increased direct organization of economic life continued, albeit unevenly, throughout the twentieth century. Markets themselves are pervaded with power and long-term relationships. The social nature of what appears private, and the organized character of capitalism, is an enduring indictment of orthodoxy’s individualism. Free markets are not the norm; capitalism and planning are not antitheses (Kidron 1974, Secombe 1975, Simon 1991) and economic theory founded on prices is therefore misleading.

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The prevalence of hierarchy and power within and between firms, and of state planning, mean that most work produces commodities only indirectly. Commodity exchange dominates production relations only in a more or less strongly mediated fashion. Contemporary capitalism is not Smith’s world of individual butchers, brewers and bakers buying and selling on their own account. Even within strictly capitalist factories, most work is likely to produce components, or components of components, or to service their production in one way or another, rather than make the finished goods. Production relations are therefore necessarily bureaucratically organized, more planned than market driven. Many other firms sell goods or services in relationships that themselves involve power and hierarchy, trust and long-term planning rather than spot-market transactions.There are different ways of doing business, most of which involve an admixture of market and power relations (Gereffi et al. 2005, McDermott 2004). This represents a ‘problem’ for neo-classical economics and for Marxist analyses based on conventional interpretations of value. To begin with markets and price mechanisms, and see variation from this as abnormal, is the opposite of Marx’s approach, which precisely begins within work and production. It is not surprising that firms take different paths. For example, production of a vital component may be outsourced or brought ‘in-house’. The latter may overcome uncertainties in quality or supply, or simply be cheaper; the integrated firm able to produce below market price. If all the production was taken in-house and the separate industry disappeared, we would have no market price for the component. If such component making had never been spun-off as a separate industry, successful firms might continue to do it in very different ways. Any inefficiencies within one firm would be absorbed into the overall production process and might continue for a greater or longer period. The better component maker might be driven out of business because of inefficiencies elsewhere in its production regime.The point is simply that distance from the market is the norm and the price mechanism typically is, at most, indirect. Levels of socially necessary labour time are reflected in prices, if at all, after the event; sometimes days, months or years after the work is done. Marxists, perhaps particularly in a highly organized capitalism in the twenty-first century, but in principle from the beginning, need to understand value as arising in production not impute it backwards from the market. In particular, both private and ‘public’ sectors can perform similar economic roles and produce identical use-values. Conceptual and empirical problems rapidly emerge if they are perceived as radically different, as respectively capable and incapable, of producing value. Here there are significant precedents for seeing state labour as value producing. This was stressed by Marxists who characterized the former communist regimes (and later other state activities) as ‘state capitalist’. Political economy differed markedly between East to West. It also displayed similarities. It was always a choice, and an inescapably political choice, which to emphasize. In particular, a focus on the internal organization of, say, the Soviet Union, tended not to discern any law of value. Formally, the state (and, if less

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plausibly, the people) owned the means of production, there was no free market and ultimately only one employer.There was therefore no commodity production, no wage labour and, according to conventional readings, no value. Within the Soviet economy, most production processes were not subject to the immediate discipline of market competition. However, similar things might be said looking within any capitalist firm.The context of the competitive world economy allowed at least the possibility of state capitalism. In extremis, and more or less by definition, there is a world system and no part can be anything else but capitalist (Wallerstein 2000). For others (Cliff 1974, Kidron 1974) it was necessary to show the historical development of class society, the degeneration of the revolution, the nature of accumulation, its implications in terms of competitive effects on the labour process and so on. However, military competition in particular now drove competitive accumulation similar to that in western capitalism. The point here is that whether or not similarities allow their categorization as capitalist, the analytically prior category of value helps understand and compare economies. The unfortunate dualism between value and non-value producing labour, between capitalist and non-capitalist labour, seems particularly stark in considering post-communist transformations. The opening of the economies of the former Soviet Union and Eastern Europe, particularly through ‘shock therapy’, often led to massive destructions of wealth. Even mainstream accounts acknowledge falls in real GDP from which it took years to emerge. Marxists would presumably agree that these openly capitalist successor regimes have value but unless it also existed previously, the collapse of communism must be reckoned to have created value on a massive scale, not destroyed it. Conversely, China became richer, huge problems and increasing inequalities notwithstanding. As will be discussed in later chapters, the basis of this growth and the extent of any state retreat remain controversial. For Harvey (2005), China is a prime example of accumulation by dispossession achieved not least by the transfer of resources from formerly state and collective spheres to private capital. This is disputed (Ashman and Callinicos 2006, Dunn 2007). However, if such claims are to be susceptible to serious Marxist enquiry, it would seem necessary to employ concepts that have continuity across the different social forms. If state-owned and collective enterprises are deemed value-free by definition, we necessarily have accumulation de novo. If values already existed prior to marketization, an investigation of the extent of transfers of wealth against those of its creation through processes of capital accumulation might be possible. The idea of state labour as productive of value may be at least as important in understanding the role of state intervention within established capitalist economies. It seems clear that some nationalized industries meet even the narrowest definitions of ‘productive capital’ (Poulantzas 1978). Renault, nationalized for political reasons, did not thereby become a wholly different, valueless and unproductive species of car firm. Other firms, even whole industrial sectors, were nationalized in the postWWII period but continued to produce commodities, which at a national or global level competed with those directly produced by capital. Many state-owned oil companies remain important. Certainly, at times, state ownership could take

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some of the heat out of competition, allowed subsidies and production at less than ‘socially necessary’ levels of productivity. But the idea that a car produced by French state employees or that British state-owned coal had no value seems untenable. Many other state activities seem less clear-cut. However, even liberal accounts allow certain areas of state intervention in the provision of ‘public goods’, where individual capitals cannot glean profit but collective capital needs resources. Lighthouses are often the classic example. Roads and canals (Smith 1997) and education (Mill 1994) might also qualify. These things might be produced by the private sector or to a greater or lesser extent provided or subsidized by the state. It would seem odd for Marxists to see their value as hanging on how their production was funded. The point here is that there is no clear divide. Some state firms may be profitable. Some may make losses. Some may be nationalized for sound ‘economic’ reasons, for the ‘public’ (or collective capitalist) good. Some may be nominally privatized while receiving state support. The sheer diversity of forms seems irreducible to the simple binaries of value/non-value, capital/state. There seems scant Marxist rationale for imposing categorical judgments of whether or not the potentially identical use-values they produce have value. Finally, welfare states produce value. Their expansion may have been a concession forced on capital. However, it could also prove functional, contributing to the reproduction of labour-power. Healthier and better educated than hitherto, labourpower would appear to have increased its value in the post-war period as its reproduction was taken out of the market (Harman 1984). Nor was this a one-off transformation and states can reasonably be interpreted as funding an ongoing commitment to ‘the production and secular improvement of labor-power’ (McDermott 2007: 300). If, for example, workers buy drugs directly from pharmaceutical companies or education from private schools, for Marxists, these are commodities, consumption goods like any other. However, their value cannot evaporate if the state subsidizes or produces them. The goods and services contribute identically to labour-power. State employees may thus produce value, in reproducing labour-power and other goods, albeit at rates which, for a longer or shorter period, may remain somewhat indeterminate, not subject to the immediate discipline of the market. The tendency to equalize profit rates occurs within and between industrial sectors and, with more or less difficulty, across national boundaries.The labour time that is ‘socially necessary’ is ultimately determined on a world scale. Nevertheless, just as there are variations between the sizes and organization of successful firms, there remain substantial differences between countries in the proportion of people in paid employment and in the proportion working for private businesses and the state. Yet when (the products of ) these countries come into direct competition there is no straightforward relation between the proportion of private, strictly capitalist, employment and their competitiveness. Socially necessary labour times are constituted on a world scale by a variety of different labours, of varying adjacency to the market, with no necessary correspondence between this and their efficiency. Opening ‘protected’ sectors to competition may reveal their social (in)efficiency

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and the law of value as price. The market now casts its unforgiving measure. A competitive world capitalist economy, for state capitalism as for firms, in the long run means efficiency or (very often and, for example, in the case of the USSR) ruin. The judgment of the market makes value manifest. But that which is unweighed does not lack weight. Uncalculated value is already value.

Domestic labour and the value of labour-power This section argues that domestic labour can produce value and in particular that it contributes to the value of labour-power. Conventional Marxist understandings, which read the value of labour-power backwards from the wage level, follow Smith not Marx in their methodology, are theoretically circular, and arbitrarily exclude this vital form of labour from their analyses.They are unable to conceptualize the nature or the changes in the relationship between paid and unpaid work. Too abstract an understanding of value both reflects and reinforces a preoccupation with market relations and becomes a legitimate target for feminist critics that Marxism remains as preoccupied as neo-classical analysis with profits, markets and rational decision making ( Jefferson and King 2001,Waring 1988). Domestic labour is and does much more than just reproduce labour-power (Meagher 1997, Anderson 2000). Nevertheless, the inextricable connections between public and private have also been seen as the core of feminism (Anderson 2000) and their explication, however imperfectly, remains a necessary ingredient of a research project that aims at generality. Understood in the sense suggested in the previous sections, value theory can usefully inform an understanding of the relations between paid and unpaid work and re-incorporate issues of domestic labour into Marxist political economy. Neo-classical economists enjoy Pigou’s now rather quaint anomaly that GDP falls when a man marries his housekeeper. It was always a circumstance sufficiently rare that it could be passed off as mere theoretical quirk. However, movements in the opposite direction, from unpaid to paid work are too substantial to be so easily dismissed and even some liberals have recognized that domestic and paid work are interdependent and mutually conditioning (Cloud and Garrett 1996,Wood 1997). Attempts to calculate the economic importance of unpaid housework date from at least 1912 but its integration into conventional economic analysis presents conceptual and empirical problems and in practice, unlike activities such as subsistence agriculture, it typically remains excluded (Hoskyns and Rai 2007).With the task of imputing market prices, practical difficulties include those of delineation of ‘production boundaries’; what constitutes (different kinds of ) work, and of relative productivity (Cloud and Garrett 1996, Wood 1997). One influential convention, after Reid, counts things potentially replaced by third parties (Beneria 1999). Bread can be baked or bought, laundry or childcare performed by others. However, there seems almost no limit with a whole range of potentially marketable activities from servicing psychological needs to child surrogacy and sex (Wood 1997). Even within any limits, it is unclear what sort (and price) of labour (for example how

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skilled, whether specialist or generalist) would be taken as performing these substitute tasks. One approach estimates ‘opportunity costs’ in terms of earnings forgone. This rapidly produces absurdities, for example that a lawyer’s housework would be more valuable than that of the skilled cook or cleaner ( Jefferson and King 2001). In short, including unpaid labour, obstinately recalcitrant to monetary measurement, spoils ‘the neatly-defined, presumably “objective” orthodox economic model’ (Beneria 1999: 305). An alternative, mainly feminist-inspired approach based on ‘time-use’ has become relatively widespread (Fraumeni 2005, Hoskyns and Rai 2007). Quantitative estimates vary widely but unpaid work accounts for huge proportions of national wealth (Anderson 2000, Jefferson and King 2001, Himmelweit 2002, Williams 2003, Fraumeni 2005). Conversely: Caring work removed from the unpaid economy is a cost not only to households but also to society. The gains realized from increased employment of people with caring responsibilities in the public or private sectors of the economy must be balanced against losses in the output of the unpaid economy. (Himmelweit 2002: 54) We might reasonably ‘deflate’ current figures, or better inflate past measures of wealth, by the substantial proportion of unpaid work (Beneria 1999, Himmelweit 2002). Again there are practical and conceptual difficulties. Work in the home is unlike wage labour. Sometimes it can be enjoyable and rewarding. Even the most onerous chores are not subject to what Marx describes as the real subsumption of labour to capital. They escape some of the competitive imperatives of capitalist accumulation. There is no market and any compulsion to produce at ‘socially necessary’ rates is indirect (Secombe 1974). However, for Marxists ‘time-use’ might appear to provide a sensible starting point. Indeed, one might expect Marxist emphases on production rather than exchange, on the importance of human labour-power and on human equality to have responded to and radicalized such discussions of work and commodification. Domestic labour indeed provoked considerable debate amongst Marxists in the 1970s. Without any satisfactory resolution, interest subsequently diminished. Sometimes the reasons for excluding domestic labour seem essentially pragmatic (Shaikh and Tonak 1994). However, the theoretical consensus also maintains that domestic labour does not produce value:‘the products of this private labour are not exchanged on the market, they are not commodities and exchange no value in the technical sense’ (Foley 1986: 16). For Himmelweit and Mohun, domestic labour is ‘a whole sector of production central to, but existing outside capitalist relations of production’ (1977: 15).Therefore, it ‘is not value creating because it is not subject to the law of value’ (1977: 27). With a certain circularity (Folbre 1982) the technical and conceptual reinforce each other in ways that appear to mirror mainstream economics; putting important features and transformations in contemporary

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society beyond the scope of value theory. Domestic work, like state or subsistence labour, is conventionally disqualified from contributing to value on the distinctly neo-classical ground that labour-power is not produced for exchange and its output it is not immediately measured or measurable (Masterson 1998). Unsurprisingly, the field of enquiry was largely abandoned to an empirically based feminist or institutional economics ( Jefferson and King 2001). As mentioned above, Marxists conventionally characterize the value of labourpower as the price of its consumption goods. Unfortunately, this avoids the (Ricardian) assumption of the inherent commensurability of different (capitalist and non-capitalist) work only by regression to Smith. It is regression to Smith because it defines value according to the labour commanded, the consumption goods labour buys, instead of the total amount of work required for its reproduction. These would be the same in an entirely static and purely capitalist system. In a dynamic and incompletely commodified system, the necessary use-values can be provided in different ways. If only commodity inputs ‘count’, the labour-power of the worker arriving from the countryside or perhaps fleeing communism would have no value. The worker, whose childhood involved food cooked at home and educated by the state, would have less valuable labour-power than her contemporary whose meals were bought and who was sent to the shoddiest of private schools. Unpaid labour can provide similar use-values to paid, can add socially useful labour to that embodied in consumption commodities and must logically be able to add to the value of the labour-power (Masterson 1998). Unless domestic labour does produce value, Marxists also face Pigou’s paradox. Secombe (1974, 1975) therefore proposes that non-market labours can produce value, albeit under conditions where their quantitative dimensions may be revealed only retrospectively, when the labour is thrown onto the market. Rather than a Smithian conception of value as given by the commodities bought, better that only ‘[t]he ultimate or minimum limit of the value of labour-power is formed by the value of commodities which has to be supplied’ (Marx 1976: 276 emphasis added). Perhaps two isolated societies producing similar use-values might be reckoned to have different amounts of value or those with dissimilar material outputs, identical value. The accounting technique might matter little. However, the contradiction becomes practical and concrete if two societies interact; or, to put it another way, if in one economy use-values (including that of labour-power) are consistently produced by different combinations of paid and unpaid work. Similarly, if one society changes over time, for example with women recruited to paid employment, it would appear inconsistent to reduce the value of their labour-power and thus value theory, to Capital’s hiring decisions.The value of labour-power, as Marx insists,‘like that of every other commodity, is already determined before it enters circulation’ (1976: 277). In an incompletely commodified world, domestic (like state) labour can contribute to the value of labour-power. The presence of domestic labour influences labour-power’s reproduction both qualitatively and quantitatively. The survival of the next generation and the conditions of the present can be improved

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by unpaid work. If a worker studies at home and increases her own skills, the value of her labour-power rises. State-funded education and health as well as protective legislation that reduces working hours, even while reducing pay, can increase workers’ conditions and the value of labour-power. Labour-power is reproduced through a changing mixture of paid and unpaid labour – to regard only some of which as value producing seems arbitrary and inconsistent. If unpaid work also contributes to labour-power, then that might appear to indicate its value always exceeds its price. The former would be equivalent to that of the commodities consumed plus the domestic labour. However, domestic workers also consume commodities and Secombe (1975) suggests that the value of the housewife’s labour-power is simply compensated by the value of the commodities, bought with the man’s wage, which she receives. Quick (2004) has similarly, if in less explicitly gendered terms, argued that families make decisions about the work they do. However, not making them in conditions of their own choosing, capitalism imposes decisions on household labour that bring it into conformity with wage labour as necessary labour (2004: 26–7). Capitalism relies on the ‘freedom’ of the workers from sufficient means of production to support themselves and the consequent need to perform wage-labour.With the money wage, workers can buy consumption goods, which it would have been impossible to produce consistently within the home in the time available. An increase in real wages or a cheapening of consumption commodities allows the purchase of more commodities and domestic labour-saving machines, which further reduce the necessary time spent in housework.The household can increase its leisure or work longer and increase its money income. However, Quick suggests that with the household now living above subsistence, the capitalist can therefore cut wages (2004: 30). Both Secombe and Quick thus accept Marx’s assumption that workers receive the wages just necessary for their reproduction and show that this is entirely compatible with domestic labour producing value. However, this assumption may be better relaxed. First, it is true that capitalism is ultimately unsustainable unless workers earn enough to reproduce themselves. However, the unequal nature of the capital-labour relation may allow capital to cut wages below their value, at least for a time.Workers and their families can compensate by working harder at home. Capitalism might compensate by drawing in workers from alternative sources, through processes of primitive accumulation. Falling wages might also, as Marx thought was happening before the introduction of the factory acts in the nineteenth century, reduce the supply of labour-power in ways that threaten capitalism’s survival as a system. Second, there is no ‘internal market’ to establish an equivalent exchange within the family (Folbre 1982). The home can therefore be the site of exploitation (as well as oppression) (Humphries 1977, Gibson-Graham 1996). This upsets doctrinaire models of ‘class’, implying that any extra family resources may be ‘produced’ as well as distributed unevenly between men and women and boys and girls (Folbre 1982). Empirically this is hardly shocking. However, this is also a limited process, domestic relations lack capitalism’s systematic competitive dynamic and it is hard

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to accumulate its products. These are predominantly for immediate consumption in which the limits of the husband’s exploitation are, so to speak, the limits of his stomach. Workers seldom become rich. It is particularly hard to imagine them doing so through the exploitation of domestic labour alone. Third, however, the pressure for capital to reduce wages to a minimum is at best a tendency. Marglin, for example, argues that a ‘rising wage makes leisure relatively more expensive to the worker, to be sure [b]ut against this…a rising wage is like a windfall that makes the worker able to afford more leisure. …And the outcome is unpredictable’ (1974: 92). Intergenerational reproduction appears to confirm that domestic labour can add to the value of labour-power. Workers can, however moderately, accumulate. In the commodity economy they can save by working overtime.They can retrain in their own time. As a simple empirical fact, the value of labour-power has increased enormously over the last two centuries. Workers were drawn from the countryside at home and abroad. But the vast expansion of the proletariat in the leading capitalist countries far exceeds this primitive accumulation. The working class in Europe and North America, and subsequently in other places, did much more than simply reproduce itself. Individually, workers accumulated little, they still needed to sell their labour-power, but the numerical expansion was enormous. This increase, achieved by relatively high wages and social benefits, also represents a successful investment for capitalism as a system (McDermott 2007: 314). But it should also be understood in value terms. Conversely, once we understand the dynamic relation between paid and unpaid labour, even an increase in wages need not mean an increase in the value of labourpower. And the long-term trend of apparently endogenous increase in the total labour power in rich countries appears to have been reversed. For the conventional account, more paid employment, higher family income and greater consumer spending imply an increase in wealth and the value of labour-power. However, evidence suggests this need not be the case. Additional paid work impacts on unpaid labour, the diminution of which affects a real economic depletion (Hoskyns and Rai 2007).The relationship, of course, is complex. Himmelweit (2002) suggests that each extra 100 minutes of paid work reduces the time spent on domestic work only by 28.Women (and to a lesser extent men) continue to do all sorts of housework as paid employment increases.Women’s ‘double burden’ becomes heavier and capitalism apparently gets something for nothing. However, this precipitates new struggles and contradictions. One aspect may be seen in declining birth rates and ‘demographic crisis’. It seems plausible to associate these with diminishing time spent in domestic labour and to understand them not simply as a matter of changing ‘lifestyles’ and personal choice but as a product of the contested relation between capital accumulation and responses by women (and their families) resisting the extra work, paid and unpaid, being pushed upon them (Folbre 1982). Annual changes in the birth rate in the US correlates strongly (and negatively) both with the increase in women’s paid employment (0.89) and with the real level of family income (0.95) (calculated from Census 2006). The decline in the intergenerational reproduction is perhaps offset somewhat by individually more

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valuable (because better educated and healthier) workers. However, despite buying and consuming more commodities it seems clear that less value than before is going into labour-power’s reproduction. The reasons for this ‘missing’ value are surely connected to decreasing domestic labour. Meanwhile, the commodification of domestic labour increases employment and changes the employment structure, increasing the share of marketized services. Predictably, this is also strongly gendered.The correlation between levels of service sector and women’s employment in the US between 1947 and 2001 was a remarkable 0.99 (calculated from Census 2006). Of course, not all commodified housework becomes ‘services’. Food is manufactured. DIY becomes construction. Nor, although they do so disproportionately, do women perform all the extra ‘services’. Nevertheless, the association seems sufficient to suggest that a value theoretic analysis of the commodification of domestic labour and women’s (re-)entry into paid employment would contribute to understanding changes in employment structure and deconstruction of the hyperbole about the rise of services and ‘new economy’. It would be hard to identify the presence of any value in unpriced housework considered in isolation. However, domestic labour and, in particular, its product, labour-power, are not isolated but continually traded in a competitive capitalist system. This makes it possible to discern the value of spent labour-power, albeit always after the event.When workers with similar attributes sell their labour-power in the market, it is irrelevant to capital how this was produced; whether through bought commodities or to a greater or lesser extent through domestic labour.The value of commodified labour reveals that of the uncommodified.Work is reckoned comparable with that for capital, with how far capital has gone, not how far (on a long and disturbing list) it might go in commodifying ‘private’ labour. Value is a social and historical construction. Work spent reproducing labour-power can be acknowledged as value producing, without imputing a price to things now considered leisure or done for pleasure that might potentially or exceptionally be marketized. Capital tends to transform everything into its business and in doing so reveals value: but this is a process that need not be anticipated, that can be resisted, even reversed.

Conclusion The point of theory is to help understand the world and ultimately to inform social practice.This chapter accordingly articulates a concept of value that is distinct from the messy concrete reality of the money form in contemporary capitalism and from the abstract truism that people must work.Value is not simply a quantity of work but an objectification of one aspect of labour-time (Elson 1979: 132); a reflection of the social equivalence of different forms of work, that becomes epitomized in, but is not confined to, the money economy under capitalism. Interrogating the relationships between different forms and transformations of work produces fruitful lines of enquiry, which remain concealed if value is conceived as simple

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presence or absence, as required by market measures, whether of liberal or Marxist origin.Value’s basis in notions of ‘average social labour’, remains a more plausible starting point and better reflects the centrality of social labour in Marx’s epistemology. This average social labour is certainly now substantially determined by capital, even in all sorts of spheres where a great deal of work actually occurs elsewhere. However, capitalism remains an incompletely commodified system. Commodities, and in particular labour-power, are produced in different ways, using dissimilar monies and commodity inputs in their production and reproduction. Marxists need to recognize the similarities and differences between various labours to appreciate their interactions and to begin to decipher the contradictory dynamics of the concrete capitalist economy.


Introduction This chapter and the next occupy the same analytical level as Marx’s Capital.They build on the more general commentary of the previous two chapters and prepare the ground for what follows on the state, the historical development of global capitalism and the 2008 Crisis and its aftermath. As flagged in Chapter 1, the chapters do not attempt to summarize Capital. Some excellent introductions are available (e.g. Fine and Saad-Fihlo 2004). Readers will be familiar with key arguments around capitalism’s remarkable dynamics, based on the exploitation of workers but also on a competitive imperative to accumulate. Capitalism is a contradictory and conflict-ridden system and the next chapter explicitly considers crises and some of the controversies around Marxist understandings of crises. The argument here is more general. It is about the importance of moving from capital in general to capitalism’s ‘lumpiness’ (Clarke 1994, Harvey 2011).The world is not simply the sum of millions of competitive rational individuals, as mainstream economics would have us believe. Nor is it very useful to look only at systemic pressures. The imperatives of capital accumulation are real but their impacts are highly mediated and varied. The point of this chapter, and at least an important aspect of Marx’s analysis at this level, is that capitalism is heterogeneous. The next section makes the point about lumpiness a bit more generally. The chapter then considers a few important dimensions of this heterogeneity, relevant to the more concrete discussions that follow. It defends the need to distinguish between what is productive and unproductive and then discusses the importance of the interaction of different departments and sectors of capital and of relations within and between firms.The chapter briefly discusses spatial dimensions of capitalism’s unevenness, including the geographically path-dependent character of accumulation and how different forms of accumulation tend to push and pull in

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different directions. Finally, the chapter recalls that this analytical level was for Marx that of capital in its relations with landed property and wage labour. Landed property involves important particularities, is different to other property forms and land owners fight for their own distinct interests. Issues of class and exploitation have, of course, always been central to Marxist analysis but identifying them here particularly warn us against seeing this as a narrowly ‘economic’ level, from which questions of power, politics and labour’s own agency can be excised. Again, their lumpiness, their highly differentiated character, is a necessary feature of class relations.

Understanding capitalism’s lumpiness Marx’s method, of movement from the abstract and general to the concrete and specific, implies a journey though some grey areas of intermediacy. There is no jumping from dark into light.To follow Marx and ‘coquette’ with Hegelian terminology, between the individual and universal, an adequate analysis of capitalism needs to recognize a lot of particularity (Hegel 1975: 266ff ). Individuals do make capitalistically rational decisions. A totalizing system does impose its apparently inexorable logic. Between the two there are many mediating institutions; different customs, firms and industries, different forms and departments of capital, all sorts of geographical and national divisions. All this is invisible to orthodox accounts, which work up from perfect (rational) utility-maximizing individuals, whose own impact on the whole is negligible. Facile ideas that selfish individualism produces socially optimal outcomes remain remarkably pervasive, notably in the ‘rational expectations hypothesis’, which admits individual mistakes but assumes they balance out (Lawson 1988). Of course, there is a danger of caricature. The real unevenness of the world can force itself even onto mainstream consciousness and even a consistently individualist methodology can allow socially damaging outcomes. The Keynesian ‘paradox of thrift’ identifies how what is rational for each individual can produce socially sub-optimal outcomes when it is multiplied. Holding money, not spending it, occasions a lack of aggregate demand. Orthodox economics is now replete with examples, studied by way of ‘game theory’; prisoners’ dilemmas and Nash equilibria. Still typically modelled as an exception to be explained away, a deviation from an imaginary ‘norm’ of market efficiency, and still beginning with asocialized individuals, the bigger epistemological problems persist. The arguments against methodological individualism are familiar and straightforward. Society is more than the sum of its parts. Everyone is born into relationships, institutions, cultures not of their own choosing. The very meaning of ‘rational’ or ‘self-interest’ varies accordingly. This should now be elementary stuff (although an embrace of methodological individualism can still be taken as an essential credential to the world of academic rigour). Methodological individualism is not just a mistake but a specifically capitalist worldview, a mistake that reflects the character of the money economy. Workers and capitalists, butchers, brewers and armourers, confront each other in a

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competitive market with the objective of making money. Commodity exchange masks social relations ‘as material relations between persons and social relations between things’ (Marx 1976: 166). For Marx,‘everything is upside down in competition, and hence in the consciousness of its agents’ (1981: 331). However, the rejection of methodological individualism does not require a flip into methodological collectivism (Callinicos 1989). Marxists start with the methodological priority of the totality (Lukacs 1974) and capitalism’s universalizing logic. But it is only a priority. Indeed, methodological individualism and methodological collectivisms can be seen as two sides of the same coin. Neoclassical approaches implicitly make universalizing assumptions about what it is to be rational and utility maximizing. If it is once allowed that these vary according to social context, the whole system collapses. Conversely, for Marxists, capitalism’s dynamics come from a systemic imperative to accumulate. The driver is not the capitalist’s personal utility, her own wealth, but the needs of each firm to survive. Maximizing exploitation is a social imperative not an individual vice. This might still imply a singular capitalist rationality that overcomes particular differences. In truth, Capital’s imperatives are mediated and leave room for manoeuvre and there needs to be analytical room for the moments of capitalist particularity. Marx’s overall method involves a two-way journey from the phenomenal forms to abstraction and back, and similarly in Capital we move from capital in general to many capitals (Rosdolsky 1977). An important implication of this particularity is that as dynamic (and destructive) as capitalism has been relative to other societies, accumulation, in practice, proceeds at a less frenetic pace than any theoretical maximum. Global growth rates averaged about 3 per cent over the last hundred years. Rates of exploitation, even rates of profit, often far exceeded this. In part, aggregate growth is slower because capitalism is periodically thrown into crises, as the next chapter will discuss. But even in booms, growth rates are below what we might expect rationally competitive capitalists to achieve. Profits disappear in other ways, whether on personal consumption or in competitive strategies that do not lead to accumulation. Maximizing investment can involve maximizing debt and risk. Safer, longer-term strategies often make sense. Capitalism is a remarkably universalizing system but the rest of this chapter will discuss different dimensions of how it also needs to be understood in its particularity.

Productive and unproductive capital Without reviewing an extensive literature or resolving some arcane controversies, this section argues that there are important reasons for maintaining an analytical distinction between what is productive and unproductive. Different activities have different economic consequences. The principle of equal rights for capital allows the productive and unproductive to live alongside each other, harmoniously. Capitalism is composed of different activities and different circuits, all rewarded and all, in an important sense, essential.

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Many Marxists have accordingly abandoned the productive/unproductive distinction. After all, even financial derivatives are ‘produced’ (Bryan and Rafferty 2010). The very existence of any capitalist industry implies a demand for its products while for any given firm, say in the useful business of making cigarettes, it may pay as well to hire an advertising agency as to increase productivity. Empirically, the divides are often fuzzy and making appropriate delineations have proved difficult. Conceptually, however, the moments and forms of capital are distinct, have their own pace and economic implications. Even as they merely distribute value produced elsewhere, individual capitalists can benefit enormously by the flexibility of commercial and money forms which can usually move both across borders and from one activity to another more easily than productive forms. At the same time, ‘the simple fundamental form of the process of accumulation is obscured both by the splitting-up of surplus-value and by the mediating movement of circulation’ (Marx 1976: 710). There is a double illusion, because Capital’s apparently magical growth, without exploitation, really does occur ‘for those capitalists who simply buy and sell commodities, and for those capitalists who simply advance money and reap interest payments in return’ (Harman 1991: 7). Making the distinction is therefore both about exposing the illusions and positively articulating the relations between different economic forms. The distinction is probably better conceived as one between forms of capital than between types of labour. For Marx, ‘[p]roductive and unproductive labour is here throughout conceived from the standpoint of the possessor of money, from the standpoint of the capitalist, not from that of the workman’ (1963: 158, original emphasis). Its importance lies in its implications for accumulation. Intuitively, a society that ploughed its profits into expanded production would grow more quickly than, and would at least look different to, one which reinvested nothing and spent its surpluses employing security guards or derivatives traders or in furnishing royal banquets. For Marx the ‘king, priest, professor, prostitute, mercenary’ were all the recipients of revenues not the producers of value (1978a: 448).To be productive is to be productive of wealth and many activities simply consume wealth produced elsewhere. Marxists usually insist that productive labour is that which produces surplusvalue, then shared out amongst the competing capitalists.Value, however, is no more immediately apparent than productive labour and there is a danger of a slide into circularity and obfuscation (Freeman andVandesteeg 1981). Instead, Baran posits as productive only that which would exist in a ‘rationally ordered society’ (1957: 32). This widens the unproductive category so far that it loses almost all critical purchase in an analysis of capitalism. The point of commodity production is to make profits, not to make socially useful goods. Many if not most workers produce goods or services which we might reasonably see as rubbish from the perspective of a more enlightened system.Within capitalism, the common but crudest distinction has been made between physical and immaterial production.As implied by the discussion in Chapter 2, this mistakes the nature of physicality. Marx makes clear ‘that surplus value has to express itself in a material product is a crude view which

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still occurs in A. Smith’ (Marx 1973: 328). On the very first page of Capital, he says that whether needs arise ‘from the stomach or imagination, makes no difference’ (1976: 125). He explicitly sees an opera singer, (private) school teacher, actor ‘or even a clown’ as productive (1963: 157, 1976: 644).The capitalist division of labour also separates many processes, including design from production of even the most material of products. If immaterial labour can therefore be productive, even sophisticated Marxists like Shaikh and Tonak (1994) see material production as a sufficient if not necessary criterion. However, many physically productive activities contribute nothing to the reproduction of either capital or labour. So for Marx, the ‘distinction is also to be found between commodities’ (1963: 165).The arms industry produces prime examples of unproductive manufacturing (Kidron 1974, Webber and Rigby 1996). In an important if neglected contribution, Freeman and Vandesteeg (1981) suggest, much as was argued in Chapter 2, that we should begin by identifying the importance of work to all societies, which must re-produce labour, their means of subsistence and means of production.With the coming of class society, some extra work is devoted both to the personal consumption of the non-workers and to maintaining exploitation. What Freeman and Vandesteeg propose therefore ‘is a more general concept in that it applies to all class societies with the proviso that under capitalism it takes a particular form which hides its true nature’ (Freeman and Vandesteeg 1981: 89). The productive is that which produces labour-power, workers’ consumption commodities and means of production. State labours are therefore potentially productive as they can perform these activities. Meanwhile, both policing functions and the production, including material production, of waste or ‘non-basics’ is deemed non-productive.The advertising agency and munitions factory are both unproductive and so too are the Rolls Royce factory and the diamond mine. Freeman andVandesteeg add that employment by capital is now also a necessary condition of productive labour. So all non-waged activities are ‘unproductive regardless of whether they are basic activities’ (1981: 91). The argument in the previous chapter suggests this is an essentially arbitrary exclusion – reverting to the market-based priorities that had just been abandoned. Even if it is not producing surplus-value, non-waged labour does not drain productive resources as do, for example, foreign exchange trading or bomb making. Similarly, nationalized industries might be maintained in the interest of collective capital. Their losses are a deduction from the collective surplus but this is quite different from relying entirely on these for their funding. New management might turn the industry around and start making a profit.The distinctions are quantitative rather than qualitative. Marx argues that ‘labour-power is productive through the difference between its value and the value which it creates’ (1963: 392, original emphasis). It is the additions to value that make labour productive and this raises the possibility of degree, of reproduction and of outright loss. Empirically, considerable problems persist. The distinction quickly becomes submerged in the capitalist economy and mainstream accounting of it. Data do not

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neatly separate activities and some commodities, like cars, are bought by workers, by individual capitalists and by firms. The problems are deepened because in an open economy there is an international sharing of profits. Any national economy, as for any individual capitalist, can suck resources from, or send resources into, a common pool. So military spending within a country might be unproductive but arms exports very profitable.A financial sector can make profits from abroad which enter, and really do add to, national wealth. Nevertheless, in principle, the distinction usefully divides activities which add to the accumulation of capital from those that subtract from it and those that are ‘reproductive’ without adding to the surplus. To deny the distinction accepts capitalism at face value, the fetishized commodity form, behind which Marxists seek to penetrate.

The particularity of many capitals This section highlights capitalism’s institutional diversity or lumpiness.There is no perfect competition.This is most stark in the unequal struggle between capital and labour discussed below but relations between capitalists, too, are characterized by power, and cooperation, and by all sorts of nefarious competition rather than a gentle bickering over price. So while the objective to make money might be universal, capital always does so in particular ways. It produces commodities but also particular commodities; gold or shoes or pies or pedigree puppies. Distinct lines of business become established. And while these continually evolve, firms develop new products, move into new areas or spin-off other tasks to concentrate on ‘core-competencies’ in the current jargon, all this takes time. Changes in any one line of business tend to upset others and any apparent equilibrium. The money economy may be the essence of capitalism’s individualizing and universalizing divide but in practice even money’s particularity betrays these standards. If, as Marx assumes for most of Capital, money takes commodity forms, as gold or silver, here already are tensions between value and use value; limits of supply (getting the metals out of the ground) tend to run up against capitalism’s insatiable appetite for accumulation. These can be overcome by conventional money, bills of exchange and bank credit. But where metals work well in one of money’s essential functions, as store of value, and often poorly as a medium of exchange, conventional monies are potentially fragile stores of value.The trust, on which non-commodity money depends, relies on particular social institutions, most importantly on nation states. This dependence, in turn, threatens the apparent separation of politics and economics, which the money economy apparently perpetuates. More generally, Volume II of Capital distinguishes between ‘departments’ of capital, producing either means of production or consumer goods; and these departments themselves are multiply divided as then is each industry.The possibilities and difficulties of maintaining balanced growth between departments (in value and use-value terms) is an important element in any understanding of capitalism’s contradictory dynamics. However, this is only a starting point. Marx already makes

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the distinction within consumer goods industries between production for workers and for capitalist luxury. The former contributes to reproduction, the latter does not. Each industry is dependent on others but in its own way, with its own suppliers and markets and able to respond to competitive imperatives only at its own tempo. Almost every change is potentially disruptive. Imagine, for example, increases in wealth such that wages and consumer demand both double. People perhaps now buy twice as many shoes, but demand for meat might triple, while that for rice might even fall.Wealth increases through raising productivity but if we double productivity, halving the time needed to produce, say, a car, this tells us nothing about the time needed to raise a chicken. Socially necessary labour time is only determined at the industry level. Meanwhile, rates of profit vary within industries and tend (but only tend) to equalize across them. Marx suggests capital tends to migrate to where profits are higher. This again is only a tendency, occurring ‘to a certain degree’ and barriers to entry and exit can make these longwinded processes – some sectors of capital and supplies of labour-power are much more mobile than others (Marx 1981: 297, 1973: 435). Leading firms are powerful institutions, and this quickly makes nonsense of orthodox depictions of smooth adjustments to pressures of supply and demand. Discussion of banks ‘too big to fail’ has become familiar in the context of recent government rescues. Some productive economy firms similarly receive state support and many ‘national champions’ have been propped up for decades. Large firms themselves often have the assets and creditworthiness to continue (and perhaps particularly to operate underperforming divisions) despite poor returns, for a considerable time. Real sunk investments, in plant and machinery but also in social relations, cannot just be dissolved and sent to somewhere or to some new trade where the returns might be higher. The market does not adjust smoothly. Should a large corporation finally fail, the hole punched in the overall economy is wide and its repercussions are considerable. Far from bloodless, competition can wreck whole industries and regions and even national economies. All of a republic’s bananas can be rendered uneconomic by changes to productive techniques thousands of miles away. Marx talks of equilibrium being approached only through extreme disequilibria and ‘only as a reaction against the constant upsetting of this equilibrium’ (1976: 475). Recognizing firms as powerful institutions also provokes important criticisms of Marxist accounts, with claims that, like their neo-classical counterparts, they assume individually rational capitalists maximizing profits in production but selling in a free and non-exploitative market. The tradition of institutional economics highlights that many firms, and the economically most important firms, are themselves giant institutions (Berle and Means 1991, Simon 1991). Rather than obeying strict imperatives to accumulate, the owners are shareholders in search of dividends, the managers draw salaries, company cars and sundry other perks at the firm’s expense. Different departments within a corporation can pull in conflicting directions. In the extreme, businesspeople ‘sabotage’ traditions of ‘workmanship’ (Veblen 1965).

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Marx does abstract from the size and institutional complexity of corporations but already makes clear, that ‘it is not the industrial capitalists but rather the industrial managers who are “the soul of our industrial system”’(Marx 1981: 510 citing Ure).The concentration and centralization of capital was always an important part of his analysis. Indeed, Marxists have had to sift a bit more carefully to find an explanation for why this has not been even more pronounced, why there are counter-tendencies, a splitting-up of subordinate tasks to create new industries and an increasing roundaboutness in production (Harvey 1982).The competitive logic impels institutions not individuals. Firms cannot, for example, choose to be generous to their workers, or act for the greater good, or fail to innovate, for any sustained period. Owners and managers do not have identical interests but usually share broad pro-corporate outlooks and pull as vectors in broadly parallel directions. Nevertheless, the practical variety implies some loosening of the reins of profit maximization. Managers’ and planners’ decisions matter, contribute to firms’ success or failure but never enable individual capital to step outside the capitalist logic. Meanwhile, markets themselves are far from free. Firms are not simple ‘price takers’. For many commodities, corporations are able to create new markets through product differentiation and advertising (Schumpeter 1954). Firms deal with each other not at arm’s length but through negotiation and long-term contracts. All along the value chain, the large have power over the small (Frank 1970, Gereffi et al. 2005). The multinational coffee sellers and small peasant producers, clothing brands and their sweatshop suppliers, are notorious examples. In many sectors, a decreasing number of corporate giants dominate the market and can more or less consciously collude to hike prices and increase profits. More intelligent mainstream and Keynesian writers acknowledge that competition is ‘imperfect’ (Marshall 1947, Kalecki 1971). An important strand of Marxism develops such insights to describe the advent of a new form of ‘monopoly capitalism’, from the late nineteenth century (Baran and Sweezy 1968, Foster and McChesney 2012). Without necessarily denying exploitation in production, the ability to fix prices becomes the major explanatory variable. For example, Foster and McChesney (2012) describe the importance of an increase in the price mark-up (the ratio of price to unit labour costs) from a post-WWII average of 1.57 to 1.75 in 2011.The result is excess profits (which are neither reinvested nor consumed), overcapacity and thence economic stagnation. It is useful to highlight that corporate power rather than free markets drives the economy. However, these analyses can shift explanations, and explanations of capitalism’s problems, too far back onto markets and their deviations from neo-classical ideals. Fine and Murfin (1984) highlight that the monopoly capital argument relies on consumer goods producers exerting power over both customers and suppliers. The early theorizations of Kalecki (1971) were explicit that this was the case.While some suppliers might be relatively small capitalists, it is unclear that in general the capital goods sector is particularly vulnerable. Figures for changes in recent price to labour-cost ratios might be read more parsimoniously as products of labour’s defeats and capital’s gains in production. It remains theoretically unclear how few

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firms would obviate competition. At a global level, vast as corporate size becomes, there is often considerable inter-capitalist competition but also huge variations between industries. The monopoly scenario can hardly be equally true in all of them. Empirically, the story of endless stagnation is hardly convincing. It is clear that the institutional particularity of markets, industries and corporations themselves, modifies the operation of capitalist imperatives to accumulate. As Crotty (1993) points out, capital does not always operate at full throttle. Maximizing accumulation can maximize debt and risk and is not always the best strategy.There is never any guarantee that a particular quantity of investment will recoup its own costs. Mergers and acquisitions count as investment on the books, capture markets and remove competitors but add nothing to total social capital and if anything lessen the need for competitive accumulation. Even if firms follow a strict imperative to maximize profit and accumulation, there is room for agency in how this should be achieved, room for brilliant initiatives and terrible mistakes. Capital, at a firm level, but also potentially systemically, is likely to adopt different strategies in different situations, for example ones of systemic overcapacity or of rapidly expanding markets.There is an imperative to accumulate but in the realm of ‘many capitals’ this is implemented in diverse ways. If it is impossible to study every individual firm it is necessary to move to relatively concrete investigations of particular forms of accumulation.

Geographical unevenness This section develops the point made in Chapter 2, that geographies of production always matter. In Capital, Marx abstracts not just from the nation state, international relations of production, trade, etc., but more broadly from capitalism’s spatial unevenness. Marxist geographers have done much to bring the importance of space and distance back into sight (Harvey 1982, Smith 1984, Storper and Walker 1989). At the most fundamental level, there is a perennial tension between capitalism’s mobility and the production of value and surplus-value in particular places. It is in Capital’s nature to exploit, spit-out and move on (Holloway 1994, 1995) but such mobility varies between sectors. Each firm’s and industry’s mobility is limited by its broader social connections, while its movement also potentially has wider repercussions. Early financial and mercantile capital made money precisely by movement. Goods bought cheaply in one place could be sold dearly in another. However, in general, capital needs at least temporary immobilization and to make profits in particular places. There are many different motivations behind industrial location. In primary production, natural resources can be decisive.These cannot be separated from social relations. Coal is not simply mined where it is most abundant but according to the labour costs, adequate transport infrastructure, the distance to markets and so on. But there is no mining without deposits. Agricultural lands are similarly socially produced but dependent on more or less strictly natural factors like soil and climate (Marx 1978a). Smith’s argument against making wine in

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Scotland probably still holds. In industrial and service sectors, links to place are thoroughly socially and historically constructed but large sunk costs can tie capital effectively to particular places.There is a huge literature on agglomeration economics and the development of industrial regions. Apparently incidental and accidental factors can lead to businesses starting in particular areas, which become centres of production, sometimes on a global basis. Detroit and the auto-industry (for a long time) and Silicon Valley and semiconductors provide obvious examples (Saxenian 1994, Krugman 1991).There can be a logic of agglomeration, the buildup of suitable labour skills and of inter-firms links and of final markets. This is never a static relation. Mainstream economic geography identifies some of the tensions. For example, the production of bulky goods might tend towards dispersal or ‘globalization’, in the sense of making it cheaper to produce in multiple markets. Improvements in transport and communications technologies can instead tend to pull production back towards the centre where there might be economies of scale and fewer coordination problems (Krugman 1991). Even the most immaterial of goods, like financial products, can often be produced most effectively by workers in dense agglomerations – the trust (effective and untraceable insider trading, which systematically prevents outsiders making the gains of insiders) is only established by in-person contact – on the trading floors and the bars around Wall Street and the City of London rather than through impersonal computer communications (Agnes 2000). Different industries will have stronger incentives and abilities to break the logic of agglomeration, for example to find labour of suitable qualities at lower cost or to source components externally. It also seems likely that different systemic accumulation strategies can pull or push capitalism’s geography in different ways. Marx talked of the annihilation of space by time through innovations in transport and communications technologies and this captures an important aspect of capitalism’s expansionary dynamic. Harvey (1990) adds that capitalist attempts to increase the turnover time can have a similar effect of annihilating time. Unfortunately, the potential this provides for investigating capitalism’s dynamism has largely been unrealized. Just as a too simplistic an invocation of the annihilation of distance can collapse into some of the sillier sociology of globalization as the death of distance, so the annihilation of time can feed a rather vacuous postmodern sociology of time. As Fine suggests,‘to the extent that space and time are both compressed, absolutely nothing changes’ (2004: 221). It is asymmetries in innovation in production and transport and communications that tend to disrupt the spatial organization of capitalism and this will play out differently across particular sectors, with different inertia, different sunk costs and social relations in particular places. However, in general, if capital is investing in particularly capital-intensive ways, this seems likely to also increase geographical concentration. Highly skilled and well-paid labour provides both vital inputs and final markets, while encouraging individual firms to employ laboursaving technologies. Labour costs become relatively less important than capital expenditures. However, this will tend to increase spatial inequality and therefore create greater potential gains from breaking the logic, either for firms uprooting or

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for others starting, where labour costs are lower – providing they can sell back into the existing market. This has the potential to undermine the high-cost, capital-intensive strategies and the logic of agglomeration. An extensive and disagglomerating dynamic might emerge. Chapter 2 linked the inherently uneven processes of economic development to state formation.The comments at this level have been abstracted from states but, of course, once formed, states themselves become vital elements of capitalism’s particularity and vital developers of economic space. The most arbitrarily drawn political border can become a real economic obstacle. States exert pressures, which can immobilize capital or enable its movement. Corporate giants can enjoy privileges of monopoly within countries but then press against national constraints. On a global scale, such firms may prove small and inefficient, where again a few giants come to dominate. ‘Tendencies towards differentiation and universalization or equalization, emanate side by side in the belly of capitalism’ (Smith, cited in Macartney and Shields 2011: 42). States produce boundaries behind which the particular appears universal, the ‘national’ appears to be the ‘social’. Value finally asserts itself at a global level but differences can build up over long periods before the dam breaks or even before the leaks become apparent.

Capital, landed property, wage labour, their interrelation Finally, this section returns to questions of class. In Marx’s Grundrisse schema this level is that of ‘Capital, wage labour, landed property. Their interrelation’ (1973: 108). Landed property was ever-present in Marx’s original plans, but what he eventually wrote got stuck at the back of Volume III and relatively little attention has subsequently been paid to it. However, the distinctive character of land and the enduring organization of landed interests contribute significantly to the real heterogeneity of capitalism and warrant a brief comment. Labour has been much more thoroughly debated. It is argued here that labour’s subordination to capital is real but this is always an incomplete and contested process. Finally, there are universalizing processes inherent in labour’s condition, which challenge capitalism’s incessant individualizing claims. These too are mediated through particular firms, sectors and nation states, for example, whose particularities are both necessary to the development of universalizing tendencies and an obstacle to them. Land can now, like capital, be bought and sold and ground rent capitalized. Land owners accordingly claim their share of profit. Historically, of course, land ownership was vital to capitalism’s establishment in the negative sense of driving peasants off their land, freeing (prospective) workers from their means of production. Ownership of land can still afford considerable power. More consistent, and more consistently pro-capitalist (rather than simply conservative) mainstream economists have long recognized the inherently monopolizing and unproductive character of land ownership and sought to obviate it through taxation or even land nationalization (Marx and Engels 1983). The expression ‘rent-seeking’ has entered the language for a more general phenomenon of grabbing wealth produced elsewhere.

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Tellingly, modern mainstream economics and accounting practices, now count rent as an addition to wealth, while the ‘rent-seeking’ is more likely to be applied to government or union interference. Landowners are no longer a distinct class because capitalists can buy and sell land like anything else. Landowners nevertheless organize to promote their own particular interests. At least one study has shown stark differences in their ability to increase prices to other capitalists relative to workers; commercial and residential real estate prices experienced very different trajectories in the recent boom (Munro 2010). In some countries, especially where primary products are economically important, landed interests can remain highly influential. In most places, land owners can still grab a considerable share of the surpluses even if they now contribute relatively little to the immediate extortion of the direct producers. Finally, therefore this chapter turns to the wage-labour, capital relation. Some Marxists insists that labour, too, has been under-investigated. The discussion of wage labour in Capital certainly seems less prominent than Marx originally signalled. Lebowitz (2003) argues that, as the title suggests, Marx’s focus remained on capital, never moving to the proposed volumes on landed property and wage labour. Famously, discussion of class comes to a juddering halt after a single page. The absence of the planned treatment of labour, for Lebowitz, then lends itself to a one-sided, economistic Marxism, which underestimates labour’s agency.The relative paucity of treatment of labour as an active ingredient produces mechanical interpretations which, amongst other things, downplay the ‘social and historical’ element in the determination of the value of labour-power. Autonomist readings instead posit labour’s agency rather than capitalist accumulation as the key independent variable (Negri 1988). Conversely, Rosdolsky (1977) argues powerfully that much of the proposed material on labour from the Grundrisse was incorporated into Capital. The autonomist rejection of labour’s structural weakness runs contrary to Marx’s argument about capitalism’s specificity and labour’s subordination. Far from providing a narrowly economic analysis, Capital describes a systematic if contested extortion. If workers have so much power under capitalism, they have not obviously made the best of it. It seems better to acknowledge that labour’s subordination to capital is real but also always incomplete and conditional. Capital is itself a social relation or process not a thing or force of nature. In particular, struggles determine the value of labour-power and the level of exploitation. Quite unlike Ricardo, for Marx, the level of wages were not some subsistence minimum. Any immiseration thesis in Marx should be understood in only a relative sense of workers taking a smaller share (see Rosdolsky 1977). Even this is not always the case. Exploitation is not a passive, structurally determined process. Labour actively shapes capitalism and socially necessary labour time is indeed ‘social’, it is fought for and conceded. In this context it seems worth emphasizing Marx’s distinction between different ways of increasing surplus-value.Absolute surplus-value has usually been associated with increasing the length or intensity of the working day. Increasing relative surplusvalue involves productivity rises that decrease the time needed to produce the

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variable capital, the socially necessary labour time of labour-power itself. But social construction means, for example, that given use values might be produced more efficiently, a pair of boots in five rather than ten hours of total work without this necessarily revealing much about the value of labour-power.Workers might be able to demand two pairs of boots instead of one, or might make do with plastic shoes without much changing their ability to work. As capitalism expands and changes, it brings new workers and new forms of production into relations, and into competition, with the already established. What proves to be socially necessary is only ever determined approximately and after the event. Increases in the value of labour-power change the dynamics of accumulation, and may even be functional for capitalism, for a time.The particularities of labour-power, its exchange value but also it use value are complex social constructions in cause and effect. The experiences of incessant struggles have, of course, fallen short of realizing Marx’s hopes for the universal class. However, there are reasons for believing that universalizing tendencies do exist.Were nothing counteracting the individualizing competitive imperatives of capitalism, the world would be even more unbearably dystopian than it is. People simply do not always behave as selfish, utilitymaximizing individuals.This most obviously applies within families (as Marx highlighted, see Avineri 1968). But there is abundant evidence of altruistic behaviour, from day-to-day small acts of generosity and solidarity to grand acts of heroism which are simply inexplicable if we are just selfish individuals, only preoccupied with money. Of course, there are different possible sources of such countertendencies, of the civilizing tendencies of civil society and the persistence of broader realms of social cooperation. There are nevertheless reasons to identify specific class contributions. The directly social nature of work stands out as an alternative to the individualizing imperatives of the market. Even a conservative commentator like Putnam (2000), in noting the general decline of voluntary associations, including unions, reports a greater sense of belonging amongst ‘co-workers’ than other groups except family and friends. Workplace heterogeneity has been shown in practice to overcome some of the exclusionary particularism of individual origins and perspectives (Mutz and Mondak 2006, Pickering 2006).Workplaces are sites of direct power and conflict rather than anonymous market relations, where the possibility of successful resistance lies in collective action. Initially, for workers, the result of struggles is usually only a ‘consciousness of a struggle for a share of their labour’ (Marx 1973: 597).As such it remains particular, and not necessarily against capital in general. Of course, labour organization also draws from other communities and has historically been established at national levels.These particular bases can also reinforce capitalism’s divisions, sectionalism, gendered and racialized divisions of labour and nationalism.The point of solidarity has always been to overcome them, but while building on, transcending, rather than simply rejecting the importance of the particular. Historically, for all its limitations, the labour movement has tended to have at least some of this universalizing, solidaristic character. There is much here that is contingent, the realization of any potential dependent on labour’s own

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institutions and politics. Apart from anything else, the significance of workers’ own agency allows for defeats, and amongst other things, therefore an alternative reading of recent decline, as a political achievement rather than inexorable economic imperative (Walker 1999, Dunn 2004a).

Conclusions This chapter began by rejecting mainstream apologetics that reduces everybody to competitive individuals. Such beliefs, implying that there is no such thing as society, are ideology, but are not just ideology. They reflect a real aspect of how capitalism makes us behave. Nor is capitalism’s universalizing logic inescapable, however powerless each individual really is. Capitalism’s particularity, at many different levels, from its spatial unevenness and division into nation states to its organization into economic departments, sectors and firms, means that its operation is seldom smooth and is continuously subject to dislocations, more or less abrupt and more or less severe. Relations of exploitation are themselves dynamic, contested and continually changing.There are systemic pressures but also spaces for resistance. Capitalism is also uneven over time. This temporal unevenness has not been discussed much here but, as mentioned in Chapter 1, it also warns against rigidly abstract theorizing. As the world teaches us new lessons, concepts need to be modified and auxiliary hypotheses developed. Marx’s Capital was incomplete, not just in the literal sense that the manuscript was unfinished when he died and that prospective further volumes went unwritten. It was also unfinished in the sense that capitalism continued to change. As late as 1880, Marx expressed relief that the publication of Volume II had been delayed because he needed to research the latest developments (Marx and Engels 1983: 198). Accordingly, the still rather general commentary here and that in the next two chapters on crises and states, needs to be developed and extended in more concrete accounts as they incorporate more of capitalism’s historical particularities.


Introduction This chapter discusses crises. Crisis, literally means ‘decision’ or ‘turning point’, and a theory of crisis should be able to make sense of processes of recovery as well as downturn. Marx saw crises as ‘violent solutions of the existing contradictions, violent eruptions that re-establish the disturbed balance for the time being’ (1981: 357 emphasis added).The subsequent dearth of systematic Marxist analyses of how capitalism recovers from crises represents a significant lacuna. Addressing questions of recovery is necessary for theoretical consistency but also potentially adds critical purchase to extensive debates about the ‘down’ side of crises and thus to an understanding of capitalism’s contradictory dynamism. Within Capital, Marx again moves from the abstract and general to the concrete and specific (Rosdolsky 1977) and therefore a theory of crisis at this level of abstraction should be synthetic, incorporating different dimensions of capitalist production and circulation. As discussed in the introduction, there also remains a considerable conceptual gap from the analytical level of Capital to an understanding of particular crises. Crises cannot be deduced from abstract analysis, which provides only schematic guidelines for understanding the way the different and often contradictory tendencies of capitalism play out historically, amongst other things mediated by states and international relations.This limits the reach of theory but not the need for theory Marxists have always maintained that capitalism is a crisis-prone system. Once again they appear vindicated.The recognition of inherent tendencies towards crisis contrasts with most mainstream accounts, which are repeatedly surprised by capitalism’s difficulties.Assuming markets work efficiently, failures have to be attributed to ‘exogenous shocks’. Of course, particularly since Keynes, more sophisticated liberal interpretations acknowledge elements of cyclicity and potential problems.

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Some, indeed, predict regular financial crises; usefully identifying intrinsic destabilizing processes (see e.g. Minsky 1992, Kindleberger 1996). However, these discussions of financial volatility tend to remain divorced from any analysis of underlying structural contradictions in the wider economy, leaving them attributable to insufficient regulation or to policy errors. Of course, the immediate causes of crises are always specific. Crises are often precipitated by apparently incidental factors. They are shaped by the vagaries of investor confidence and are typically preceded by unsustainable financial speculation. Political interventions can be profoundly important. However, stupidity and bad management, while common, are analytically uninteresting (Krasner 1976) and while the money economy and the cleaving of production and consumption into separate processes provides the germ of crises, Marxists have argued that financial volatility should ultimately be seen as symptom rather than cause (Marx 1973: 125, 198; 1976: 209).The insistence that there is something endemic to be explained is an enduring strength of Marxism and a vital starting point for serious economic analysis. While stressing capitalism’s contradictory nature, Marxists have also long recognized its dynamism. Like no system before it, capitalism involves a competitive imperative to accumulate. Surpluses are reinvested. Capital grows. So booms, too, are readily comprehensible. However, booms, as the various crisis theories insist, are internally contradictory and are transformed into slumps. Much less investigated, but no less inherent to capitalism’s cyclical nature, is the transformation of slumps into booms. Crises destroy numerous individual capitals, sometimes they wipe out whole industries and may profoundly weaken entire national economies. But capitalism, as a system, has each time recovered. Sometimes it has emerged with less vigour than before, but slump has always given way to boom and the apologists for capitalism have felt confident to announce its problems resolved. Marxists, of course, are more sanguine. Recovery need not be automatic and may be achieved only with considerable difficulty. At the time of writing, the obstacles to sustained revival indeed appear substantial. Moreover, any recovery is only temporary. Nevertheless, at least hitherto, recovery has been quite real. Crises have been ‘turning points’ and this chapter argues that an adequate Marxist theory needs to understand them in this sense. Crisis theory should therefore fulfil two conditions. First, it should explain both economic downturn and upturn. At the very least, theories of the way the system enters crisis should be compatible with how it exits, preferably without recourse to ‘exogenous shocks’. To see crisis as inevitable and recovery as happenstance is to mirror the one-sidedness of liberal economics. Second, theory should explain, or at worst be compatible with, the evidence. Of course, economic data are imperfect and the concrete characteristics of each particular crisis will necessarily diverge from anything anticipated by abstract theory. But a theory that is either internally inconsistent or flatly contradicted by evidence of how capitalism enters or exits from crises should be seriously questioned. This chapter considers four major Marxist theories of crisis, their implications for recovery and their compatibility with evidence. The theories are presented

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separately, broadly following Clarke’s (1994) account, to provide a framework for investigating the implications for theorizing recovery rather than just how capitalism enters crisis. The following sections in turn discuss profit-squeeze or wage-push theories, theories of underconsumption and overproduction, arguments of disproportionality and finally accounts that attribute crises to falling profit rates, themselves the result of an increasing ‘organic composition of capital’. This is not to suggest the theories should be seen as exclusionary alternatives, and the chapter ends with some suggestions for a possible synthesis. Some preliminary qualifications about the evidence are in order. First, interdependence and the ‘methodological priority of the totality’ imply that capitalism should be conceived as a world system (Lukacs 1974, Marx 1973). Most booms and slumps, at least since the 1930s, have been experienced internationally, albeit with exceptions and local variations. Economic statistics are mainly collected nationally. Even where similar methodologies are employed across countries, the practical difficulties of collating information are considerable. The quantitative evidence here is taken from the US. It remains the world’s largest economy and at least until quite recently, it was also relatively closed in terms of the ratio of trade and foreign investment to GDP. US indicators provide useful tests for key claims but they do need to be treated cautiously. Second, value cannot be measured directly. Most of the theories discussed below can be tested quite simply using conventional data but there are particular problems with the final set of theories, which are couched in terms of capital composition. Here, in particular, the chapter is restricted to a commentary on existing attempts at measurement. However, with each of the theories there is some room for ambiguity about what exactly is being claimed and how it should be tested. Third, it is not obvious what should be interpreted as slumps and recoveries. The formal definition of recession as two successive quarters of economic contraction is practically unsatisfactory as much data is available only on an annual rather than quarterly basis.A broader (and longer) but essentially arbitrary understanding of downturn is taken here as any period of below-trend growth including at least one year of real contraction, on a GDP per capita basis. This gives the periods of boom and slump for the US economy since 1950 indicated in Figure 5.1.There are thus both conceptual and practical limits to what can be achieved here. However, the chapter should, at least, provide the basis for thinking about the causes of slump and the prospects for recovery within a consistent framework.

Wage-push theories An influential interpretation sees rising wages as the cause of crises. This profitsqueeze interpretation describes an apparently straightforward logic. Conditions of boom create tight labour markets and therefore more favourable conditions for wage bargaining. Against neo-classical claims, capital is debilitated ‘precisely when this market does clear’ (Bowles and Boyer 1990: 187–8, Glyn and Sutcliffe 1972). Wage rises undermine profit rates. Slump ensues. Although the emphasis has been

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GDP per capita growth

8 6 4 2 0 –2





















Periods of boom and slump in the US economy, 1951–2004. Shaded years indicate a slump.

Source: Calculated from Heston et al. (2006).

on explaining downturn, by the same logic, once this has proceeded, unemployment rises and conditions of wage bargaining become unfavourable for labour. Pay falls and profits again begin to rise.There are different versions of the theory, which allow for various degrees of subjectivity or conscious agency. For Negri (1988) the value of labour-power is ‘entirely political’ and profits decline with working class struggle. If the causes are different, the implications are similar. The single theory neatly explains both sides of capitalism’s cyclicity. Such explanations have the advantage of putting class struggle at the centre of their analysis of capitalism. Economics is not reduced to impersonal structural imperatives. Marx refers to such struggles in his correspondence (Clarke 1994) and such a logic might be read into Volume I of Capital (Marx 1976, Sweezy 1970). If the explanation owes more to Ricardo than Marx, this, of course, does not make it wrong. Class relations remain crucial to any Marxist understanding of the world. However, this emphasis on ‘vertical’ relations of production leaves some significant problems. As the other perspectives considered here emphasize in their different ways, a Marxist analysis of the whole of capitalism’s contradictory dynamism might also discuss the separation of production from consumption and the ‘horizontal’ relations of competition between capitals. Wage-push theories are at least inconvenient for Marxists in implying that if workers could only be persuaded to moderate their wage demands, capitalism could prosper indefinitely. There seems little inherent in capitalism’s particular character that leads to crisis; at least nothing that effectively repressive states, for example, could not resolve. Questions of recovery additionally reveal at least significant silences. Only in moving beyond production to questions of circulation and the realization of values, can Marxists consider, for example, how lowered wages might also be a barrier to revival.

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The evidence for wage-push theories seems ambiguous. From Marx (1978a: 486–7) onwards, rising wages have often been thought to precede periods of downturn. It seems reasonable to posit rising wages as a proximate cause of at least some downturns, notably that of the 1970s (Armstrong et al. 1984, Glyn et al. 1990). On other occasions this did not occur. Both in the 1920s and before the recent crisis, the wage share of income declined in major national economies. Nor, as the Great Depression most particularly showed, do falling wages provide a sufficient condition for recovery. Evidence from the US census data allow a more detailed evaluation of the relation between changes in ‘employee compensation’ as a share of national income and economic growth for the US economy between 1950 and 2004. At least on a short-term basis, this supports wage-based arguments. ‘Employee compensation’ includes non-wage ‘fringe’ benefits like health and pensions cover but is taken as a measure of labour’s share of income and closely tracks changes in wages.The data show a moderate but clearly negative correlation of –0.37.That is to say, wage rises and growth are inversely related; just as wage-push theory would suggest. Moreover, there are similarly strong negative associations (–0.35) between changes in income share and growth in the subsequent year, again apparently confirming the theory. Finally, there is a somewhat stronger (+0.53) positive correlation between economic growth and wage rises in the subsequent year, again as theory would predict, indicating that as boom (or slump) proceeds, wages rise (or fall) accordingly. Each of these correlations is statistically significant at the 99 per cent confidence level.The Ricardian cycle seems fairly clearly established. However, this is a short-term phenomenon. After two years the associations become weak then disappear, indicating that these changes might not be sufficient to explain longer phases of boom and slump. The evidence is much less convincing when the more clearly established periods of growth and recession are considered. On average, the wage share of income grew by a tiny 0.036 per cent during each year of boom but by 0.264 per cent during the years of downturn.That is, there is little evidence of rising wages preceding, let alone causing, slumps or of falling wages preceding and causing recovery. Indeed, the wage share of income grew more quickly during recessions than booms. Wage-push theorists’ own data show that real wage rises in the late 1960s and early 1970s exceeded those in productivity. But they also indicate that it was productivity growth that had fallen, rather than wage growth risen, compared with the earlier boom years (see Armstrong et al. 1984, Glyn et al. 1990). Now, tight labour markets might also lessen workers willingness to work and impact negatively on productivity (Marglin 1990), which can therefore be understood under the same rubric. However, there are many other potential causes of changing productivity. Conversely, prior to the recent crisis, the US, which succeeded in cutting wages more than most countries, did relatively well. However, globally, a falling or stagnant wage share did not restore systemic growth rates to those of the long boom (Brenner 1998: 13–24). This too suggests shifting the focus to the

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internal dynamics of capital accumulation. The unstable trajectory of capitalism appears, at least significantly, to be determined somewhere other than in wages. Perhaps, as Marx ‘put it mathematically: the rate of accumulation is the independent, not the dependent variable; the rate of wages is the dependent, not the independent variable’ (1976: 770).

Underconsumption and overproduction Underconsumptionist theories argue almost the exact opposite of wage-push theories. It is low, rather than high, wages that cause crises. Low pay limits the market for consumption goods relative to Capital’s inexorable need to expand. This shifts the explanation from labour’s subjectivity to capitalism’s contradictory structure and the opposing laws that determine production and consumption. These theories insist that exploitation and the limits of working-class consumption themselves become an economic problem for capitalism. [There is a] Contradiction in the capitalist mode of production.The workers are important for the market as buyers of commodities. But as sellers of their commodity – labour-power – capitalist society has a tendency to restrict them to their minimum price. (Marx 1978a: 391) Having separated production and consumption, capitalism’s need to accumulate means that ever-increasing surpluses have to be sold. ‘A constant expansion of the market becomes a necessity for capitalist production’ (Marx 1976: 967).The poverty, or relative poverty, of the working class limits consumption and appears to constitute a plausible cause of crisis. Authors from the Monopoly Capital school see this becoming a particular problem from the late nineteenth century, once we leave behind competitive capitalism, and oligopoly firms acquire the ability to increase prices (Sweezy 1970, Foster and McChesney 2012). However, ‘surplus value’ in a Marxist sense is necessarily distinct from, and in excess of, the value of labour-power. So by definition, workers’ consumption can never absorb any of capitalism’s surplus, can never provide an adequate demand. Also, even without explicitly addressing problems of recovery, these ideas leave undescribed why underconsumption should be experienced as crises.They suggest a chronic problem (Mandel 1969). Once we examine both sides of the cycle, downturn might be expected to provoke falling wages, further reductions in consumption levels and an ever-deepening spiral of decline.This would not at first sight provide a plausible explanation of capitalism’s cyclicity (Glyn 1987). Several of its advocates acknowledge this. A hundred years ago, Luxemburg embraced the idea of breakdown, requiring socialism to liquidate a bankrupt capitalism (Clarke 1994). Subsequently, Luxemburg’s own work on Imperialism (1963) and other important contributions from this perspective have invoked various counteracting factors

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to explain recoveries (Sweezy 1970: 217–36).The importance of state intervention amongst these produces obvious and sometimes explicit similarities with Keynesian approaches although the involuntary, competitive nature of military spending has given some versions a distinctly Marxist flavour (Vance 1951, Cliff 1957, Baran and Sweezy 1968). Experience suggests that state intervention may be effective, at least in certain circumstances.The possibilities and limits of this will be discussed in the next chapter. However, from a Marxist perspective, it would remain necessary to explain the specific content of state policies; for example how it could effectively consume without draining value from either labour’s or Capital’s consumption. Nor is it clear that any external sector can provide a sustained demand for capitalist production (Economakis and Milios 2004). There are other possible countervailing forces, but they do not obviously provide the basis for systematic or endogenous explanation of crisis and recovery. The evidence, almost of logical necessity, is close to the reverse of that for wagepush theories. Marx thought identifying the lack of effective demand as cause of crisis was ‘pure tautology’ and believed crises were preceded by wage rises which ‘[f]rom the standpoint of these advocates of sound and ‘simple’ (!) common sense… should rather avert the crisis’ (1978a: 486–7). As seen above, this preliminary rise in wages is not universal. The falling wage share in the US, particularly sharp since 2001, saw the speculation rather than productive investment of much of the concomitant profits while requiring increased debt to maintain consumption. However, there was little sign of declining consumption prior to the crisis of the early 1970s. The evidence in the previous section, which identified a significant negative correlation between consumption and short-term growth in the US economy, suggests a significant problem. Falling consumption preceded growth not contraction. Conversely, the evidence of very slow growth of income share during booms implies that considerable demand problems may persist. If these aggregate data provide qualified support for underconsumptionist interpretations, it is also notable that in the longest period of boom in the 1960s, the wage share steadily fell to 1965, while growth remained very strong, but rose sharply into the 1970s, as crisis bit. Considering recovery, the faster rise of income share during recessions indicates that wages may have been relatively ‘sticky’, while accumulation was more dramatically cut. That is to say that workers’ organization and institutional structures of employment implemented in the previous period may have been able to protect income levels despite deteriorating labour market conditions. This might then at least have dampened the slump and held up demand. However, this too should be qualified. As total wealth declined during the downturn, even a rising wage share might still have left significant problems of effective demand. Real employee compensation declined in three of the seven recessionary periods here and grew only slightly in the others. Wage-push and underconsumptionist theories mirror each other. Accordingly, what for one set of theories are countervailing pressures, for the other, are exacerbating forces. Here it seems pertinent to mention state spending and the role of ‘unproductive labour’. Perceived increases in unproductive labour represent a drain

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from surplus value and impact negatively on profit rates (Gilman 1957, Moseley 1999).Alternatively, waste spending helps sustain demand (Baran and Sweezy 1968, Cliff 1957). Both sets of theories highlight important limitations of capitalist accumulation, without separately providing a really convincing account of cyclicity. It is, of course, possible that wage rises and any counteracting forces might have different implications in different ‘stagnationist’ and ‘exhilarationist’ periods (Jayawardena 1990, Marglin and Bhaduri 1990). However, this leaves unexamined why the periods differ in the first place and how capitalism approaches and is dragged back from the limits of profitability or demand that they identify.The variation of experiences between periods perhaps again suggests moving away from the generality of the labour-capital antagonism central to these analyses. Carchedi insists that ‘the level of wage rates can only modify the shape of the cycle…no matter how one manages wages, crises are unavoidable’ (1999: 54). Finally, some authors distinguish their advocacy of ‘overproduction’ from underconsumption (see e.g. Harvey 1982). Such accounts share an acknowledgement of a continuous tendency for capitalism to overreach itself. Each capital is compelled to increase its sales, and by this means, the more efficient capture markets from the less efficient but in sum produce a continual pushing against the limits of demand. Crises, as most Marxist commentators agree, are indeed experienced as crises of overproduction. Success breeds gluts followed by violent contractions (Marx 1976). Sweezy insists overproduction and underconsumption are simply ‘opposite sides of the same coin’ (1970: 183). However, overproduction emphasizes that capital as well as labour can, for a time, absorb the expanding surpluses. However, there are similar questions why this should generate crises. Marx argued ‘universal overproduction is proportional production’ (1968: 530). The implication is that expansionary pressures produce crises through unevenness. Such processes should therefore perhaps be understood better under the rubric of disproportionality, discussed below. However, this perhaps requires another sublation, the moving beyond while incorporating these theories rather than their outright rejection. Explanations of crises need to remain tethered to the centrality of class relations and ‘overproduction must not be attributed solely to disproportionate production, but to the relationship between the class of capitalists and that of workers’ (Marx, cited in Clarke 1994: 105).

Disproportionality Marx wrote that: To demand that production should be expanded instantaneously, and simultaneously and in the same proportions, is to impose external demands on capital, which in no way correspond to anything arising from capital itself. (cited in Clarke 1994: 142)

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Disproportionality theories can be seen as a more specific version of the processes of overaccumulation or underconsumption discussed above.They have the significant strength of highlighting the anarchic nature of capitalism; the ever-present possibility of crisis already implicit in the separation of production and consumption. Marx (1978a) stresses the difference between the two fundamental departments of capital; those making producer and consumer goods. But there may also be a differentiation within these, for example between types of consumer goods. Even if production and consumption rise in tandem, demand for particular commodities may not remain proportional (Clarke 1992). Marx’s (1978a) reproduction schemes also show that it is not a simple matter of maintaining proportions but, given different capital compositions, often also the more vexed operation of sustaining quite different rates of accumulation. There is no reason to expect different sections or departments of capital to accumulate in a coordinated way; or indeed for any particular supply to rise in line with demand. Harvey suggests that investment in fixed capital provides relief from problems of overaccumulation. However, precisely because these are ‘fixed’,‘production and consumption are increasingly imprisoned within fixed ways of doing things and increasingly committed to specific lines of production’ (Harvey 1982: 221).The classic picture of cyclical decline, of failures in a certain firm or sector becoming generalized, at least becomes plausible.The growing scale of fixed capital, in particular, makes localized failures harder to contain. However,‘capital is just as much the constant positing as the suppression of proportionate production’ (Marx 1973: 414). There are pulls back towards equilibrium but adjustments become more traumatic and ‘consonance may be reached only by passing through the most extreme dissonance’ (Marx 1973: 148). Crisis may nevertheless eliminate excess capital, re-establishing proportionality and the bases of growth, however temporarily. Mandel sees recovery occurring once ‘stocks previously accumulated have been got rid of, and the demand for goods now exceeds the new supply. Prices and profits start to rise again’ (Mandel 1969: 347). As recovery proceeds, the need for renewal increases the relative demand for capital goods. To increase production immediately, new machinery is required that will transfer value to the final consumption goods only over many years. The proportions needed as slump turns to boom seems likely to augur future disproportions and the cyclical nature of capitalism is reaffirmed. It should be possible to test whether or not these realignments happen.The relative size of economic sectors should change. Some caution is needed because crises are quickly generalized; they can hurt branches where they do not originate as much as those with any objective overcapacity. However, for crises to lead to recovery, a real restructuring, in the sense of changing the proportions of activities within the economy, would seem to be required.The argument here is that according to disproportionality theories, crises produce a ‘shake-out’ of capital. There should be a greater variation between the changes in the size of the different industries during crisis than in times of sustained growth.

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Evidence is available for 149 industrial sectors in the US between 1960 and 2001 using employment as the indicator of industry size. In principle, it would be useful to compare this with other characteristics; the capital used, the value added and the profit made. However, the emphasis on employment seems consistent with Marx’s stress on social labour and value, while pragmatically the US census bureau also provides relatively comprehensive data. The industrial classifications are not consistent across the entire period so each slump period is analysed as a separate entity. The data indicate that in four out of five recessionary periods there was a more radical industrial restructuring than occurred during the preceding or subsequent booms. The changes were at best modest and did not occur during the 1990–91 slump (Dunn 2011). However, this provides some support to arguments about changing proportions. There is then both a logical consistency and some evidence to support arguments of disproportionalities. Extrapolating somewhat beyond the level discussed elsewhere in this chapter, there are also attractive examples in the development of geographical unevenness and of Capital’s ability to achieve a temporary ‘spatial fix’ (Harvey 2001: 284–311). However, a recurring criticism of these perspectives is the absence of any internal dynamic producing crises. On the one hand, disproportions need not cause crises; capital may be able to correct itself with losses short of outright recession. On the other hand, crises may be an ever-present possibility but their cause remains essentially accidental. One is left simply with the negative, that there is no reason to assume even development. It is perhaps unclear how important the claims of the necessity of crisis are for Marxist theory and whether much is lost by abandoning a formal claim for their inevitability. Recognizing merely an inherent instability, would allow that crises occur frequently but irregularly and that they are altered by political and social interventions. Marxists’ record in predicting specific crises has been unimpressive.These interpretations would remain a powerful indictment of the system’s irrationality.

The tendential fall in the rate of profit The final set of interpretations discussed here links systemic crisis tendencies to changing capital compositions and a tendency of the rate of profit to fall (TRPF). These ideas have a controversial place in Marxist scholarship. It is remembered that, according to Marx, the TRPF was ‘in every respect the most important law of modern political economy’ (1973: 748). Others see the argument as deeply flawed and best forgotten and point out that Marx never even mentioned this supposedly fundamental law in anything he published during his lifetime (Fine 1982, Clarke 1994). Theories that in one way or another linked the crises of capitalism to the TRPF became particularly influential in the 1970s. Unlike the other theories discussed here, this argument is inextricably based in Marx’s theory of value. It continues to be presented as the core of a (determinist) Marxism by mainstream critics but is also advocated by at least a significant minority of serious Marxist intellectuals. However, the theory has been subject to much criticism. For some

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authors it is more useful as an explanation of a long-term secular trend than of particular crises. Marx’s characterized the law as applicable ‘only under certain particular circumstances and over long periods’ (1981: 346). Because the TRPF has been interpreted diversely, any brief presentation risks significant oversimplification. Careful accounts acknowledge that the ‘law itself ’ needs to be understood alongside the influence of various ‘counteracting factors’, including, but perhaps not only, those elaborated in the immediately following chapter of Volume III of Capital (Marx 1981: 339–48). These may be seen as ‘checking and cancelling’ the law (Marx 1981: 339) or as mechanisms for overcoming the crises it produces (Dumenil and Levy 2004). Marx did not attempt this synthesis and in many subsequent writings the countervailing tendencies have retained something of an ad hoc character.They may be acknowledged, to avoid any charges of crude reductionism, while the argument largely proceeds without them. This ‘fundamentalist’ (Fine and Harris 1979) reading will be presented first, before briefly considering an alternative interpretation. Many readers will be familiar with the power and the problems of arguments of changing capital composition and of the TRPF. Because values are socially determined, capitalists do not receive the price equivalent of the labour embodied in the products they themselves sell. It is rational for any individual capitalist to try to reduce costs by replacing workers with machines. Commodities can, for a time, be sold at prices determined by the prevailing average values of production of other producers. This competitive imperative produces capitalism’s dynamism – its tendency to increase productivity. But as innovations are generalized, it means that collectively, capitalists spend a greater proportion of their income on ‘dead labour’, machines and raw materials, and less on ‘living labour’ (Marx 1976: 754).The physical quantities of capital (machines and raw materials) used up in production rise relative to the amount of human work.The technical and organic compositions of capital increase. But because profits are ultimately only derived from the exploitation of human labour, this causes a fall in the rate of profit and finally crisis (Marx 1981: 150). What is rational for each individual capital is irrational for the system as a whole. The theory depicts an important contradiction within capitalism and reasons to anticipate systemic difficulties. However, there are numerous controversies, for example over the relationship between values and prices, the effects of increasing productivity in reducing values and the precise nature and implications of the influence of the different counteracting factors. Most critically, the theory relies on an assumption of constant rates of exploitation – a ceteris paribus claim of the sort usually derided by Marxists. Increasing productivity necessarily also changes the value of living labour (Marx 1978a: 162).Thus the rate of profit is indeed directly related to the rate of exploitation and inversely related to the value composition of capital but these are not independent variables (Sweezy 1970). The theory also appears to present a major problem for any theory of recovery. For individual capitals, crises, of course, may be a boon.The survivors can buy up machinery on the cheap and capture the markets of those they replace. Carchedi

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(1999) describes how the most efficient firms clean up markets and then increase employment and production. However, for the system as a whole, crisis is likely to wipe out the least efficient, to destroy the oldest methods of production. The surviving capitalists are likely to be the innovators; by assumption, those using the most advanced, capital-intensive, methods. So crises would be anticipated to increase the average technical and organic compositions of capital rather than decrease them. The rate of profit should continue to fall and the spiral of decline go ever deeper. Something exogenous again appears necessary to restore conditions of boom. Freeman is explicit that ‘recovery requires an external political intervention’ (1999: 31). Harman invokes ‘Lenin [who] once remarked that the system could survive any crisis, providing the working class allowed itself to be forced to pay the cost in terms of suffering’ (1984: 121). High rates of unemployment may indeed make it possible to drive down wage levels and increase rates of exploitation. However, Capital’s ability to reduce workers’ pay below its value, as Marx comments ‘has nothing to do with the general analysis of capital’ (1981: 342).This interpretation appears to reinstate wages rather than the composition of capital as the major determinant of capitalism’s cyclicity, leaving the TRPF as more a secular bedrock on which wage relations, as discussed above, then account for crises. Any attack on labour would leave the basic problems of rising capital composition and so cannot explain how capitalism can experience subsequent and sometimes prolonged periods of low unemployment and rising wages. Some interpretations of the TRPF have attempted to develop endogenous explanations of capitalism’s recovery. Callinicos (1983) emphasizes, in particular, intensified depreciation. Capitalists have to pay debt incurred according to Capital’s original value, not that to which it might be reduced by subsequent productivity increases. Now crises, by wiping out some capitals, and most typically the oldest fixed capital, are able to bring the amounts paid closer to their socially average values.This can restore the rate of profit. However, this appears to shift the explanation onto the experiences of individual capitalists and their prices of production and away from socially determined values.The debilitating debt repayments of the least efficient were presumably not simply leaving the system but increasing the profits of other capitalists. If some capitalists produce inefficiently, others presumably produce more efficiently than the average and made excess profit. Socially average values of constant capital should presumably still rise with the crises, undermining the conditions for recovery. Precisely because the TRPF is couched in value terms, it is hard to test. There have been some heroic attempts to translate Marx’s categories and at measurement (Gillman 1957, Shaikh and Tonak 1994, Dumenil and Levy 2005). Freeman (1999) graphs the rate of profit and capital stock from 1870 to the 1990s and shows a fairly clear inverse relation. Kliman, while purporting to defend the theory, shows an apparently positive association between the rate of profit and the organic composition of capital after 1970 (2012: 91). Despite some different techniques, it seems fairly clear that the rate of profit did fall from the late 1940s to the early 1980s (through a minor revival in the early 1960s) and thereafter rose more modestly

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(Freeman 1999, Dumenil and Levy 2004, 2005). However, even dodging major controversies surrounding value theory, there are all sorts of minor ‘transformation problems’ and therefore nagging doubts whether what is being measured is commensurate with what is claimed by the theory. For example, most of this work equates the stock of capital with what for Marx is a conceptually distinct concept of constant capital (Glyn 1987). Similarly, surplus value is not straightforwardly the sum of profits as they appear in company accounts.There may also, but in particular, be a suspicion that changing profit rates are effects rather than causes and that it remains necessary to explain why the trajectories changed when and how they did. It is unobvious why, according to the theory, crisis should have produced the (modest) revival. Marx mentions six countervailing tendencies and these are usually presented as features that might, at most, ameliorate the worst effects or temporarily offset the crises tendencies. However, Fine (1982) argues that they and the ‘law itself ’ should be integrated into a single unified account. Such combination points towards more subtle and dynamic interpretations, albeit that the introduction of more variables again raises questions of conceptual priorities. There seems no reason why there might not, in principal, be many other counteracting factors in addition to those Marx considered. However, capital depreciation and changes in the value of labour-power may be of particular importance. In evaluating technological innovation, there is a potentially important difference between the immediate impact and when values have changed (Fine and Harris 1979). Marx argued how once established,‘[t]he value of machines, etc. now fall not because they are quickly supplanted or partially devalued by newer, more productive machines, etc., but because they can now be reproduced more quickly’ (1981: 209). In the short-term, relatively rapid investment in new constant capital could indeed occur while the rate of exploitation remained relatively stable. This would imply a falling rate of profit as in the original argument. However, the subsequent ascendency of more quickly produced machines would mean that while the technical composition of capital continued to rise, it did not cause a rise in the value composition. Such an interpretation might help explain the rather awkward category of the organic composition of capital; ‘the value composition of capital, in so far as it is determined by its technical composition and mirrors changes in the latter’ (Marx 1976: 762). Recovery in profit rates might therefore be achieved as change is generalized, and the value of constant capital accordingly reduced. Variable capital too, although socially not technically determined, and therefore not simply reflected in changes in productivity of consumer goods industries, would also tend to fall, although not necessarily at the same rate. This scenario also seems bound to produce disproportionalities. It posits a rapid increase in constant capital and therefore of employment (the source of this value) and of output from the capital goods producing sector. Even if the consumer goods sector somehow keeps up, this will then have overcapacity once the newer techniques, producing the machines more quickly, supplant the old. Conversely, if we assume innovation in the consumer goods sector, a sectoral rise in constant capital

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relative to variable would mean an increase in total output for a given labour force, or a reduction in the labour force for a given output (in use value terms). Either way, the sector’s market (the combined variable capital of the two departments) is now undermined. Proportionate production would require a relative destruction of capital in consumer goods sector. Changes in capital composition become the motor of dislocations in production. The interaction of the law with diverse possible countervailing tendencies increases the difficulties in adequately defining and testing the theoretical proposition. This should not put such theories beyond verification but it would require both a more detailed theoretical exposition and closer examination, for example, of the inputs and outputs of different sectors than is possible here. However, while ‘fundamentalist’ interpretations struggle to account for capitalism’s recovery, more nuanced versions offer interesting possibilities of a consistent unified theory of crisis and recovery.

Conclusions Each of the major schools of Marxist crisis theory identifies important elements of capitalism’s contradictory nature but, considered individually – and particularly when attention is directed towards their ability to explain recovery – none appear fully convincing. Theories of wage-push and disproportionality do consistently account for both slump and recovery.Those of underconsumption and of the rising organic composition of capital, at least as usually presented, encounter significant problems accounting for recovery.The empirical evidence from the US economy was at best ambiguous in relation to wage-push and underconsumptionist theories. It weakly confirmed disproportionality, in that, sectoral readjustments tended to become more pronounced during downturns. Changing capital compositions may provide a mechanism whereby proportional production becomes inherently unsustainable. However, the value theoretic nature of theories of the TRPF militates against any easy empirical test and some careful specification of measures of capital composition and other key variables would be needed to evaluate whether these provide an empirically convincing account of experienced crises. Each set of theories discussed here identifies important limits to capitalist accumulation. None separately provides a satisfactory account of crises and recovery; and a more adequate theory would appear to require at least the synthesis of elements of the different interpretations. In practice, there is undoubtedly a plurality of potential paths into and out of crisis.This need not require a simple surrender to ‘pluralism’ and it may remain possible to develop an account that prioritizes key determining moments and provides an ordered synthesis. However, this remains an open question wanting both theoretical innovation and more thorough empirical work. Everything here has abstracted from money, and the vital role of the state in organizing this, which only comes in at Marx’s next analytical level. Above all it is necessary to move from the abstract and general character of such theorizations to consider how these inform the concrete history of capitalism and crises.


Introduction It is often lamented that Marx never developed a systematic analysis of the state. He comments extensively and often profoundly on the state but left many problems and room for heated controversies. From his earliest writings, Marx contests the idea of the state as a neutral social arbiter. Initially, he describes how states pursue their own rather than general interests (Marx 1975). Later, as for most followers, he sees the state as an organ of class rule. But why and how does the state act in particular ways? Marx (1974) acknowledges that states have a ‘motley diversity of form’. States have led development rather than simply being servants of existing capitalists, they have yielded to pressure from below and enacted reforms apparently against capital. How and to what extent are such things possible? The search for any simple abstract formula is almost certainly misguided. However, if theory is understood broadly as ‘a scheme of ideas which explains practice’ (Williams 1976: 267), the method outlined in the Grundrisse provides some guidelines. The next two sections accordingly discuss how Marx’s prior analytical levels can inform an understanding of states. The first of these revisits the ‘general abstract determinants’. It re-iterates a simple point about the perennial non-separation of politics and economics and again draws on Rosenberg’s work on Uneven and Combined Development (UCD). This emphasizes the importance of a global rather than nationalist methodology and that capitalism developed in the context of a competitive, inter-state system. The second section develops the point made in Chapter 4 about the analytical complexity within the level of what became Marx’s Capital. It is an analysis of capital in general and in its particularity; of capitalism as a universalizing system and of many competing capitals and particular interests. It is the level of landed property and wage labour. So capitalism in general requires certain state forms and limits

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what any state can do, but capitalism in particular pulls in different directions.The division into distinct national capitalisms is itself an important element of capitalism’s particularity. Capitalism is a world system and it only makes sense to conceive of society at the global level. Therefore, it is argued that Marx’s explicit method must be violated in order to be followed in spirit. ‘The international relation of production [and the] international division of labour’ (Marx 1973:108) cannot be left until a later more concrete analytical stage. From the start, states are shaped by pressures from outside as well as from within and cannot be understood in the singular in an essentially global political economy. An adequate understanding of the prior levels reveals much about what states must do but also much about the limits of what is knowable about particular states. The third section moves, with Marx’s schema, to the specificity of the state form. The state cannot be deduced from the prior analytical levels – just as Capital cannot be deduced from abstract general social characteristics. It has a moment of its own. Discussions of ‘relative autonomy’ are briefly revisited and it is argued that the term becomes useful in relation to the particularity of capital rather than its universality. States are within and not at all autonomous from capitalism: most particular states have considerable autonomy from even the most powerful of capitalists. States make strategic decisions even as changing forms of capital accumulation at a global level impact on pre-existing national economies and states themselves. Finally, it is recalled that Marx’s ordering involves a movement towards the more concrete and historically specific. We should be wary of overly abstract formulations of the state and instead need to write specific histories. The last section comments schematically on the historical development of capitalism and the state, in the early modern period and in the period of British ‘hegemony’.The following two chapters develop the historical narratives in more detail and provide the background to the analysis of the crisis of 2008 and after.

Changing forms of political and economic power This section re-iterates that an understanding of capitalism can usefully be informed by considering what it has in common with other societies. Reflecting the abstract and general helps illuminate what is specific to capitalism. Exploitation and power relations of various sorts pre-date capitalism, which typically lays hold and transforms what is already at hand rather than starting from nothing. Contemporary states perform many tasks concerned with preserving social order and redistribution and national defence that are not specifically capitalist and that help establish states’ legitimacy. It is also often through the state that what were common general properties can take on specifically capitalist forms. Two themes seem particularly relevant. First, this section emphasizes the inextricable connection between politics and economics, apparently severed by capitalism. Most societies, and all class societies, have systems of social and political organization including more or less formal institutions and practices for securing social order, delivering certain services and

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distributing resources. Engel’s descriptions of the origins of the state emphasize how, with economic development, each society split into classes, producing private wealth, inequality and the reaction to it. Now there is a need for an institution to ‘set the seal’ on exploitation and class rule (Engels 1978: 127).Wood characterizes pre-capitalist societies as having an ‘organic unity of economy and polity’ (2002: 45). Exploitation was overt.The poor and the powerless were the same people.The means to wealth was power and vice versa. So, for example, feudal lords, in possession of private armies, sheriffs, etc., extracted tithes (in kind or in money) and demesne labour from ‘their’ peasants. Redistribution involved ‘upwards’ transfers, or naked exploitation. However, some caution seems in order. Economic and political powers were seldom absolutely congruent. Rulers’ legitimacy still rested on the performance of many tasks socially accepted as necessary, for example in providing order and redistribution. Polanyi uses the word ‘redistribution’ to refer to a range of activities from the way in which a hunt might be organized and its products shared to systems of imperial taxation. It contrasts with alternative market- or community-based exchanges. It could include things like storing grain and social provisioning (Dale 2010). Such customary roles helped establish political legitimacy (as they would continue to do in capitalism). In feudalism, there were mutual dependency relationships, buttressed by conventional mores, beliefs and priests, so that power was never reducible to the political force of the wealthy (Draper 1977). New sources of wealth also developed within the old system and provided important bases for its dissolution. From an early stage, some of the politically powerless might have been relatively less poor.There were degrees of separation. In capitalism, Marxists see the separation of politics and economics as more apparent than real; even a fetishistic illusion.The idea that ‘the rich and powerful’ might yet be describing a single group is hardly an affront to language or common sense. They were closer synonyms under feudalism and the apparently automatic mechanisms of the market, the mediation of money and the form of the state disguise their interdependence in capitalism. However, Marx’s emphasis on power and exploitation in production takes us behind the veil of market equality and freedom to discover that capitalist economic forms are, like others, themselves political. The first political questions, as ever, concern how the surpluses are extorted from the direct producers. The point of stressing this is that the Grundrisse’s analytical separation involves leaving the state form to a later analytical stage rather than privileging economics over politics, let alone deducing the latter from the former. Economic agents already exert power, and political organizations, despite appearances to the contrary, are profoundly implicated in capitalist production from the beginning. Second, at this general abstract level, it is worth revisiting Rosenberg’s (2006, 2009, 2010) recent discussion of UCD, of generative mechanisms of political power in pre-capitalist relations. This can be seen as supplementing the ‘traditional’ Marxist account, which paid less attention to the external or (to risk anachronism) ‘international’ dimensions. Coeval processes of internal and external development required domestic organization and political interaction. Engels’ account already

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has an important spatial element but Rosenberg more formally articulates a dual internal and external logic. Uneven development means economic relations have different densities in different places and political boundaries tend to form around nodes where the coalescence is strongest. This becomes a mutually reinforcing process. ‘Society’ is already conceived as a whole. It could be in relatively isolated locations (with limited possibilities of flight) that class relations hardened (Mann 1986) but the process of bordering is still crucial. The mode of accumulation within European feudalism was also primarily internal. Lords exploited ‘their’ peasants. Economic wealth was increased by more intensive exploitation or by seizing other lords’ (and peasants) lands. But this internal and local character was always conditional. Interactions along the length of the Eurasian continent already fostered combined-but-uneven economic and political development. This touches on controversies around the origins of capitalism, which cannot be addressed adequately here, but which hang on question of emphasis; of the relations between internal and external processes that strengthened (already existing) alternative and politically marginalized sources of economic power. The feudal form, in Western Europe (and perhaps Japan) has been seen as a product of the relative geographical isolation of these areas from the continental integration (Braudel 1995). But it would then be within these fragmented structures of feudalism that the principal locus of capitalist transformation developed. The supra-territorial character of money in medieval Europe is only one important example.Trade was endemic to the feudal world, albeit that it lacked the pervasive role it would later achieve. It contributed (to an extent that remains highly controversial) to the rise of capitalism and feudalism’s demise.Towns, urban crafts and industry grew and had to defend themselves politically. New forms of economic and thence political power developed within feudalism where they had previously been absent (Dobb 1963, 1976, Sweezy 1976). Meanwhile, lords ceded power to centralised absolutist monarchs who, amongst other things, could more effectively discipline unruly peasants. So lords remained rich but their power diminished. Feudalism was precisely characterized by overlapping claims to power and only latterly did a centralized state develop, as it were, for managing the common affairs of the nobility as a class (Draper 1977, Anderson 1979). The pre-capitalist origins of states matter because these crucially shape capitalist development.The pre-existence of a plurality of states would give the appearance of specifically national capitalisms and of states as simply derived from, and presiding over, these specifically national economies. From the start, the state and inter-state competition were ineliminable parts of the capitalist economy and social relations. The fact that political power precedes capitalism presents anti-Marxists with a simple datum with which to expose the follies of a supposed economic determinism. Instead, without feeling the need to explain the origins of power itself, power is then invoked to explain classes (Miliband 1973b, Poulantzas 1978).This, of course, misses the point completely. For Marxists, power is not a ‘thing in itself ’ but needs to be understood in its social and economic origins and relations, usefully beginning by asking about labour and

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exploitation. States were part of the transformation even as they were transformed by it. States’ specific histories shape their practice. In the ‘purest’ form, states were reconstructed by revolutions that Marxists and others have accepted as ‘bourgeois’. In most cases, at least substantial elements of the old regimes survived and transferred to the new. It was typically within the forms and territories inherited from feudalism that national capitalist economies developed, however much these in turn transformed states.

Capital, wage labour, landed property and the state Marx’s analysis of capitalist specificity has important implications for an understanding of states. Marx provides an analysis of capitalism in general, of its overall dynamics and imperatives. Capitalism has a unique character in the importance of private property, the commodity form, labour-power, competitive accumulation, crises and so on.All this requires particular state forms and certain tasks of any state if capitalism and the state are to survive. However, as stressed in Chapter 4, capitalism is also a realm of many capitals, of competition, contest and particular interests, of distinct sectors and industries, of wage labour and landed property. This precludes the achievement of an ideal, let alone omniscient, general capitalist sovereignty. Only through the particulars is some semblance of the general interest achieved and it is only ever a semblance, the resultant, as it were, of more or less parallel vectors. This becomes stark once the particularity of capitalism is also acknowledged to include the separation into national capitalisms and nation states. However much the state is constrained to promote capitalism, there is no blueprint and some strategies can turn out badly. From his earliest writings, Marx was aware how states experienced constraints and pressures, that they were more an expression of social contradictions than a means to their resolution (Clarke 1991). Marx notes that despite their manifest differences of form,‘the whole content of law and the state, is broadly the same in North America as in Prussia. Hence the republic in America is just as much a mere form of the state as the monarchy here. The content of the state lies beyond these constitutions’ (1975: 89). Capitalism was still in its infancy but, as the Communist Manifesto would insist a few years later,‘[i]t compels all nations, on pain of extinction, to adopt the bourgeois mode of production’. An important implication of this is that everywhere the state becomes ‘but a committee for managing the common affairs of the whole bourgeoisie’ (Marx and Engels 1975: 38, 35). The fame, or notoriety, of this last line owes much to critics who can ridicule the little ‘but’ in particular.There is nothing to suggest that Marx and Engels would have defended the word in their more considered and theoretical work. From everything else they wrote, the state, including its executive, is always described as something more than this. Nevertheless, the formulation asserts two important, related, Marxist truisms. First, state neutrality, even with democratic forms, is an illusion. Second, the state is needed in order to maintain exploitation and to manage the unruliness of capitalist competition and its consequences.

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Marx (1981: 927) says: It is in each case the direct relationship of the owners of the conditions of production to the immediate producers…in which we find the innermost secret, the hidden basis of the entire social edifice, and hence also the political form of the relationship of sovereignty and dependence, in short, the specific form of state in each case. To be a Marxist is to link the economic and political, and therefore to oppose both apologetic liberalism of either state malignance or benevolence and a Weberian eclecticism that acknowledges state power but incorporates it ad hoc by the method of mixing and stirring with other sources of social power. The need to maintain exploitation and capitalist power imposes a certain agenda and certain tasks on any state if it is to survive.The sanctity of private property and the exclusion of workers from ownership of private property (in the Marxist sense) come somewhere near the top of such an agenda. It also becomes necessary to maintain the veiled nature, the appearance of the exchange of equivalents, which masks exploitation under capitalism (Hirsch 1978, Holloway and Picciotto 1978). States must also continuously and actively intervene to maintain capitalism. Most obviously they do this through police actions and interventions in the labour market – ensuring there is a disciplining army of unemployed. It is tempting here to detail the vast and ongoing levels of state spending on ‘armed bodies of men, prisons, etc.’ (Lenin 1976), which make a nonsense of so much of the contemporary chatter of state retreat. Of course, it is often more efficient to persuade than coerce. States oblige through education and propaganda, maintaining ‘hegemony’, in the ‘manipulation of opinion and the “engineering of consent”’ (Miliband 1983: 60) but also by securing the market, naturalizing and de-politicizing money and thus maintaining the dull compulsion of economic forces. States undertake a whole gamut of other roles from legal systems defending individual and corporate rights (indemnifying individual capitalists from corporate failure), to more or less direct economic management. Capitalism’s crisis tendencies would quickly prove unsustainable were it not for state intervention. This is most obvious and direct in relation to money and finance. Particularly in a world of non-commodity money, the system would very quickly become paralysed without state intervention. The private sector can generate a cornucopia of money and near money but only the (relative) trust in state-backed money allows it to act as a universal equivalent.Without all this, capitalism could not last a day.Within limits, including their territorial limits, states can redistribute to ameliorate and even reverse some of the disequilibriating processes and economic imbalances. State intervention enabled capitalism to colonize new areas of social life as well as new territories.The growth of the state should then be interpreted not as an opposition to capitalism but as a means of securing it. Important currents of Marxist state theory go further. For Poulantzas (1973, 1976, 1978) the capitalist state, any state, regardless of the composition of its personnel, must pursue capitalist imperatives.The state is a capitalist state because society

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is a ‘condensate’ of capitalist power relations rather than just a state within capitalist society. Moreover, ‘the institutions of the state, do not, strictly speaking have any power…only…social classes…hold power’ (Poulantzas 1973: 115). A slightly different tradition articulates a similar sentiment in terms of ‘state derivation’ and by emphasizing state form (Holloway and Picciotto 1978, Blanke et al. 1978).This interpretation rejects Poulantzas’s separation of state as superstructure, seeing states themselves as intimately implicated in the processes of capitalist reproduction, as a ‘political force that complements the economic force of competition between individual capitals and assures the immanent necessities that cannot be secured through the latter’ (Jessop 1990: 37). However,‘deriving’ the state form from the specificities of capitalist relations of production is at least a necessary first analytical step. Although there may be commonalities of function with non-capitalist political powers, states necessarily now take on specifically capitalist form, particularly in maintaining value relations, and this requires quite specific forms of rule and imposes enormous pressures on attempts to affect any internal transformation. The idea of any state implementing a ‘general interest’ of capital should immediately be qualified. It suggests ‘an omniscience and omnipotence…which it manifestly does not have’ (Clarke 1991:10, see also Holloway and Picciotto 1978). As some of the contributors to these debates acknowledged, they only establish the ‘negative limits’ of state capacities (Poulantzas 1976: 72) or provide a starting point in need of historical elaboration (Hirsch 1978).To assert capitalism’s need for particular state forms does not explain how they come to be. At best it provides a retrospective functionalism. There are common capitalist imperatives but there cannot be a capitalist grand design. Marx’s dialectic is not Hegel’s and the state cannot be the spirit giving actuality to a process of world history (Hegel 1991: 281). There is no capitalist teleology (Kiat 2013). If anything, the essence of capitalism is anarchic competition and although, in practice, states can intervene to limit or ameliorate the effects of capitalism’s destructive competition they do not negate this and could not do so without negating capitalism. Capitalism’s contradictory diversity precludes the direct realization of the abstract in any specific concrete form. As discussed in Chapter 4, capitalism produces powerful universalizing tendencies but these never suppress a dynamic internal unruliness and particularity. Here it seems worth salvaging something from an alternative ‘instrumentalist’ argument. Miliband (1969), like other more or less Marxist sociologists (see e.g. Mills 1956, Scott 1991, Monbiot 2000), identifies how states are run by people drawn from the capitalist class, educated at elite schools and universities, effectively by an ‘old boys’ network. More or less avowedly pro-capitalist political parties and numerous business lobby groups and organizations might also usefully be identified under this rubric (Miliband 1973a, 1983). Claims of ‘regulatory capture’, recurring in relation to recent financial mismanagement, identify similar processes. The overwhelming class bias in the upper echelons of leading states remains clear.This is an empirical rather than theoretical claim and it prompts some awkward questions about just how strong the links need be to render a state ‘capitalist’, whether or how much greater meritocratic reform might liberate the state. It does, however, also usefully

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open the door to internal differentiation, to particular interests influencing states, undermining the idea of states as embodying universal capitalist interests. A band of hostile capitalist brothers are involved in multiple concrete relations with each other and with state agents. Different fractions of capital, even individual firms, lobby on their own behalf. Export-oriented industries push different policies to locally based manufacturers and each may more or less closely coincide with the interests of commodity and finance capital.The pluralist implications are substantially overcome once it is accepted that these particular interests are expressed through specifically capitalist forms, of equal property rights and shareholding democracy and that this in turn influences and limits likely outcomes. Capitalism is even best served by a state that is not in the pocket of any one sectional interest. Relatively plural, even formally democratic, states allow for change and diverse interest representation while also obscuring the class bias. But there is no guarantee that democratic states develop in practice. Whatever their form, states never escape the particular interests and never become ideal collective capitalists. The analytical level of Capital is, of course, also that of wage labour and landed property. Clarke (as at times Poulantzas) stresses ‘the determining role of class struggle’ (1991: 2) instead of the functional needs of capital. Again, this need not revert to seeing the state as a ‘condensate of class forces’ or neutral instrument balanced between contending classes (Clarke 1991: 57). Any such equilibrium misunderstands labour’s subordination and the superordinate requirements of capital discussed above. However, labour is not simply a passive victim and, for example, the level of exploitation, the value of labour power and the length of the working day are all established only through the concrete complexities of production and reproduction.The capitalist state can yield a little to labour’s insubordination where individual capitalists might resist, even to the point of undermining the reproduction of labour power. Marx (1976) suggested that capitalism’s ‘vampire thirst’ and ‘werewolf hunger’ were doing this in Britain in the nineteenth century before the passage of protective legislation. Chapter 3 argued that declining birth rates in contemporary capitalism represent an analogous and as yet unchecked version of the same thing. It might pay individual capitalists to work their labour force to death but it would be destructive for capitalism as a whole. Similarly, it is quite possible for higher wages to prompt capital to productivity-raising (labour-displacing) innovation, in which case labour’s gains might be assimilated into successful pro-capitalist strategy. The experiences of many leading states in the post-WWII period exemplify something like this. This is still something fought out amongst capitalists, some less able and less willing to make concessions than others. As will be discussed in more detail in the next chapter, any ‘solution’ within capitalism remained fragile and its national bases, in particular, provided the seeds of its own downfall. Capitalist competition precludes ‘objectivity’. Indeed, rather than the state ‘reflecting’ a united capitalist class it is largely through the state that a modicum of class unity is achieved (Gramsci 1971, Jessop 1990). Something approaching a consensus or general interest can then be imposed on more or less willing firms or

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sectors of capital, as seen in the example of the struggles over the length of the working day, which produced the Factory Acts. It is through the state that all sorts of other social relations can now be given a specifically capitalist form. Gender inequalities and their transformation are important examples.What Polanyi (2001) called ‘fictitious commodities’ also illustrate the point. Land, labour and money are not produced by capitalists and require state intervention to make them behave as if they were commodities. Polanyi accordingly dates ‘the Great Transformation’ to a series of British Parliamentary Acts in the nineteenth century, which secured these roles. Of course, land, labour (power) and money had in fact been traded like commodities for centuries and these markets had already been growing prior to the acts. The British state was substantially reinforcing already powerful interests and already existing practices. However, the basic point is valid that states now secure the specifically capitalist form these relations take. The example of landed property seems particularly useful. No longer separable from capital in terms of ownership, land can be bought and sold like other assets and landowners enjoy similar rights. But they often remain a distinct group with their own associations and lobbies.The particular interests and power of landowners varies across countries depending on social, historical and geographical circumstances but they influence policy, sometimes decisively. Land’s immobile character and irreproducibility makes it different to other forms of property. States need to intervene to produce markets, in the first place – ratifying initial enclosures and in many countries still engaging in policies of strategically releasing land to capital; and enriching state coffers by doing so. Meanwhile, the inherent territoriality of states is an essential basis of their power. As discussed below, non-commodity fiat money depends on trust, but here already land ownership can be important. Foley suggests that the ‘stability of the USA’s finances owes much to its vast land reserves’ (2005: 44). Land markets can never achieve ‘efficiency’ even in the limited sense that this might be possible for other goods. For the more consistent liberals of the nineteenth century, J.S. Mill and (more emphatically) Walras, this meant support for land nationalization against private ownership, which necessarily involved market-distorting monopoly powers.Yet the capitalist principle of equal property rights generally trumps efficiency.With exceptions for specific state infrastructure projects such as building roads, railways, dams and so on, states have seldom seriously interfered with private property rights in land. States’ role in organizing money and finance makes particularly clear how state interventions can profoundly influence national economies but within limits. One of the marvels of commodity money and the gold standard was that it depoliticized policy and, for example in Britain in the early twentieth century, made austerity appear as an economic necessity. The Bank of England and US Congress decreed the metallic value of the pound and the dollar. Even here there was clearly some room for relatively lax interpretations and policy discretion with states adopting silver or gold standards and sometimes both.The experience after WWI would show that states could also alter the value of national currencies in relation to gold; devalue to increase national competitiveness. Nevertheless, until the 1970s, it was widely

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presumed that money should be, and ultimately was, linked to commodity money (Reuten 2005). Since then, most states have issued non-commodity money and this has been substantially trusted as a medium of exchange and store of value within their territories and sometimes beyond. There have been curious, if often furious, arguments amongst economists about whether money should be regarded as ‘exogenous’ from ‘outside’ the economy, meaning the product of central bank policy, or endogenous, the product of (private) bank credit. Of course, money is endogenous to the economy as a whole but states are a vital part of this. Monetary and fiscal policies redistribute resources, for example wiping out debts, including the state’s own.This can smooth some of capitalism’s volatility, increase social welfare and capitalist efficiency and growth. The idea that conscious planning is necessarily worse than selfish market motives is a self-serving capitalist prejudice. However, states cannot conjure resources from nothing and there are always genuine questions of whether or to what extent state spending stimulates rather than depresses the economy and of who pays. Governments target particular sectors because economic multipliers may be greater from some than others, producing net gains. But it is never just about some abstract economic good sense and however much radical Keynesians and some Marxists point out that it might be in systemic interests to raise wage levels and consumption, particular capitalist interests make states highly unlikely to concede this.There is also much room for pork-barrelling, the corrupt distribution of public funds to friends or important electorates. States themselves become an essential element of capitalism’s particularity and diversity.‘The state’ cannot be understood in the singular. Marx’s analysis in Capital proceeds as if there were one giant national economy. ‘[W]e must treat the whole world of trade as one nation, and assume that capitalist production is established everywhere and had taken possession of every branch of industry’ (Marx 1976: 727). He makes occasional references to external inputs, the effect of trade and so on. But essentially the analysis abstracts from states, dealing with the economy as if it were global. At the same time, repeated references to ‘a given country’ and to particular states make clear that when Marx turns to the state, the subject is the nation state not some reified, deterritorialized abstraction. The earlier comments on UCD warn against seeing the state as simply an expression or achievement of domestic social relations.Therefore it is potentially misleading to leave an analysis of international relations until a later more concrete level. In practice, it is indeed only possible to describe much of international economic relations after the state has been introduced. Exchange rates do not fluctuate until we have specifically national economies and states to manage national currencies. But international trade, for example, is seldom strictly inter-national, usually being carried out between or even within firms. Capitalism by its nature moves, and moves across borders, in a way that was not possible in other economic systems. State borders can present real obstacles to capital mobility but it is in the nature of capitalism that such borders are not absolute. States also condition each other’s development, from the start. States exist within what is necessarily a supra-national economic and political system (Barker 1978a, 1978b, Braunmuhl 1978, Holloway 1995, Rosenberg 2006).

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This global level therefore needs to be incorporated into the prior understanding of the bases of states’ development. Marxists have tried to capture this by ceding a ‘Realist moment’ (Callinicos 2007) or an autonomous logic of political power (Harvey 2003). Such formulations can exaggerate the separateness of political and economic relations (Pozo-Martin 2007) but they do usefully emphasize how states are embroiled in inter-state rather than merely economic relations. At the same time, the global character of capitalism (and ‘foreign’ capital) impinges on any state. This undermines a conception of nation states as representative of the ‘whole bourgeoisie’, which class is intrinsically global (Barker 1978a, 1978b, Braunmuhl 1978). Each state itself experiences competitive imperatives to accumulate. As Clarke writes, there can be no question of the state standing above or suppressing the law of value because this is global and ‘imposed on individual nation states, just as it is on individual capitalists, through international competition’ (1991: 48). Here again the ideas of uneven and combined development seem attractive. In the original sense, UCD was used to explain the experiences of poorer countries within a world system. Trotsky discussed imperatives faced by the Tsarist state in Russia, still a predominantly agrarian economy, and how it was able to mobilize resources to drive processes of industrial development, particularly in armaments, under the threat of foreign competition. This created huge industrial concentrations, which provided the basis for the (briefly) successful workers’ revolution. Attempts to extrapolate the idea from the Russian experience to other countries were notably less successful, although many countries did experience state-led development strategies. Pre-existing social and economic structures predispose states to particular responses to international pressures. The most powerful classes and any state they influence, for example in a small, poor country, with few resources except land, might make perfectly rational decisions that the best they can hope for in terms of an international division of labour is a place as a primary products exporter. Often there is room for manoeuvre, indeterminate social struggles and real state choices. The example of money and the issue of specifically national currencies highlight how states foster a real sense in which the level of ‘social necessity’ is national, albeit this can only escape global pressures partially and temporarily. Under the whip of external necessity the state may drive industrial development even against locally powerful classes. It may be possible at least to describe the likeliest trajectories and the impact of the global system on class relations and states within countries. Some are better placed to utilize the ‘privileges of backwardness’ than others: Fiji will never have giant munitions factories like the St Petersburg Putilov works.The possibilities also shift with the changing character of capitalism. There are many reasons to be wary of recent associations of globalization and state retreat but the form of capital can reasonably be expected to shape the range of viable state strategies. It might be possible to articulate testable hypotheses about class forms and political processes. Finally, this way of situating the state analytically conditions how we might address recent assertions of declining state autonomy. For all capitalism’s universalizing character, deep differences remain and for all the pronouncements of state

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retreat, states everywhere remain important. To posit a decline of autonomy from global capitalism is nonsensical. It never existed. However, it is quite possible for there to be a shifting balance of influences and power.There seems little doubt, for example, that many western governments have become more autonomous from the influence of their domestic labour movements, which might formerly have had some voice in setting national industrial relations regimes. Many governments appear less autonomous from the influence of particular corporations or global finance, even as they continue to make strategic choices, sometimes veiled as economic necessity. Capitalist competition takes diverse forms, so describing states as capitalist does not imply a simple blueprint.‘Nevertheless, the various states…despite their motley diversity of form, do have this in common: they all stand on the ground of modern bourgeois society although the degree of capitalist development varies’ (Marx 1974: 355).This common ground, itself highly uneven, nourishes different growths.

State autonomy and the ‘motley diversity’ of state forms Marx’s analytical ordering provides the context for an appropriate historical understanding of states. As with the relation between the general abstract determinants and those of capital, wage labour and landed property, the method is not deductive. States have a distinct moment of their own, cannot be reduced to or deduced from the earlier levels but need to be understood in the context of their real historical development. Marx’s schema suggests that much existing state theory, including Marxist state theory, is too abstractly theoretical. It should be more concrete than the preceding level. It is nevertheless possible to say a few general things before attempting this. The idea of ‘relative autonomy’ is an awkward one. As Miliband asks, ‘how relative is relative? In what circumstances is it more so, or less? What form does the autonomy assume’ (1973: 85). If states’ actions are determined only by economic pressures ‘in the last instance’ we might object that this lonely hour never arrives (Althusser 1969). From what has already been said, it is clear that states are an intrinsic part of capitalist reproduction conceived as a whole, not a separable superstructure.They are separate neither from the processes of production and coordination within states nor from the international system. Capitalism is the medium in which states subsist. Rather than autonomy, Clarke describes states having a ‘specificity’ (1991) and Meszaros (1994) similarly posits a specific state ‘moment’. Marx’s earliest political writings criticize Hegel’s vision of the state as ‘the actuality of the ethical idea’ (1991: 275). Of course, Hegel understood, in practice, the state ‘is not a work of art; it exists in the world, and hence in the sphere of arbitrariness, contingency, and error, and bad behaviour may disfigure it in many respects’ (1991: 279). However, the state (and particularly despotic states) could stand above and overcome the divisions within civil society (Hegel 1991: 343). Marx agrees that it was Hegel’s achievement to acknowledge that the state is an ‘organism’ with real powers, ‘the product of living, rational divisions of function’

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(1975: 66). Needless to say, he disagrees with much of the rest, insisting that the state was both integrated with, not separate from, society and that it pursued interests of its own. Hegel’s mature politics, defending absolutism, now seem horribly anachronistic but a view of the state as a healthy antidote to the evils of the market still pervades much left-liberal thinking. Marx initially argues that the state itself comprised a collection of differentiated particular interests of its own. He uses different terms,‘class’,‘estate’,‘caste’ and so on to describe the bureaucracy, the police, judiciary and administration, who pass off their formal (universal) purpose as their real purpose.This brings what the state says into conflict with what it does. Rather than becoming a universal class they ‘administer the state against civil society’ (1975: 111). Marx is arguing that the state and its members are not themselves outside social and economic structures and that they would pursue their own interests. He is not tying state behaviour to the interests of any particular external class.This is where the young Marx makes an apparently unMarxist point, even a point sometimes reckoned devastatingly anti-Marxist (Skocpol 1979, Miliband 1983). However, Marx never jettisons what Miliband suggests becomes a ‘secondary view’, the idea that particular states could and would pursue their own interests, at least in certain circumstances. Marx’s later writings on Bonapartism (1974) are specifically about how the state (in this case initially epitomized by the French state of Louis Bonaparte) could assert its own authority because of the impasse reached in the struggle between contending classes. Even in 1871, Marx describes how the French state ‘with its ubiquitous and complicated military, bureaucratic, clerical and judiciary organs entoils (enmeshes) the living civil society like a boa constrictor’ (Marx 1974: 26). So the revelation, sometimes arrived at by way of Weberian sociology, that the state itself is a diverse but potentially powerful socio-economic force, challenges any crude reductionist imputation of states as mere capitalist puppets but would not have been news to Marx. If capitalists’ construction of ‘their’ state through bourgeois revolution is the most neatly Marxist transition, it is also clear that historically there are alternatives. The state under Bismarck in Germany or the Meiji restoration in Japan both pushed polices that developed capitalism in these countries but with little organic link to existing capitalists. Other states have acted against particular capitalists, nationalizing their assets to pursue national (but still recognizably capitalist) development (Harman 1991). Tsars, feudal lords, hereditary peers, communist apparatchiks, have all proved themselves quite capable of recognizing that their country needs to industrialize, to reform financial systems, reorient investment and even challenge existing property rights, on pain of extinction. States manifestly do have autonomy from particular capitals. As Marx’s earliest writings against Hegel insist, states, and people, classes, estates within them, pursue particular interests. Different individuals and institutions can pull in different directions. There is always potential divergence from any ‘ideal’ capitalist trajectory. Indeed, there can never be a single ‘correct’ or settled state orientation. States’ particular interests can produce policies that do not best serve national capitalist – let alone some objective general – interest.This can produce a

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backlash from corporate supporters or electorates but there can be considerable leeway in the scope of acceptable policies and the time before any reckoning. Just as rival firms attempt different strategies so states may quite ‘rationally’ do different things.Autonomy need not mean conflict between the particular and general interests. Compare an employers’ federation that is likely to elect as leader one of its strongest individual members, even as that member puts its own interests first. However, states can exert real power often against particular interests. For example, financial interests have been overridden and a modicum of inflation allowed both to stimulate growth and to help pay off states’ own debts. There is also room for the arbitrary and for mistakes. States can bet on strategic investments, think of Britain and France developing Concorde or of Korean steel or Taiwan and Copper Metal Oxide Semiconductors.They can fail miserably or succeed brilliantly. The state is therefore an abstraction. To write of it in the singular is not to misconstrue what are complex and hybrid social relations for singular ‘things’, as if they could be touched or smelled (Robinson 2008, Bruff 2011). This is what theory does. More concrete histories add complexity. It nevertheless often remains useful, as Krippner writes, to ‘compress what in reality are multiple state agencies and polyvalent state actors into what appears to be an undifferentiated whole.This compression is necessary in an abbreviated presentation of a complex historical reality’ (2011: 23).

Histories of the rise of capital and the state The need to concretize the analysis of the state in principle requires much deeper historical investigations than are possible here. Only a few themes can be identified. The size of nation states increased enormously in the twentieth century, a story that will be taken up in the next chapter. Whether measured by employment, revenue or (with more difficulty) by wealth, states grew in absolute and relative terms and in the areas of their intervention (e.g. Alt and Chrystal 1983). This expansion appeared to increase rather than undermine corporate efficiency, economic stability and growth. Even the liberalizations of the late twentieth century typically meant a slowing of state expansion and reorientation rather than retrenchment. However, the ideas of a minimal state and the antinomy of state and market were always a liberal fiction. Some reflections on the process of mutual development of capitalism and states provide insights into the state moment and its limits. The predominant liberal narrative sees the market economy gradually proving its superiority. Money and commercial capital, in particular, existed in many places at least since antiquity and crossed borders with little need of state support but this did not imply capitalist production. Others describe the gradual rise of a market economy in Western Europe and particularly in English agriculture (Brenner 1985a, 1985b, Wood 2002). Feudal rents could be monetized, land could become alienable and much of agriculture in particular regions, like French vineyards, could be based on selling

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for profit. Quite advanced manufacturing systems developed in northern Italy and Flanders (Braudel 1974).Wood (2002) describes the coming of the compulsion of the market but still the compulsion of the market does not yet involve a competitive imperative to accumulate. Harman (1989) writes how capitalism’s origins can be traced to many different places; it was present in ‘embryo’ many times but often still-born. Protocapitalisms could disappear rather quickly, often through lack of state support. States would prove vital as ‘containers’ of capitalist relations and the development of specifically national capitalist economies. Success and endurance within the territories of Dutch and then particularly British states was at least a crucial stage. Capitalism was not confined to these territories but state support was also crucial in establishing wider relations. Marx writes that ‘[w]orld trade and the world market date from the sixteenth century, and from then on the modern history of capitalism starts to unfold’ (1976: 247). Rosenberg’s (1994) account of the European navigations, beginning with those of the (feudal) Portuguese state into the Indian Ocean, is telling.The Dutch and the British superseded the Portuguese, placing operations onto a firmer commercial (if not free-market) footing. States’ navies backed monopoly firms. But mercantile success was not sufficient. For Marx (1981: 450): The sudden expansion of the world market, the multiplication of commodities in circulation, the competition among the European nations…the colonial system, all made a fundamental contribution towards the shattering of the feudal barriers to production. And yet the modern mode of production in its first period, that of manufacture, developed only where the conditions for it had been created in the Middle Ages. Compare Holland with Portugal, for example. British capitalism depended on colonies, colonial slaves, cotton, Dutch finance and much else, all drawn from outside; but now also on the size and expansion of its domestic market, lacking in earlier industrial expansions in Florence or Flanders. The relatively centralized and monetized economy and concerted efforts from Tudor England onwards to protect industry, helped to raise Britain from a rural backwater. It fostered capitalism and a class of people of the ‘middling sort’, the London merchants and the yeoman farmers who would become the backbone of the seventeenth-century revolutions. These secured ‘bourgeois’ freedoms of property and civil law and ushered in more coherent state interventions in the international economy, for example the Royal Navy and Navigation Acts enabled the trades in slaves and cotton. Britain’s growth accelerated in the eigthteenth century, and yet further reforms in the middle of the nineteenth century would still be important to securing capitalist transformation (Polanyi 2001). Once capitalism was firmly established in Britain, this changed the imperatives elsewhere. In Germany, List talked of ‘kicking away the ladder’ to describe British political economy and its laissez-faire agenda, which hindered others from

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following Britain’s climb to dominance. Britain’s rivals demanded state support. This was competitive capitalism, but even less than in Britain would it involve an organic growth of small entrepreneurs or of free markets. Marx (1976: 921–2) thought: [t]he system of protection was an artificial means of manufacturing manufacturers, or expropriating independent workers, of capitalizing the national means of production and subsistence, and of forcibly cutting short the transition from a mode of production that was out of date to a modern mode of production. By the late nineteenth century, the US and Germany, the countries most clearly overtaking Britain, were particularly characterized by the growth of giant firms and cartels with state support.

Conclusions This chapter argued that we cannot deduce or derive the state from Capital. The first section stressed the inseparability of economics and politics and how from the beginning, states experience pressure from without as well as within, and how capitalist states inherit many of their functions and much of their territory. Marx’s analysis of capitalism, it was then stressed, is first of capital in general, of capital as a universalizing system, but also of capital in its particularities. Capitalism involves contradiction and contest.This suggests there is no stable ‘base’ of ultimate capitalist interests that states superintend. States are always the product of messy and contested social pressures and have real agency of their own. To paraphrase Marx and Engels, states make history but not in circumstances of their own choosing.An abstract analysis of what is necessarily a diversity of state forms cannot get far and an adequate understanding should be relatively concrete and historically specific. The subsequent chapters will take up the historical narrative.


Introduction This chapter covers momentous times in the mid-twentieth century. The global economy grew phenomenally; more than sevenfold in real terms between 1913 to 1979 (Maddison 2003). It swung violently from the roaring twenties, to the Great Depression and war, to the long post-war boom into another severe crisis in the 1970s. Rather than attempt a comprehensive survey, the chapter develops the book’s methodological point that history can be informed by, but is not reducible to, more abstract theoretical analysis. History should not be read as just one damn thing after another; a short-sighted Versailles Treaty here and an oil shock there leading to problems, some benign US hegemony occasioning peace and prosperity. Nor can it be understood simply through generalized imperatives to accumulate or the assertion of relentless crisis tendencies.The chapter emphasizes that accumulation took different forms with changing implications; in terms of class relations, spatial organization, state policies and international relations. New directions were the result of contested social processes but these too can be understood as conditioned and limited by the character of accumulation and crisis. Concentrating on leading capitalist economies, the four sections are organized chronologically, broadly following the boom, crisis, boom, crisis periodization.This history also provides the background to the subsequent period of liberalization and financialization discussed in the next chapter.

The ‘roaring twenties’ WWI brought delusions of successful liberal capitalism to a shattering stop. Capitalism had long been illiberal. Leading states protected capital at home and carved up the globe into formal and informal empires. Giant firms, robber barons

The Keynesian moment and its contradictions 91

and monopolistic cartels increased their domination. In the US, there was massive consolidation around the turn of the century and by 1918, the largest 5 per cent of firms accounted for 80 per cent of all corporate income.That would increase to 83 per cent by 1929 (Census 1975).The war also ended relatively liberal arrangements between leading states, slashing international trade and driving countries off the gold standard. Of course, war could not be fought by the invisible hand of the market and direct state economic intervention jumped upwards. The war left the US as clearly the world’s largest economy. Its GDP was roughly twice that of Britain (Maddison 2003). Wartime borrowing and post-war ‘liberty loans’ left the allies with total debts to the US of about $12 billion by 1921. Additional lending to Germany in the mid-1920s brought total credits to $28 billion by 1928 (Hudson 2003). In many respects, post-WWI US capitalism was dynamic. Annual economic growth to 1929 averaged 3.2 per cent. Alone amongst leading economies, the US consistently ran trade surpluses (see Table 7.1), and American corporations would increasingly invest abroad.

TABLE 7.1 International trade statistics, selected countries

Exports as a share of GDP 1913 1928 1938 Canada France Germany Italy Japan Russia/USSR UK US

18 12 13 7 6 4 15 6

21 9 8 5 6 1 11 5

15 4 6 4 4 0 7 4

Trade balance ($m) 1913



–275 142 –169 –306 –55 –451 –166 –433 77 –218 –387 –40 –40 –129 5 n.a. n.a. n.a. –645 –1,716 –2,801 271 902 642

Proportion of exports to leading economies* 1913 1928 1938 92 72 71 71 52 86 40 75

85 65 60 61 50 67 35 60

82 52 53 48 25 71 37 52

* The US, Canada and Western Europe (including the UK). Source: UNSTATS (1962).

Capital accumulation was primarily labour-intensive rather than capital-intensive. Taylorism or scientific management’s intensification of work epitomizes this. So too do Ford’s techniques. Key innovations of moving assembly lines and massproduced, interchangeable parts, were more about increasing absolute exploitation than about replacing workers with capital equipment.This labour-intensive orientation was predicated on the weakness of organized labour. After a brief post-war resurgence, a sharp rise in unemployment and severe repression undermined American unions, with membership falling from 4.7 million in 1921 to 2.9 million or just 5.2 per cent of employees by 1933. Wage growth lagged severely behind productivity growth. Between 1918 and 1929, output per hour across the economy

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increased by 2.8 per cent a year. In manufacturing it was 4.9 per cent. Pay, both in manufacturing and overall, rose by only 1.9 per cent.Total employment increased but not dramatically. Immigration fell and women’s paid employment remained about a fifth of the total. Output in relation to capital increased by only 1.4 per cent and the real value of plant and equipment by 1.7 per cent a year (Census 1975). This was not an age of rising capital composition (Gillman 1957). Accumulation was also intensive in a spatial sense.Table 7.1 suggests that economic growth outstripped the growth of trade. Trade barriers remained very high. The relative spatial concentration also appears to have occurred within the US economy, particularly in contrast to the railway boom of the previous century. The proportion of transport workers fell (Census 1975). The labour-intensive rather than capital-intense strategy meant high profits were not fully re-invested.This substantially explains a growing tendency towards conspicuous consumption and financialization. Consumption levels were also supported by personal and mortgage debt, which almost trebled over the period. This was the era of hire purchase or instalment credit. Inequality grew. Savings, particularly of the rich, increased while the markets for bonds and shares surged. Corporate savings increased from $420 million in 1918 to $2,140 in 1929 (Census 1975). Large firms increased their size and their share of the market. The failure of US authorities to restrain speculation has been the focus of mainstream critics’ account of the crash and subsequent depression. But state policies were again conditioned by the domestic and international settlements. An attachment to gold and sound money reflected the strength of US capital – it had little to fear from foreign competition and was able to discipline labour at home. The government had modest domestic debts at the end of the war and could rely on conventional means of redeeming them. Except for a brief dip into the red in 1921, it consistently ran a federal budget surplus until 1929. The US remained open to capital flows. America’s huge credits required open borders for their re-payments. The greater dynamism and productivity of the US economy also produced trade surpluses, balanced by gold inflows which in turn encouraged low interest rates. Orthodox trade theory suggests these should have increased consumption and imports, balancing the current account.The gold standard ties national currencies to commodity money and allows market mechanisms to work their magic. But with wages lagging behind output, US industry continued to produce surpluses which could be sold abroad. Gold flowed inwards, with the US holding 36 per cent of the world’s total by 1929. Conversely, the enduringly strong dollar made buying assets in other countries relatively cheap and, although still a small fraction of domestic capital formation, outward foreign investment rose steeply, from $4b in 1914 to $17b in 1929 (Heaton 1948). Open borders were important to corporations investing abroad and bringing funds back home. By the end of the decade, money flooded in to Wall Street from the US and around the world. Interest rates remained low, even as the speculative bubble gained momentum. Meanwhile, British capital continued its long-term relative decline. Firms tended to be of smaller scale.Table 7.1 shows how they were also more dependent

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on foreign markets and that a relatively low proportion of exports went to other rich countries.This meant more of production was geared to ‘soft’ markets where firms faced less direct competition. There was less imperative to innovate. Several peculiarities of the British economy also contributed to its sluggish, even contractionary character. Globally, the period was also one of structural change. Sectors like cars, machinery and chemicals advanced relatively quickly while older ones like textiles (where Britain dominated) suffered relative decline. British shipyards, which had once been dominant, suffered in the general retreat from openness and, for example, when the US replaced Britain as a supplier to Japan (Foreman-Peck 1983). Again, rather than a move towards equilibrium, the gold standard saw trade imbalances increase. Britain needed high interest rates to attract the gold back to cover deficits and this had severely deflationary implications.With growth so slow and its trade position deteriorating, Britain struggled to pay its war-time debts to the US. Its share of the world’s gold reserves shrank from 10 per cent in 1913 to 7 per cent in 1929 (Heaton 1948). It needed further borrowing, at rates above those in the US, to service its debts. British policy commitments to gold and domestic austerity exacerbated industrial decline. It is therefore tempting to see them as short-sighted but there were also structural imperatives. Already by WWI Britain was exporting about 40 per cent of its domestic savings (Webber and Rigby 1996) and the strong pound helped capital making foreign investments, much more prominent from Britain than other countries. The key textile industry relied on imported cotton and could ill-afford to pay more for its US supplies. Exporters in general suffered from what had become an overvalued currency but Britain was relatively protected by the much greater importance of its markets within the ‘Sterling bloc’ the group of countries including colonies and dominions whose currencies rose along with Britain’s. Britain continued to run surpluses with these countries, partially offsetting the growing deficits with the rest of the world.‘The City’ and Britain’s financial sector were also strong and favoured high interest rates to preserve asset values and to attract funds from abroad. They also encouraged the ‘Treasury View’ in favour of balanced state budgets, which maintained that state intervention to alleviate unemployment and economic depression was not simply objectionable and expensive, it could not work. Anything the state did, by definition, was less efficient than the market and so would ‘crowd out’ private investment and direct resources away from activities that provided more employment and economic growth. Austerity was also anti-labour policy. British unions were stronger than those in the US but suffered a series of defeats and wage cuts after a slump in 1921, culminating in the debacle of the 1926 General Strike. Although the expediencies of war had forced the pound off the gold standard, it was never allowed to fall far in relation to the dollar and inflation was modest compared to other European countries. Britain rejoined in 1925 at the pre-war level. Low pay at home in turn perpetuated the weakness of the domestic market and underlined the importance of exports, which in turn made wage repression that much stronger an imperative for capital. Britain’s trade deficits were mainly in primary products, raw materials on which it could not

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cut back without also further reducing production. A weak economic recovery after 1921 did not even make up the ground lost after 1918. Unemployment only briefly dipped below 10 per cent.There was no roaring twenties in Britain. The contrast between Britain and France is striking. France and Britain had similar levels of war-time debts but while the British economy shrank, the French grew by an extraordinary 7 per cent a year between 1918 and 1929 (Maddison 2003). This is only in small part explained by recovery from greater war-time destruction. The post-war radicalization went a bit deeper than in Britain, making wage repression more difficult. Coming off the gold standard allowed an inflationary strategy, which could both pay the state’s own domestic debts and allow wage gains to be inflated away. Even the return of a conservative-led coalition government from 1926 did not mean any substantial revaluation. Accordingly, the value of the franc fell. When France finally rejoined the gold standard in 1928, it was at a fifth of the prewar level.This increased import costs, including food imports, but France also had a much larger agricultural sector and was closer to self-sufficiency than Britain. Cheaper exports were more competitive and, from a trade deficit position comparable to that of Britain, France moved close to balance. Its manufacturing surplus increased from $663m in 1921 to $924m in 1929 (Foreman-Peck 1983). Overall, the boom period was one of relatively intensive production in the sense of developing more nationally based systems, most clearly evidenced by the relative decline in international trade for most leading economies (see Table 7.1).This ‘nationalization’ would accelerate during the depression but was already clear. Profits and stock markets soared but so did income inequality and debts amongst the working class and farmers. International inequalities – debts from the war but also the different structures of capital within leading countries and different dynamics of class struggle and policy responses – exacerbated global imbalances. Money flooded into the US as debt repayments, to balance US trade surpluses and, increasingly, as a speculation.

The Great Depression and the World War The Wall Street Crash of 1929 reflected and then greatly exacerbated a downturn in production in the US, which quickly spread around the world.The stock market bubble burst, precipitating a rapid implosion in the real economy. Job losses and rising unemployment allowed employers to ruthlessly cut wages. This further crushed domestic consumption. Firms had even less incentive to invest. Debts could no longer be paid and there was a flood of business failures, particularly in finance. The crisis also rapidly spread geographically, with similar stock market collapses and an inward spiralling of international trade (Kindleberger 1973). Prices, particularly of agricultural products, collapsed.The Great Depression would last until the outbreak of war and would only finally be overcome in the post-war economy, led by new strategies of accumulation and a reinvigorated US capitalism. The immediate responses to the crash deepened it, exacerbating many of the trends of the earlier period. In the US, the Federal Reserve cut interest rates and

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took over some bad loans but, beyond that, domestic policy remained largely noninterventionist. In 1930, the US passed another round of tariff raising policies, the Smoot-Hawley Bill. The US responded to gold outflows in 1932 in similar ways to those deemed necessary in the twenty-first century to prevent capital flight; that is with sharply deflationary policies. Formal trade barriers were now accompanied by competitive devaluations as countries came off the gold standard. By 1931, even Britain had abandoned gold and trade openness (Kenwood and Lougheed 1992). Currency devaluation could, in principle, involve an export-orientation, as would happen with many poorer countries in the 1990s. However, as the general reductions in trade levels make clear, in this situation it meant limiting imports and protecting domestic producers in local markets. Falling trade and competitive devaluation exacerbated the downturn, the overproduction and international imbalances that caused the crisis. But trade barriers had already been high and trade fell from already low levels. Protectionist strategies further deepened the national bases of political economy. Table 7.1 shows that, except for Britain, the share of exports going to other rich countries also fell. Colonial markets became relatively more important. As the depression deepened,‘laissez faire’ at home also became unsustainable, not least politically. Already during the 1932 presidential campaign Roosevelt reported an exchange with ‘an old friend who runs a great western railroad’. ‘Fred,’ I asked him, ‘what are people talking about out here?’… ‘Frank,’ he replied, ‘I’m sorry to say that men out here are talking revolution’. (cited in Boyer and Morais 1977: 272) The New Deal was substantially a response to such threats. US capital, historically highly antagonistic towards labour organization, was forced to negotiate.The New Deal responded to, but also then encouraged, labour organization.The subsequent rising of the unions is most famous in the auto industry but the sit-down strikes also involved ‘hospital workers, trash collectors, gravediggers, blind workers, engineers, prisoners, tenants, students and baseball players’ (De Angelis 2000: 52). New York’s hotel workers and the teamsters in Minneapolis also fought famous strikes. Wages rose despite mass unemployment. Average real earnings, which with the recession had fallen by 4 per cent from 1919 to 1933, rose by 27 per cent to 1941 (Census 1975). Federal stimulus programmes were passed but strongly contested. Spending increases were often undermined by cuts at state and local level. The Supreme Court ruled the National Recovery Administration unconstitutional in 1935, state minimum wage laws were also rejected and only a watered down Agricultural Adjustment Act was finally allowed to pass in 1938 (Allen 1968).The crisis did prompt much more rigorous financial regulation but little broader decommodification of the economy (Galbraith 1995, Konings 2010). Nevertheless, government intervention did rise, pushed into what had previously been considered illegitimate if not impossible responses.The free market was unable to deliver

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and state spending appeared to fill the breach. Its importance was confirmed when deficit reductions abruptly cut short the recovery in 1937. Increased workers’ consumption and state spending could prove functional for capital. In other countries, too, there were substantial state interventions. Spending was used directly as a demand stimulus quite early in France and Sweden (Gourevich 1989). Others followed, although Britain remained a substantial exception. It was relatively less badly affected, given the weakness of its economy in the 1920s, and successive governments clung to neo-classical advice to do nothing even as the depression deepened. The ‘Treasury View’ held firm until 1941, although coming off the gold standard allowed a little policy loosening. After 1933, Nazi Germany becomes a prime example of state-led growth.As Keynes’ notorious preface to the German edition of the General Theory makes clear, its ideas were ‘much more easily adapted to the condition of a totalitarian state’ (1973: xxvi). Keynesian policies were of a piece with nationalist strategies of competitive development. The drive to war finally saw common moves towards new investment and reemployment. There is a tendency to depict militarization as an exogenous explanation of recovery. In a sense this is true, the exigencies of war finally created the demand, which was not coming from within the market.They meant the abandonment of restrictive policies like the Treasury View in Britain and overcame capitalist opposition to state intervention within the US and elsewhere. Nevertheless, it can hardly be ‘exogenous’ to the economy and was only possible because of the nature of the crisis. Overproduction and overcapacity meant there was ‘slack’ that could be mobilized. In 1938, US unemployment was 17.2 per cent and industrial overcapacity around 28 per cent (Harman 1984). The state did not have to conjure resources from nothing. Economies were also already heavily ‘nationalized’, contained within borders, so that multiplier effects from state spending tended to stay ‘at home’.All this meant that state intervention was, at least relatively, politically acceptable.To capital, it was not ‘crowding out’ existing investment. For workers it was not, in aggregate, taking people out of existing jobs into the military. World War II dramatically increased government expenditure and economic oversight. Keynes became an influential government advisor in Britain but other countries adopted similar policies without much personal or theoretical Keynesian influence. The war itself was hugely destructive, especially in its appalling human cost. The USSR and the defeated countries, France, Germany and Japan suffered huge falls in GDP between 1939 and 1945. Conversely, the British economy grew by 16 per cent, the US by 90 per cent (Maddison 2003). The lead of US capital over its competitors was now greatly extended. The recession and war also had extremely uneven effects at an industry level. Huge amounts of old capital were wiped out but there was also massive investment and innovation in key industries, including aeronautics, and electrical machinery and equipment, steel, chemicals and heavy engineering (Brenner 2003, Panitch and Gindin 2012, Howard and King 2008). Even in Germany, investment more than compensated for destruction of capital stock, which grew 14 per cent between 1938 and 1945 (Brenner 1998). Industry in general, rather than service sectors, grew rapidly. US manufacturing

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employment in 1945, at 15.5 million, was higher in both absolute and relative terms than it had been in 1929 (Census 1975). All this would be an important legacy into the post-WWII period. The experiences of the inter-war period and further waves of militant class struggles as the war came to an end suggested reconstruction would face enormous difficulties (Armstrong et al. 1984). However, the strength of US capital compared to its rivals meant it remained at least moderately tolerant of organized labour and wage increases and of the welfare state. Its bigger immediate obstacle was the limit of the domestic market. This changed Capital’s attitude towards the international economy. Opening up the American economy remained a contested process, given the success achieved through protection over the previous hundred years, which several sectors wanted to maintain. Congress would reject proposals for an International Trade Organization. However, the international deal at Bretton Woods in 1944 allowed US capital movements, encouraged US exports and provided the stability on which capital accumulation could deepen at a global level.

The long boom The long post-WWII boom has been intensely debated. Labels like ‘Fordism’ and ‘Keynesianism’ are imperfect. The practices owed little to Ford and the policies seldom followed anything laid down in Keynes’ General Theory. However, the terms capture something of what was different. This would be a period of capitalintensive accumulation that allowed real wages in leading economies to rise significantly and which, tending to concentrate production geographically, was conducive to, and in part secured by, interventionist states. State intervention, and its broad acceptance by capital, in turn fed back and deepened strongly national forms of accumulation. The boom was interrupted, with mild recessions in particular countries at different times, notably in the US in 1957. It was always uneven, with the US and UK growing more slowly than other leading economies. With hindsight, the system was always unstable and the story of the end of the long boom and the demise of the Bretton Woods system are discussed in the next section. Capital deepening ultimately tended to undermine profit rates, pushed against the limits of national markets and, by producing distinct national systems of accumulation and growth rates, ultimately undermined the international fixed exchange rate regime. However, on a global scale, the boom lasted for more than a quarter of a century and achieved the strongest growth in world history. Accumulation during the long boom was predominantly capital-intensive. In the US, commitments to full employment as policy were formally rejected in the watered-down 1946 ‘Employment Act’. However, labour’s strength in the immediate post-war period, low unemployment and high wages, in practice proved an incentive to capital-intensive investment strategies.The amount of capital invested per worker doubled between 1949 and 1962 (McNally, 2011). Firms continued to grow. The revenues of the largest 200 US corporations rose from about 21 to 26 per cent of the total between 1950 and 1970 and their share of profits from about

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13 to 27 per cent (Foster and McChesney 2012).This was an organized rather than market-led capitalism primarily at the firm level, and the main source of productivity rises was innovation within plants rather than selection through market processes and the entry and departure of firms. Increasing productivity had the effect of increasing relative surplus value and there appeared to be a virtuous cycle of rising real wages and profits. The term ‘Fordism’ was used in this context by French Marxists of the Regulation School, prompted by Ford’s own early propagandist claim that workers could someday become consumers as well as makers of cars (Aglietta 1987, Boyer 1990). Production and consumption did now both rise. Institutional arrangements varied substantially across countries raising doubts about claims of a single model. In Europe, income levels were much lower and markets smaller, despite moves towards economic integration. Nevertheless, there was a common pattern of rising capital investment, rising productivity and rising income across much of the world. Even many poorer countries grew quickly. In contrast to the inter-war period, workers typically continued to win relatively high wage increases through bargains at firm, industry or national level. Labour’s subordination to capital remained very real. In the US, pay rises were conceded in return for commitments on productivity and renewed control of the shop floor. In Europe too, the bargain was expressed in the words of the Communist led CGT in France,‘Work hard first, then ask for concessions’ (Eichengreen 2007: 55). In the US, in particular, McIntyre and Hillard (2013) have shown that from soon after the war, capital employed strategies to undermine labour, notably in the Taft-Hartley anti-union legislation and McCarthyite witch-hunting. Even where firms avoided direct confrontation, union militancy and activism was undermined by bureaucratic forms, and union density began a long decline from 1949. New workers coming into the workforce in rising numbers tended to remain unorganized.The situation was more ambiguous in Europe, with many white-collar and public sector jobs becoming organized, but unions experienced some similar pressures of ‘hollowing out’ on the shop floor even while unions delivered wage gains. However, both in the US and Europe, high levels of employment meant the discipline of the sack was weak and wages were bid upwards. Substantial labour shortages encouraged immigration, which had fallen sharply in the inter-war period. More women also took paid jobs and, in the US and continental Europe, there were further shifts from agriculture (Armstrong et al. 1984). However, rapid rates of accumulation increased the demand for labour faster than the labour force grew. This tended to reinforce the upward pressure on wages and imperatives to economize on labour through capital deepening. This remained a primarily intensive form of accumulation also in the sense of being spatially and nationally concentrated. Qualitatively, imports could still be vital, perhaps most obviously in oil. Overall, trade rose only slowly in relation to GDP. Foreign direct investment (FDI) provided an alternative to trade but with the exception of extractive industries, when US corporations did invest abroad it was mainly directed towards rich European markets. Outward FDI stocks from leading countries in 1960 were still well below even 1938 levels (Dunn 2009). As

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corporations grew, they began to press against the limits of local markets.Trade and foreign investment levels, and pressure for further liberalization, increased. But this was growth from a low base. Accumulation during the boom deepened primarily within existing rich country locations. The war had greatly enhanced the level and respectability of centralized coordination. The economic failures of the pre-war period and post-war radicalization produced policy shifts in favour of more intervention. De Angelis sees Keynesianism functioning to ‘recuperate’‘widespread social antagonism from below and its transformation into an engine of growth and capitalist accumulation’ (2000: 3). Keynes has been so widely interpreted that the label ‘Keynesian’ becomes largely a matter of taste.The strongly anti-Keynesian character of German and Japanese growth will be discussed below but elsewhere too, for many commentators sympathetic to Keynes, the welfare state and a general encroachment of the government into economic life were not part of the programme (Hansen 1953, Tobin 1986, Peden 2006, Bateman 2006, Dostaler 2007). The biggest demand stimulus came from unprecedented peacetime levels of military spending where any positive economic impact was essentially unintended. Policies of demand management, which might plausibly be attributed to Keynes, competed with and were sometimes mixed with more radical plans for nationalization (Krippner 2011). However, the level of state intervention took another jump in its century-long upward trajectory and much of this, perhaps particularly the social and welfare programmes, might plausibly be considered under the rubric of ‘reasoned experiment within the framework of the existing social system’ (Keynes, cited in Dostaler 2007: 80). Even in relation to poorer countries, the International Financial Institutions, the IMF and World Bank, from the start dominated by US money and votes and which would later become so important in propagating a liberalizing agenda, at this time supported traderestricting, import-substituting strategies in many poorer countries. By the 1960s, the number of expropriations of foreign investments by poorer country governments started to increase rapidly and in 1974 the right of states to do so was overwhelmingly endorsed by the United Nations (Panitch and Gindin 2012). The boom has sometimes been interpreted as Keynesian in the sense of repressing finance or making finance the servant of the productive economy (Howard and King 2008, Dumenil and Levy 2011). However, amongst advanced economies, only in France were widespread commercial bank nationalizations achieved (Boyer 1986). US reform in the 1930s had indeed highly regulated finance but much of this was specifically regulation in favour of the financial sector. The 1933 Banking Act made it illegal to pay interest on demand deposits and (Regulation Q) set ceilings on the interest that could be paid on time and savings deposits. In practice this meant free or cheap loans for commercial banks. Consumers had few options but corporations could find other ways to earn higher interest. When, in 1959, the TBill rate rose above the interest rate ceilings, corporations withdrew funds to purchase government paper. Corporate bonds could also be sold at higher rates than could be earned from bank deposits.This soon led to a secondary market for certificates of deposit and the flight to higher interest rates and less regulated markets in

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London (Krippner 2011).These too were at least tolerated by US governments and directly encouraged by the British (Helleiner 1994, Strange 1986, 1998). The US financial sector grew faster than the overall economy and by the end of the 1960s was producing many of what would become important new products (Krippner 2011, Panitch and Gindin 2012). According to Konings, ‘[f]inancial relations penetrated into new areas of life and the financial entanglements and connections of the average American multiplied rapidly’ (Konings 2010:12). There was certainly no euthanasia of the rentier class. Investment decisions remained overwhelmingly private. Internationally, the US Treasury bond market provided an enduring foundation for the global financial system, while increasing quantities of dollars circulated outside the US (Panitch and Gindin 2012). What is clear is that this more statized form of capitalism coincided with a period of sustained growth and relative stability. It seems at least plausible to argue that patterns of intensive accumulation reducing intra-national inequality and increased state intervention proved mutually reinforcing. Productivity rises, increasing relative surplus value, seem to have been central to sustaining this, making possible the accommodation between capital and union leaderships. Real wages and profits could rise simultaneously with high levels of employment and growth. Rising real wages could be assimilated to accounts emphasizing the importance of effective demand. Hardly part of Keynes’ original vision, they made possible the social peace, which Keynes had largely assumed, and then could also underpin popular support for (something resembling) Keynesian ideas (Salant 1989). By the late 1960s, Samuelson could pronounce business cycles a thing of the past (McNally 2011) and even Marxist-influenced writers thought economic crises had been effectively displaced to the political level (Habermas 1976, O’Connor 1973). There was always huge unevenness, epitomized in the two most successful postwar economies, Japan and (West) Germany. The Japanese and German ‘models’ would later be supported as a gentler, more cooperative version of capitalism than their Anglo-American counterparts (Hutton 1995). It is therefore worth stressing that these ‘models’ were predicated on labour’s defeats, the rejection of Keynesianism and dependence on external markets. Two facets of the German model, or ‘Social Market Economy’, as it developed after 1945, seem particularly significant. The first is that the radical labour movement was annihilated. Hitler did a thorough job but the occupying powers and the new democratic German government then made sure the left stayed outlawed.The Communist Party was banned and remained banned.The anti-fascist committees and works committees that had sprung up at the war’s end were dissolved. In 1947, all strikes and demonstrations were outlawed. In the US zone, ringleaders were threatened with the death penalty. It was on the basis of this suppression of radicalism that the famous German industrial relations model, giving German unions ‘co-determination’ including seats on company boards was built. The official rationale of the time makes this clear. ‘Representatives of the workforce to be involved in factory level and national supervision of economic life in order to achieve the essential trust of all social strata’ (cited in Leaman 1988: 53).

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Conservative unions accepted the logic of company profits and productivity rises, prioritizing company and national economic growth, with pay rises only on the back of a successful capitalism. Second, German economic policy was radically anti-Keynesian. Again, the occupying powers and the new democratic German government wrote into the constitution that the elected government should not be allowed to interfere with monetary or fiscal policy, which should be left to an independent Bundesbank. By law, there would be ‘sound’ money and no significant budget deficits. Demand shortfalls would not be met by Keynesian mechanisms but by exports. On this basis, the German economy grew quickly and its exports quicker still. There are substantial similarities with Japan. After the initial encouragement of unions as a democratizing force, by 1947, the occupying powers and Japanese state turned to repression. Unions continued to fight, including bitter strikes at Toyota and Nissan in 1950 and 1953, but these were lost, militants victimized and a conservative company unionism established on the back of their defeat. Here too, there was carrot as well as stick with a system of industrial relations and company unionism, at least within many major firms, giving secure employment and ‘seniority’ pay to the ‘core’ (male) employees. At state level, ministers deemed too liberal were also purged by the occupying US authorities. Balanced budgets were required by law until 1966 (Hadley 1989, Hall 1989). Thus restrictive practices at home became the norm. A relatively low-wage strategy meant more could be invested, while a relatively meagre welfare state also encouraged high levels of workers’ savings, which could be channelled into investment. Demand problems could be met by exports. It worked spectacularly well and the Japanese economy grew nearly eightfold between 1950 and 1973 (Maddison 2003). Significantly, both Germany and Japan also had lower levels of military spending, allowing a higher proportion of their surpluses to be retained in productive civilian investment and put into research and development. A low consumption share of income did not create demand problems so long as foreigners bought the products. And because growth was so fast, even as wage growth lagged behind productivity growth, wages too grew quickly. The asymmetries of the post-war system, which initially allowed US surpluses to go unpunished, now allowed German and Japanese surpluses to grow. As will be seen below, because productivity growth was more rapid than in the US, this gradually undermined that exchange rate system, which had underpinned the US dominated post-war regime. Finally, in this section, the boom rested on the stability provided by the UScentred international monetary system agreed in 1944 at Bretton Woods.The deal has been seen as Keynesian and Keynes himself would endorse it in the British House of Lords as better than nothing. However, at the conference, as Pilling (1986b, ch.5: 7) writes: Keynes’ proposals were listened to with apparent respect but White’s [US] plan was the one adopted. Here was living refutation of Keynes’ notion that ideas were more powerful than vested interests.

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There is something Keynesian about the attempt to organize international finance but Bretton Woods was anti-Keynesian in at least two important respects. First, although capital controls were allowed, they were not mandatory. US officials immediately made clear that they had no intention of implementing them. Second, where Keynes had wanted to maintain trade balances though sanctions against both surplus and deficit countries, the deal penalized only those with deficits.This meant that deficit countries had to be more restrictive in their policies without any parallel obligation for more expansive policies from those with surpluses. Initially, it would be the US that ran surpluses but this would later be reversed with the rise of Germany and Japan. The key point here concerns the foreign exchange rate regime.This involved the US dollar being fixed against gold at $35 an ounce, and other currencies being pegged to the dollar.These peg values were adjustable, with the agreement of the IMF, but in practice remained remarkably stable.This appeared to overcome the problems of the two alternatives of the inter-war period.The gold standard had limited liquidity and at least exacerbated the harsh recessionary conditions in deficit countries like the UK. The floating currencies overcame this but only at the cost of competitive devaluations which, amongst other things, undermined international trade. Paper dollars could now circulate in quantities exceeding the monetary base but were still trusted because of their link to gold. Initially the US ran surpluses, for other countries there was a dollar scarcity, only partly overcome by Marshall Aid. However, by the end of the 1950s, a dollar glut was developing as the US state and American corporations spent dollars around the world, on aid, military interventions and foreign investment.The overall balance of payments deficit began to blow out from the early 1960s. The US trade balance remained positive until the 1970s and US capital remained the most productive in terms of output per hour but its lead was slipping and in price terms it was being overtaken. In particular, German and Japanese exports were gradually increasing and both countries began to run surpluses with the US. Now the fixed exchange rate system and its anti-Keynesian character becomes particularly important for the global system. It had initially been necessary for US capital to be able to run surpluses, without the sort of punishments that Keynes advocated. Now Germany and Japan could do the same. Germany agreed modest revaluations in 1961 and 1968 under US pressure but neither Germany nor Japan had much incentive to revalue their currencies to decrease their competitive position. Conversely, while other deficit countries could approach the IMF seeking devaluation, as Britain did in the early years and again in the 1960s, this was not possible for the US because the system was based on the gold-dollar link. Instead of gradual adjustments, asymmetries deepened and the dollar glut mushroomed.

The end of the boom and the crisis of the 1970s This section takes the economic history up to 1979. As will be shown in the next chapter, this was not the bottom of the crisis. But the ‘Volcker shock’, a shift to high-interest, anti-inflationary policy in America, and Thatcher’s election in

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Britain provide a reasonably clear boundary. Some of the tensions that developed within the international system were described above and these came to a head in the early 1970s with the demise of the Bretton Woods system and a sharp global recession in 1974. Once again, the history is well known. This crisis, unlike that of the 1930s, was substantially predicated on rising capital compositions and falling rates of profit within leading countries. Accumulation was also highly uneven on both an international and sectoral basis and that produced a growing divergence in economic growth rates and systematic global imbalances. This unevenness also provides the basis for understanding the ‘oil shock’; a politically motivated intervention but one that could only be effective in the context of rapid growth, demand inelasticity and previously low investment in the industry. Finally, the inflationary character of the period has to be understood as primarily a strategic response to heightened class struggle. However, inflation also had the effect of redistributing wealth away from financial interests, which, as will be discussed in the next chapter, were themselves growing, partly as a consequence of declining profitability in the productive economy. This increased resistance to inflation. As above, the boom was based on capital-intensive forms of accumulation. Rates of gross fixed capital formation (GFCF) increased. At a global level, they edged up steadily from 21.0 per cent in 1960 to 24.2 per cent in 1973 (World Bank 2013). During the boom, increased investment produced productivity gains, sufficient to allow both profits and real incomes to rise.The cheapening of consumption goods has been seen as an important element of Fordism and the unusually long maintenance of the rate of profit (Aglietta 1987). By the early 1970s, productivity gains proved harder to sustain. Exactly why remains controversial. Some important mainstream accounts posit productivity as the independent variable; the electromechanical paradigm ran out of steam (Atkinson 2006). However, consumer goods’ prices still fell relative to the average while the productivity gains levelled off in different countries at much the same time, despite very different absolute (technical) levels (Armstrong et al. 1984). It is hard to evaluate its relative importance but one effect of increasing productivity was to diminish the share of manufactured goods in workers’ consumption. Other consumption goods, most obviously in housing construction and across a range of service sectors, were resistant to mass production and did not achieve the same price reductions. A revival of labour militancy, supported by low rates of unemployment, also probably increased resistance to productivity-raising measures on the shop-floor.What is clearer is that, through this militancy, workers were able to sustain pay rises, at rates broadly in line with the earlier period, despite the decline in productivity improvements.This now ate into profits.Therefore capital compositions rose and rates of profit fell in most leading economies. In the short-term, corporations responded by increasing investment, the same labour-displacing strategy made even more sense. The pace of accumulation hit new highs. Business borrowing increased sharply as a proportion of fixed assets, particularly in the US (Armstrong et al. 1984, McNally 2011). Stock markets boomed.

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The rise in capital composition was also very uneven across countries and industries. In 1973, the US level of GFCF was 19.6 per cent, whereas in Germany and Japan the figures were 25.9 and 36.6 per cent respectively. At this time, the overwhelming majority of capital formation occurred within established high-income countries but there were also steep rises in a few developing ones. Korean GFCF averaged 13.2 per cent in the first half of the 1960s, up to 24.2 per cent in the first half of the 1970s (WB 2013). Sectoral data are not available at a global level, but the US figures show the marked divergence between manufacturing, where the stock of fixed assets grew by 59 per cent over the course of the 1960s, and agriculture and mining where they grew by only 34 and 29 per cent respectively.The figure in transport was just 1 per cent, in finance and insurance 121 per cent (Census 2012).These differences had important consequences. Increases in relative productivity, especially in Japan and Germany, undermined US Capital’s competitive position and thence the Bretton Woods fixed exchange rate regime. From the early 1960s, the US ran balance of payments deficits and the balance of trade also turned negative in the early 1970s. The number of dollars outside the US increased, to about 70 billion, with roughly $50 billion in the hands of central banks and foreign governments. US gold reserves had halved from $25 billion in 1950 (Allen 2005). Under threat, particularly from France, of demanding gold for its dollars, Nixon suspended convertibility in 1971, and after two years of attempts to cobble together an alternative arrangement, the Bretton Woods system was abandoned.The value of the dollar fell. Already before 1971, inflation had been creeping up. Firms were able to pass on at least some of their rising costs and US government policy was tolerant of this. Government spending increased both with the war in Vietnam and on social programmes at home. Looser monetary policy helped to pay for this. Because of the dollar’s role in the international system, this spread inflationary tendencies. Inflation was limited by the gold link but already the market price of gold began to rise above $35 an ounce.There was a growing lack of trust in the dollar’s value. Once the gold-dollar link was broken, governments could inflate away labour’s gains and their own increasing debts. As Krippner argues, ‘inflation could serve as a solvent for social conflict, avoiding more direct forms of confrontation between social groups and also making it difficult to determine who was ahead and who was behind at any given point in time’ (2011: 17). The boom looked increasingly unsustainable.The oil shock of 1973 would then catalyse the crisis.The oil shock had avowedly political causes but it too was made possible by the existing dislocations in the global economy.The falling dollar after 1971 had also reduced the real price of oil, partly precipitating OPECs reaction (McNally 2011) but in the wake of the Yom Kippur War even loyal US allies like Saudi Arabia joined more radical Arab states in restricting output. Prices went from $3 to $12 a barrel (Allen 2005). The ability to produce such sharp price rises however depended on the inelasticity of demand, fuelled by the rapid accumulation in other sectors and their dependency on oil. Relative shortages were also the product of lack of investment and therefore slow productivity growth in primary

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sectors over the previous period. Notably, the early 1970s also saw substantial rises in other raw materials and food prices. Again, in part these can be attributed to accidental factors, including poor harvests, but reflected a general lack of investment (Armstrong et al. 1984). It is also notable that the US had been 90 per cent self-sufficient in oil until 1970 and was much less reliant on oil imports than competitors like Japan (Gowan 2000). US oil corporations were also discouraged from local production by a two-tier pricing system, with pre-1972 oil wells obliged to sell at a fixed maximum price of $4.35 a barrel. Predictably, companies ran such wells more lightly than new supplies and profitable OPEC imports. Price rises were now amplified by speculation and bolstered by fears of resource depletion, including claims by BP that demand would outstrip supply by 1978 (Armstrong et al. 1984: 312). Increased fuel costs had important repercussions but they were not the major cause of inflation, for which they are often held responsible.Three-quarters of the inflation of 1973 had occurred before the oil price rises. Galbraith (1995) argues that in the short run, the oil shock took money out of the importing economies and had deflationary consequences. Growth soon fell. Globally, GDP rose at 6.6 per cent in 1973 but just 1.8 per cent in 1974 and 0.9 per cent in 1975.The US figures were 5.9, –0.5 and –0.2 per cent respectively (World Bank 2013). US unemployment rates nearly doubled. Once the crisis bit, the central banks stepped in as lenders of last resort to rescue failing banks and to keep the financial system afloat (Panitch and Gindin 2012). Inflation was allowed to escalate. Wage demands and corporate and government debts could be inflated away. Conversely, creditors lost. Stock and bond prices began to fall in real terms and this soon undermined confidence inducing further price falls. Limits on bank interest rates meant that deposits lost value.This encouraged corporate investors to seek higher returns from new products which escaped legislation but as productive economy firms became less willing to invest, and increased their savings rather than their debts, so opposition to inflation grew.

Conclusion The mid-twentieth century brought remarkable changes. Capitalism’s phenomenal growth was achieved despite incredible unevenness over time and across space. Capitalism went into, but recovered from, its deepest depression. It brought increasing numbers of the world’s population under its imperatives even as it widened international inequalities. Labour-intensive forms of accumulation dominated in the 1920s, leading to widening intra-national inequalities and these contributed to increased financialization, debt and the crash. Extending the same strategies deepened the Great Depression and recovery was only eventually achieved on the basis of alternative forms of capital accumulation involving increased capital spending and consumption levels.After WWII, more capital-intensive forms of accumulation dominated. The long boom was a period of unequalled capitalist prosperity and apparently successful national systems of accumulation. Real wages rose and intranational inequality declined. However, it eventually ran up against the limits of

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accumulation within countries, particularly with rising capital compositions and the failure to continue increasing relative surplus value at the same pace, which meant rates of profit fell. International differences widened and produced growing trade and financial imbalances, which undermined the inflexible international financial regime.The crisis of the 1970s would shift Capital’s priorities to weakening labour and reducing investment in established sites.

8 GLOBAL RESTRUCTURING Extensive accumulation and financialization

Introduction This chapter takes up the story from the 1970s and provides the background to the next chapter’s discussion of the Crisis. It begins by presenting evidence of economic growth in this and the preceding period. Systemically, there were clear cycles, with a downturn in the 1970s and 1980s followed by recovery. However, accumulation now had a different character. The previous chapter described how rising capital composition and increasing wages came to a head in the crisis of the 1970s. This chapter shows how accumulation became more extensive than intensive. Declining rates of investment in existing locations within rich countries were only partly compensated by the rise of investment in lower-income countries, particularly in Asia. Labour suffered defeats and the wages’ shares of income fell. The chapter then argues that Capital’s reorientation underpinned three interlinked processes; liberalizing state policies, spatial reorganization and the development of global imbalances and, finally, financialization.

A new phase of uneven growth This section presents evidence of GDP growth rates for 104 countries, which between them include the overwhelming majority of the world’s population and wealth. National data can be misleading but they provide a reasonable indication of where growth occurred and its overall levels. Figure 8.1 shows the annual GDP growth rate between 1951 and 2011.There is almost no overall trend.This is clear from visual inspection and statistically. The calculated value of R2, measuring the closeness of fit of the linear trend line, is only 0.09.This should not be surprising. These were turbulent times. Numerous authors from different traditions have identified distinct phases or stages of capitalism and there is something close to a

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consensus that there was a significant crisis in the 1970s.There is much less agreement about the subsequent period. Many Marxists have seen it as one of persistently low growth and profit rates (Brenner 1998, Harvey 2003, Harman 2009) while for others it has involved strong recovery and even a ‘second golden age’ (Panitch and Gindin 2012: 16, see also McNally 2011). Until 2008, mainstream accounts usually identified market-based stability and success, albeit in ‘great moderation’. One simple empirical technique identifies peaks and troughs statistically by imposing higher order polynomial trend lines onto the data as in Figure 8.1. Increasing the level of the polynomial, by definition, increases the ‘fit’ and the value of R2. Here, even the sixth order polynomial shows only a modest level of 0.31 but the curve does now quite clearly depict a pattern of strong growth in the 1950s and 1960s, peaking in 1966, declining growth to the late 1980s, followed by quite strong recovery, peaking shortly before the 2008 crash.This evidence matches familiar narratives of structural reform reasonably well, although it suggests a longer crisis and later recovery than is sometimes implied. 8 7 6 5 4 3 2 1

1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011



Global growth, 1951–2011.

Source: Calculated from CBTED (2012).The Conference Board Total Economy Database™.

Figure 8.2(a) shows the striking contrast between the growth of 26 high-income countries and 16 poorer countries in Asia (including the ‘Tigers’, Korea, Taiwan, Hong Kong and Singapore, but excluding Japan). Until the 1970s, the growth of the high-income group closely resembles the world figures. However, there is a marked decline and strikingly slower growth from the 1980s.The upward trend for the Asian countries is almost equally clear. The near mirror-image of the growth rates produced by higher order polynomials for the two sets of countries is particularly striking.The rich-country share of global growth collapsed from 57 per cent in the 1980s to 50 per cent in the 1990s to just 17 per cent in the 2000s. Asia’s share rose from 32 to 43 to 62 per cent. China’s share of growth alone rose from 12 to 19 to 38 per cent (calculated from CBTED 2012).

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12 10 8 High income 6 Asia (excluding Japan)


0 –2

1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011


–4 –6


10 Eastern Europe 5



















Latin America and Caribbean Middle East





(a) Growth in 24 high-income and 16 poorer Asian economies, 1951–2011; (b) Growth in other poorer country regions, 1951–2011.

Source: Calculated from CBTED (2012) The Conference Board Total Economy Database™.

Other poorer regions grew more slowly. Figure 8.2(b) shows growth in Latin America,Africa, the Middle East and Eastern Europe and the former USSR.These varied considerably in their absolute levels, with the downturn particularly murderous in the former USSR, but the periods of boom, slump and recovery in each case broadly resemble the world figures. Overall, the figures indicate a return to strong growth until the 2008 crisis.

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A shift from intensive to extensive accumulation The experiences in high-income countries challenge the more optimistic literature of the 1990s and 2000s about the ‘new economy’. Mainstream accounts typically predicted a rosy future. For example, Greenspan described a virtuous cycle of productivity rises boosting profits, equity values and thence productivity enhancing capital investment (Brenner 2003). Many others, often at least influenced by Marxism, also described how technological innovations, especially in computing and communications technologies, produced rises in productivity, economic success and (in some accounts) enabled a return to the market and a retreat of the state (Castells 2000, Howard and King 2008, Dumenil and Levy 2004, Maddison 2007). Many familiar features of the economy in the late twentieth and early twenty-first centuries indeed depend on some remarkable innovations in computing and communications. This is perhaps most obvious in finance but is also important in goods trade, in new production systems and their management and across a range of highly visible consumer products. Productivity growth in some sectors of the US economy, particularly in information and communications technology (ICT), was rapid (Henwood 2003). However, the trends in investment and productivity growth were clearly downwards. Figure 8.3 shows the levels of gross capital formation on machinery and equipment in the five largest high-income economies.The pattern is uneven, with significant rises in Japan and Germany until the 1980s. Rates also edged upwards in the US and UK in the 1990s high-tech boom (Dumenil and Levy 2011). However, in all five countries, the trend clearly turns downward. Moreover, the ICT boom contributed little to overall productivity growth and where high profits were achieved they did not translate into an investment boom (Henwood 2003, Nesvetailova 2007, Stockhammer 2011). Rather than capital deepening, the period involved a significant shift to strategies of more extensive growth and of more exploitation. The background to this shift was described in the previous chapter. By the 1970s, rising investment and capital composition in rich countries, compounded by rising wages, ate into profit levels. The subsequent period was dominated by attempts to restore profitability and a reluctance to invest. Harvey characterizes the shift as one to accumulation by dispossession, a grabbing of new sources of previously uncommodified value. Harvey (2003) and others (Dumenil and Levy 2011, Stockhammer 2011) also refer to a ‘restoration of capitalist class power’. These formulations risk exaggerating. Capitalism’s extension into new areas was important but the primary driver of growth remained capital accumulation, albeit now in different form. Again, while capital won substantial victories over labour, there had been no previous surrender of power. To describe the reorientation here as a new extensive ‘strategy’ is also shorthand. Many capitalists undoubtedly deliberately reoriented. Business roundtables, employers’ federations and supportive governments pushed proposals both against labour and to reorganize across sectors and borders but much of the change was unplanned. An environment of overcapacity and high wages made capitalists reluctant to invest and keen to cut pay. There were also important feedback

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Japan Germany

6 United Kingdom United States


France 2



















G5 gross capital formation on machinery and equipment as percentage of GDP.

Source: OECD (2011d; available from

mechanisms, through which low investment and low pay limited final demand and maintained overcapacity. Even as profit rates recovered, rates of capital formation fell. The wages story is familiar and particularly clear in the US. Greenspan acknowledges that productivity generally parallels compensation but that it ‘has veered off course for reasons I am not clear about’ (cited in Livingston 2010: 43). Wage ‘disbursements’ as a proportion of US GDP fell from 53 to 46 per cent of the total between 1970 and 2005 (Foster and McChesney 2012). Real earnings only crept up after 1973, while the annual average hours worked increased and the labour force participation rate went from 61 to 66 per cent (Mishel et al. 2007). The changes were highly gendered, so real male earnings and participation rates fell, while those for women increased. Average wages also incorporate spiralling executive salaries, better seen as deductions from profits. McNally’s (2011) figures indicate that from 1973 to 2002 the top 1 per cent’s income rose by 101 per cent and the top 0.1 per cent by 227 per cent. By 2006, the top 1 per cent had finally regained the share of national income achieved in 1929 (Wade 2009). Income inequality increased, if usually less dramatically than in the US, in most other high-income countries. The high point of the wages’ share of income was also typically reached a little later than in the US and in many countries labour organization and militancy continued to rise well into the 1970s. In general, however, by the mid-1970s or early 1980s the return of high unemployment disciplined labour while various mixes of cooperation with union leaderships and open

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confrontation presaged a long period of relative wage decline (see e.g. Glyn 2008, IMF 2008, 2012a). One significant contrast with the US is that average hours worked declined in Europe and Japan and, with higher unemployment more than off-setting increases in women’s entry to the labour market, total employment rates fell (Mishel et al. 2007). In many poorer countries too, notably in China, there were big rises in inequality and substantial falls in the consumption share of national income (Heston et al. 2006). All this meant increased exploitation and it restored profit rates to historically high levels, if not quite to those of the height of the long post-war boom. However, the falling wage shares of national income restricted final demand and militated against productive investment. Marx describes how capital ‘wends its way’ to wherever profits are high but implies this can be a prolonged and obstructed process. Capital (im)mobility is both a spatial and sectoral affair.The crisis of the 1970s made capital particularly unwilling to invest in manufacturing, now characterized by chronic overcapacity. Within the overall fall in GFCF, the share going to manufacturing also dropped: in the US from an average of 13.2 per cent in the 1970s to 9.1 per cent in the 2000s. Real investment growth in manufacturing structures fell from the early 1950s, effectively reaching zero by the mid-1980s (Foster and McChesney 2012).Together, the share of investment taken by manufacturing, agriculture, utilities, construction and transport and communications, fell from 37.8 to 27.4 per cent from the 1970s to 2000s while the share going to Finance, Insurance and Real Estate (FIRE) rose from 33.9 to 42.1 per cent (OECD 2012). It was easier to move money into finance and safer to do so than to commit to long-term investments in an uncertain productive economy. Nonfinancial firms tended to withdraw capital from investments in plant and equipment to more liquid assets (Krippner 2011). The institutional structures of finance and the support they received then proved able to sustain higher than average profits. The final section, below, will return to financialization but this is connected to declining productive investment and its geographical reorganization. Figure 8.4 shows the global decline in GFCF, particularly steep in rich countries, and the variation between major poorer-country regions.These figures underestimate the real fall in productive economy investment because they include activities like house building, which are better conceived as producing consumption goods. Housing booms in many countries inflate the figures, particularly in the later periods.The slow, uneven global decline contrasts with the steep, if even more volatile rises in Asia. However, in contrast to the figures for GDP growth above, Figure 8.4 indicates the enduring closeness of the trajectories for the world and the high-income countries’ GFCF. Most investment remained in rich countries and international inequalities remained huge. High-income countries’ share of the total GFCF fell but only from 80 to 75 per cent between the 1970s and 2000s. The Asian share jumped from just 3 per cent to 14 per cent.There was a real upturn in other poorer regions in the early 2000s but as these figures imply, across the entire period, their share of global investment declined. The contrast with the growth shares discussed above reflects the relatively less capital-intensive growth in poorer countries.

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35 World 30 High income 25



Latin America and Caribbean Sub-Saharan Africa






















Gross fixed capital formation as a proportion of GDP, by region, 1960–2011.

Source: Calculated from World Bank (2013).

Wage differentials encouraged strategies to increase surplus value ‘absolutely’ rather than ‘relatively’ and much of the new capital being formed in poorer countries was considerably less efficient in terms of output per hour than existing capital in rich countries. New investment could therefore have the perverse effect of tending to lower productivity. It would be useful to develop figures for global rates of productivity growth. Unfortunately, these are not available. However, a telling (if probably exaggerated) illustration can be gleaned by comparing and combining the US and China figures (see Figure 8.5).The most remarkable change in this period is the vast expansion of the industrial working class in China, up from 35 to 211 million between 1970 and 2008 but changes in productivity are also striking. Output per worker increased significantly in both countries. Productivity nearly doubled in the US and rose by a factor of eight in China but taking both countries together, it fell steeply to the 1990s. Productivity then rose but without recovering the ground lost. It is also important to stress that this was not a ‘race-to-the base’. First, it was not the poorest countries or lowest wage locations that attracted most investment or grew fastest. Most of the investment went to other rich countries. Second, Capital’s reorganization involved a combination of relocation by existing corporations and the emergence of new centres of accumulation. Foreign investment contributed to declining rates of capital investment in rich countries and growth in some (formerly) poorer parts of the world but in simple numerical terms its impact was

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16000 14000










China (right hand axis) China and US (right hand axis)



























US (left hand axis)

Industrial value added per worker, US and China, 1970–2008 ($US).

Source: Calculated from World Bank (2013), ILO (2011), China Statistical Yearbook (2010).

quite small.There were net outflows from high-income countries, particularly from the 1980s, but these represented only a small proportion of home country GDP, less than 1 per cent a year on average except for France and the UK, and nowhere equivalent to the decline in domestic capital formation (UNCTAD 2007). Conversely, for most recipient countries, FDI contributed only marginally to growth. In China, net inflows, including Chinese investment recycled through Hong Kong, amounted to about 3 per cent of GDP in a couple of years in the mid-1990s but both prior to the 1990s, and since 2000, they have more typically been around 1 per cent. FDI data can also be misleading. It often recorded changes of ownership titles rather than changes to the productive economy and figures could include a large proportion of indigenous capital repatriated from offshore accounts (Nesvetailova 2007). Only a small proportion was in manufacturing; so for the US, only 5 per cent of all outward FDI was in manufacturing in developing countries (UNCTAD 2007). In most poor countries, increased rates of investment depended crucially on domestic surpluses and domestic exploitation. Third, claims of a ‘race-to-the-base’ grossly underestimate the enduring disparities in income levels. Off-shoring production and increased trade did put downward pressure on wages in high-income countries. Corporate divide-andrule between workers in different locations was effective but the rhetoric typically preceded and exceeded the reality. Many sectors were not, or were only much less directly, exposed to foreign competition and workers in such industries showed little evidence of experiencing significantly better outcomes, suggesting other causes of declining wages and organization (Kelly 1998, Dunn 2004a). Much turned on enduring international inequality. Crucially, despite falling relative wages, rich countries’ final demand remained vital from the perspective of poorer country producers.

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World trade increased nearly six-fold between 1973 and 2003, rising from 11 to 19 per cent of GDP (calculated from WTO 2009, CBTED 2012). The changing regional composition is particularly revealing. The decline in the rich-country export share is very marked, from 72.5 per cent of the total in 1990 to 64.9 per cent in 2000 to 53.0 in 2010.There was a particularly steep fall of intra-rich country trade in the 2000s. Exports from and between developing countries rose accordingly. Denser trading networks amongst poorer Asian countries still often led to final markets in, and trade surpluses with, the rich countries. Thus the overall trade surplus for the Asian developing economies with developed economies continued to rise from 3.2 to 3.4 per cent of the value of world trade between 2000 and 2007 (Comtrade various years). This seems crucial to understanding an apparent paradox. At the beginning of the 1980s, richer countries tended to have higher levels of GFCF, as might be expected. Countries with higher levels of GFCF tended to grow more quickly. Capital formation is a crucial driver of growth. This would anticipate a process whereby rich countries continued to become relatively richer – broadly the experience detailed in the previous chapter, particularly in the 1950s and 1960s. However, after 1970, this went into reverse. Poorer countries now tended to grow more quickly than high-income ones.These three relations can be explained but, as might be expected, they point to developing tensions. The story of China’s growth is familiar, but the change is not reducible to this and an unweighted sample of the 100 largest economies shows apparently significant negative associations between GDP per capita and subsequent wealth and between initial levels of GFCF and subsequent changes in the levels of GFCF. This was a very uneven process with huge enduringly huge inequalities. Many of the poorest continued to lag behind. Strong growth in Asia in the 1980s and 1990s contrasted sharply with experiences in Latin America, Africa and Eastern Europe. Nevertheless, the overall picture and the contrast with the experiences of the previous decades, even the previous 150 years, are striking (see Bourguignon and Morrison 2002, Maddison 2003). Perhaps this qualifies as ‘globalization’ – a term that captures something of the geographical spread of capitalism but not why the changes occurred. Nor does it help explain how this was an intrinsically contradictory process.

Capital restructuring and state reorientation The changed character of capital accumulation underpins changes in state policies, the development of global integration, global imbalances and financialization. It is misleading to see these as ‘mistakes’, however much they may have proved counterproductive for particular national economies in the long run. Of course, there were two-way processes but ‘liberalizing’ policy changes were driven by the interests of capital in leading countries and changes in the character of capital accumulation were more cause than consequence of the ‘neo-liberal’ period.This section considers the policy reorientation within leading economies, particularly the US, changes in international relations and the changes introduced in many poorer countries.

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The previous chapter argued that the high inflation of the 1970s was more a method of diffusing class struggle and undermining wage gains than a failure of Keynesian strategy. For capital it came at a cost, particularly undermining existing stores of value. High inflation is far from a universal evil. Tending to wipe out debts, it benefits borrowers but is anathema to lenders. As the crisis of the 1970s proceeded, it lowered returns, increased risk and precipitated overcapacity. This had the effect of making capital more reluctant to invest in existing lines of business. Productive economy firms were themselves already by the 1970s becoming more financialized and vulnerable to inflation. This provides the background to the anti-inflationary turn and to policies that re-regulated in favour of increased capital mobility, both domestically and internationally (Stockhammer 2011). The US ‘big bang’ had abandoned fixed commissions in the stock market in 1975 but regulatory reform was subsequently largely an incremental affair. Many of the inter-war restrictions were undermined in practice, becoming less ‘well defined’ and institutional borders ‘fading’ prior to their formal abolition (Henwood 1998: 56). Krippner sees reform’s primary purpose being ‘to allow credit to flow freely across sectors’ (2011: 22). As discussed above, productive capital was decreasingly willing to undertake new investment within home territories and increasingly sought alternatives in finance, Mergers and Acquisitions and abroad.The UK had already formally abandoned Keynesianism in the mid-1970s, at IMF bidding, but by the late 1970s US President Carter also abandoned ideas of demand management. The key change came with the new Chair of the Federal Reserve and the ‘Volcker Shock’ of 1979. Formally, monetarism remained policy between 1979 and 1982 and was then quietly abandoned. The practice always had more to do with ramping up interest rates than actually being able to measure accurately, let alone control, the supply of money.Three policy objectives seem crucial. First, high interest rates protected financial assets from inflation. Real interest rates shot up from –2 per cent in 1979 to an average of 7.5 per cent between 1981 and 1985 (Brenner 2003). Capital expenditures became even harder to justify drawing more economic activity towards finance (Krippner 2011). Any opposition from industrial capital was muted. Firms were themselves becoming financialized and Panitch and Gindin argue that ‘[i]n accepting the need to give priority to fighting inflation, industrial capital accepted that a finance-led accumulation strategy was in its interests too’ (2012: 159). Second, this induced a sharp recession, raised unemployment and weakened labour. Volcker was always clear in his objectives, insisting ‘[t]he American standard of living must decline’ (cited in McNally 2011: 25). Third, as will be discussed below, the Volcker shock reasserted the dollar as an international currency, threatened since the collapse of the post-war regime. Notably, 1979 was the same year that Europeans started monetary coordination. Volcker re-asserted the dollar’s primacy and it would remain key to international trade – so the US could sell and buy using its own currency, which other countries would be willing to hold as reserves and then lend back to the US.The level of dollars held as foreign reserves rose exponentially to 2.7 trillion by 2008 (Cofer 2012). The Bretton

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Woods system would be replaced with what has been called ‘Bretton Woods II’ (Dooley et al. 2013) or a ‘US Treasury Bill Standard’ (Hudson 2003). Corporate pressure increased on states to lower barriers to international trade and capital mobility. This was partly an accentuation of a long-term process whereby increasing corporate size ran up against the limits of national markets (Harman 1991). By the 1960s, American capital was increasingly sending money into less regulated Eurodollar markets. Some controls were implemented to limit this from the mid-1960s but these were lifted in 1974. Then in 1979, Thatcher’s first act as British prime minister was to do the same. Japan followed in 1980. Helleiner (1994) describes a process of ‘competitive deregulation’, whereby increasing pressure developed to follow suit. Once leading countries and financial centres had abolished controls it became harder for others to attract investors. The free-trade agenda was more faltering and piecemeal. The response to the crisis of the 1930s had been a retreat from openness. There was an economic rationale for closure as a defence of ‘national interests’ and for American firms it deepened already existing interventionist practices by which the US had become the leading capitalist economy. At the same time, there is an important sense in which closure represented a defeat for capital and victory for labour in leading capitalist countries (Stolper and Samuelson 1941, Rogowski 1989). It was an experience capital did not want (and labour was unable) to repeat. However, liberalization was limited, even as formal barriers were abolished – persistent agricultural subsidies are the classic example. International negotiations dragged on until the foundation of the WTO was finally agreed in 1993. However, the WTO and numerous regional, multilateral and bilateral pacts did reduce barriers, and trade increased. Corporations were also able to win a reconception of trade as incorporating investment with WTO rulings that firms could now expand unhindered into foreign markets. Poorer countries did negotiate some opt-outs but foreign investment became easier and levels of interdependence jumped. The combination of domestic reform and the removal of barriers to trade and international capital movements went furthest within Europe. As discussed in the previous chapter, throughout the Bretton Woods period, Japan and Germany had adopted strict, anti-Keynesian, domestic policies, with demand shortfalls met by exports.The fixed exchange rate regime had facilitated this. As relative productivity improved, Japanese and German exporters could capture increasing shares of US markets. Flexible exchange rates threatened to undermine the gains and required interventionist policy to keep the currencies low.The German experience provides the vital background to European monetary cooperation and the extension of a similar anti-Keynesian model across Europe. Fixing exchange rates, relatively loosely from 1979 and in the adoption of the Euro from 2001, eliminated the threat of currency competition within Europe. It required coordinated monetary policy because significantly higher interest or inflation rates in any one place would have seen money disappearing across borders. The strategy adopted essentially copied the earlier German policy but this now limited ‘domestic’ markets across a much wider area and locked-in asymmetries within the European system.

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Cost-cutting could not be achieved by devaluation with the European Monetary System or Eurozone and wage repression became the obvious alternative. Germany achieved this in the 2000s and so maintained surpluses with its European partners. If Europe as a whole was in rough balance, the corollary was that Germany’s partners had rising deficits. The most notorious liberalizing transformation involved the opening of poorer countries or ‘emerging markets’ as they were often now rebranded. By the 2000s, almost all countries had signed up to the WTO and the neo-liberal agenda. This was primarily a class victory – elites in even the poorest countries were typically at least willing accomplices – but it was pushed by leading capitalist powers, particularly the US. Crucial here was the debt crisis of the early 1980s, and its resolution through the ‘Washington Consensus’ (a liberalizing consensus shared by the US state department, the IMF and World Bank). Many countries, particularly in Latin America, had run up large debts in the 1970s, able to borrow at very low interest rates from commercial banks keen to re-cycle their ‘petro-dollars’, in turn acquired from oil-rich exporters. The Volcker Shock raised global interest rates, more for higher-risk developing countries than for secure US Treasury Bills, while the accompanying recession in rich countries also undermined the markets from which poorer country exporters got the cash to repay their debts. Beginning with Mexico’s default in 1982, this threatened a crisis not just for the countries concerned but for the western banking system. The eventual resolution involved the US Treasury underwriting the debts in return for some bank write-offs but with indebted states undertaking IMF-sponsored Structural Adjustment Programmes.Williamson (2004) details ten points which underpinned these policies but broadly they opened the countries to international trade and investment, involved privatization and tax cuts, reduced state social spending and often devalued currencies to increase export competitiveness. The export-oriented industrialization of the Asian ‘Tigers’ was held out as a model for others to follow (World Bank 1993). In fact, Korea and Taiwan, in particular, had adopted state-led rather than laissez-faire industrialization strategies (Amsden 1989, Wade 1990). However, taking their experience as a ‘model’ introduced new problems. The exports of a few small economies had little impact on world markets but generalizing this involved a fallacy of composition. At least potentially, increased output and export competition could drive down prices making the strategy self-defeating (Samuelson 2004). Moreover, an exportorientation aimed at repaying debts required persistent surpluses. This was quite unlike the practices of the Tigers.The Asian financial crisis of 1997 deepened the process. Again it was resolved through structural adjustment. It also deepened imperatives for states to build up foreign currency – especially dollar – reserves to see off speculators.That too required trade surpluses.The 1997 crisis also revealed a significant asymmetry in that pegging currencies to the dollar proved hard on the ‘up side’. Countries had limited supplies of dollars, and interest rate rises to preserve exchange rates and attract more dollars were damaging to local investment. Keeping domestic currencies low is much easier: there is a potentially unlimited

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supply of local currency and low interest rates are less painful.These systemic asymmetries favoured a downward bias in currency values, an export-orientation and lower prices. Most notably, food prices fell by three-quarters in real terms between 1974 and 2001 (Economist 2007g). Falling prices were both the cause and effect of the falling share of food in household consumption spending, from 30 to just 10 per cent in America and Europe according to one estimate (Economist 2008e). Similarly, after the spikes of the 1970s, oil and other fuel prices dropped and investment in these industries fell.This matched classic dependency theory predictions of declining raw materials prices and low investment (Singer 1950). But increased competition now meant the phenomenon was no longer confined to primary products and many industrial exporters also experienced deteriorating terms of trade. For the two major developing country import markets of the US – China and Mexico – the terms of trade fell by 22 and 68 per cent respectively between 1980 and 2004. Korea’s terms of trade fell by a quarter over the same period. This meant cheap imports for rich countries, reducing inflationary and wage pressures, and facilitated the low interest rate policies, which in turn fuelled debt and speculation. These policy changes improved capital mobility and favoured finance and export industries.They were in this sense liberalizing.They did not amount to ‘state retreat’. First, the agenda was pushed by the US and its allies and the agencies they dominated, as the language of the ‘Washington Consensus’ makes clear. Enduring state capacity is most obvious in US military capabilities but, as will be discussed below, the role of the dollar gave America advantages, which Hudson (2003) sees as amounting to a new ‘Super Imperialism’.This is not to imply the US got everything it wanted.There were processes of negotiation and competition with its allies but much of this was played out at explicitly inter-state level, at the meetings of the G3, G5, G7 and latterly G20 as well as those of the IMF,World Bank and WTO. Second, within high-income countries, levels of state spending, even social spending, continued to rise (Glyn 2006). Net government debt in the US peaked in 1993 at 53 per cent of GDP but in Japan, Germany and France it continued to rise, even before the crisis. Even Anglo-American capitalism did not return to the Treasury View and the commitment to balanced budgets, at least until after the 2008 crash. In no leading economy were deficits as low in 2007 as they had been in 1980 (IMF 2013). In sheer quantitative terms, states remained deeply implicated in the organization of capitalism. Third, important qualitative shifts had more to do with policy decisions attempting to ‘lock-in’ anti-labour outcomes, notably in EU rules and in the adjustment programmes of the IMF than with freeing markets or state withdrawal. States, from the start, were deeply implicated in the anti-labour strategies.The very fact of wave after wave of anti-labour legislation would appear to confirm that mere economic compulsion was not sufficiently disciplining. Fourth, it is also clear that pro-capital reforms did not necessarily mean state retreat in poorer countries, the declared intentions of Structural Adjustment Programmes notwithstanding.The ‘lost decade’ of the 1980s did see sharp declines

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in state spending (and of welfare and growth) in many countries in Latin America and Africa. However, state investment increased again in many regions from the 1990s. The rise is particularly clear in Latin America and sub-Saharan Africa. The major exception is East Asia, dominated by the Chinese data, where the level was very high to begin with. China, of course, is a rather special case in which state support for private industry, itself typically run by ‘red hat capitalists’ epitomizes the close association of private and state capitalism. Of course, new policies limited the choices of particular state actors. Clinton famously abandoned modest stimulus measures at the behest of a ‘bunch of fucking bond traders’ (cited in Henwood 1998: 24). It is probably true that as an individual, Clinton’s options were limited. It is also clear that US capital and the US state conceived more broadly, wanted to continue the policies of openness, choosing not to reverse it. Clinton’s frustration recalls that of many earlier reformist leaders. Limiting policy discretion was precisely the point of the pro-capital reforms that states had introduced. Policies were ‘depoliticized’, notably through central bank independence and the acceptance of economic rules and then passed from elected officials to technocrats. These remained state regulations and state functionaries, for which capital had no less need.

Global integration and global imbalances This section looks at how the restructuring described above led to systemic imbalances in the global economy.The international imbalances are inextricably liked to domestic restructuring and income re-distribution (Stockhammer 2011). Across the world, wage shares of income fell.This limited domestic demand and increased the importance for firms and national economies of overseas markets. Rich countries’ share of global output fell rapidly but their markets, particularly US markets, remained vital sources of consumption and, to a substantial if diminishing extent, investment. Declining rates of capital formation in high-income countries produced an aggregate tendency to reduce international inequalities but the same process depended on the persistence of asymmetries of wealth and power between countries and increasing class inequalities within them. As discussed in Chapter 7, the rise of Japan and Germany and the relative decline of the US contributed to trade imbalances and the collapse of the Bretton Woods international monetary system in 1971. This had failed to allow currency adjustments commensurate with those in productivity between leading economies. Subsequently, there was a mixture of cooperation and competition between leading states but no formal institutional coordination. Free-market advocates thought the floating foreign exchange regime would eliminate the asymmetries but, instead, systemic imbalances rose to levels that make the disequilibria of the early 1970s look quite trivial. America’s trade position improved on the initial devaluation and abandonment of Bretton Woods. Such gains disappeared by the early 1980s when high interest rates and dollar values associated with the ‘Volcker Shock’ were then combined with the demand stimulus of tax cuts and arms

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spending in the Reagan boom. Imports rushed in. High interest rates also pulled foreign finance into the US. The unintended consequence was to increase capital inflows which compounded the problem of easy fiscal policy (Krippner 2011).The US trade position again recovered after the 1985 Plaza agreement with Japan and Germany, which devalued the dollar.Along with a freeze on real wage growth, this meant a recovery in US competitiveness and export growth (Brenner 2003). The overall current account even went marginally positive in 1991. It then blew out, particularly between 2001 and 2006, when the overall deficit reached $804b. Japan and Germany continued to run trade surplus strategies. This became harder after 1985, with the Japanese effectively losing money on every export (Murphy 2010). The relative lack of domestic competitiveness and high currency values now meant that German and Japanese capital joined the rush to FDI (McNally 2011). From the early 1990s both countries moved away from the ‘highroad’ capital-intensive and relatively incorporated labour strategies. Japan saw the bursting of its bubble economy and falling domestic investment and consumption. Profits recovered but on the basis of stagnant wages and changed employment relations. By 2008, one third of workers were either temporary or part-time (Economist 2008b). Germany moved back to anti-inflationary strategies in the aftermath of the unification boom but now capital investment fell and unemployment rose steeply. By the 2000s, workers’ compensation was falling in real terms (Mishel et al. 2007). These rich-country exporters were now joined by a gamut of lower-income ones.The surpluses of all developing countries increased to an average of 4 per cent of GDP by 2007 (UNDP 2007). Most prominent amongst the surplus countries, China’s exports rose from $149b to $1,489b between 1995 and 2008 (Comtrade 2009). China’s size and significance warrants a specific comment. China was a huge consumer not simply a vast export-oriented cheap-labour camp. As it grew, living standards and consumption norms increased substantially, albeit that the averages conceal great and rising inequalities. However, its phenomenal expansion relied on increasing investment, and investment rose as a share of national income. This in turn implied a shrinking consumption share and growing dependence on trade surpluses. China’s export-oriented growth was also unlike that in most other developing countries, in that China had already established heavy industries to supply basic inputs. For example, it therefore largely imported iron ore rather than steel. China’s agricultural imports increased six-fold between 1996 and 2008, those of fuels and mining products, twenty-three fold. One effect of this was that as China grew, global demand increased disproportionately for poorer country rather than rich country products; the developed country share of China’s imports shrank from 51.7 to 37.7 between 1998 and 2007 (Comtrade 2007). Towards the end of this period, prices for many primary goods began to rise, offsetting some of the earlier decline and adding to the import bill. However, China’s demand itself fuelled the commodities boom, as its share of the world market jumped. If this reduced China’s surpluses with other poorer countries, those with the US and Europe continued to grow and its overall surplus in 2007 reached $372b, exceeding the levels in Germany ($254b) and Japan ($211b). By this time, rising prices also produced

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substantial surpluses in several oil and other fuel exporting countries, the largest in Saudi Arabia and Russia (IMF 2013). These surpluses have been read as a result of ‘excess savings’ in these countries (Wolf 2010). In a sense, by definition, this is true.Were as much spent domestically (either consumed or invested) as was produced, there would be no surpluses. By the same token, notions of a ‘global savings glut’ (Wolf 2010) become misplaced because total exports and imports necessarily balance. If excess saving was a problem in China, insufficient saving was twice the problem in the US because its deficit was twice China’s surplus. The role of the dollar was crucial to sustaining these imbalances. The widespread use of the dollar in international trade and finance gave the US advantages of ‘seigniorage’. The US could meet its trade deficits in its own currency, which other countries were willing to hold as reserves and lend back at low rates of interest. There are numerous objections to the free trade dogma of efficient market mechanisms, and even orthodoxy acknowledges that the process of adjustment takes time. This involves so-called ‘J-curve’ effects. Things get worse before they get better. So a currency devaluation reduces the terms of trade – a country receives less for each particular item that it exports and pays more for its imports. Only later does the effect of increased demand for the cheaper exports outweigh that of the diminished demand for the dearer imports. What remains indeterminate are the duration and depth of these two contradictory processes. There is nothing to say how bad things will get before they get better or, indeed, if they will ever be as good as the situation before the devaluation. So from 1995 to 2000, the deteriorating US trade position might be explained in part by the reversal of Plaza and reduced competitiveness caused by the strength of the dollar. However, subsequently, deficits rose even as the dollar fell, on a trade weighted index from a high of 113 in February 2002 to just 84 in early 2008 (Fed 2010).There was, by the twenty-first century, often little domestic industry, particularly in sectors like consumer electronics and clothing, to take advantage of any lower costs resulting from devaluation. As US deficits developed, much was made of China’s currency pegs and its refusal to play by the free market game and allow its currency to appreciate as its surpluses rose. However, the figures above are trade weighted.The dollar did fall.What this meant, in many cases, was that the US simply paid more for its imports. Bellofiore and his co-authors (2010: 123) describe the US deficit as ‘embedded in the economy’. The trade deficit continued to blowout, with only, finally, a modest improvement in 2007 – more a fish-hook than a J-curve. Moreover, as the Economist (2007e) wrote, ‘A weak dollar would boost exports, but at only 12% of GDP, exports are too small to make up for a weakening of consumer spending which accounts for 70%’.The US deficits thus depended on borrowing, both to maintain domestic demand, despite falling relative wages, and internationally, to cover the trade gap. Happily, the two could reinforce each other, at least for a time, but as the trade gap widened tensions increased, potentially undermining confidence in the dollar and the sustainability of domestic borrowing.

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By the 2000s, several other countries had substantial current account deficits. In 2007 the largest were in Spain ($145b), Britain ($106b),Australia (56b), Italy ($53b) and Greece ($44b) (IMF 2008). Many poorer and smaller countries had much larger deficits in relation to their national wealth. Some countries, notably the UK, were in a somewhat similar position to the US, with others willing to hold pounds as a reserve currency, albeit that they demanded a higher return. Open financial borders also allowed the development of the ‘carry trade’. Money can be borrowed in low interest rate countries and earn higher interest elsewhere – so from Japan to Britain, Australia, New Zealand and Iceland for example.The higher interest rates were needed to attract investors because trade deficits in those countries made currency depreciation likely. But as carry trade money piled in, the currencies remained stronger, preventing any reversal of the deficits (Economist 2008g, Shaikh 2007). Meanwhile surplus countries maintained this by keeping interest rates low and the ‘sterilization’ or government absorption of the cash inflows to maintain low inflation.This established government hoards, which could join the financial whirl and extend the imbalances.

Financialization and the dotcom bubble This section, finally, turns to the story of financialization. It was there from the start but financialization is better understood as the consequence of changes in the productive economy than as their cause.This section, again, concentrates on the US but shows how it needs to be understood in a global context. For many commentators, financialization is the defining characteristic and key driver of change in the global economy of the late twentieth and early twenty-first centuries. Some of the figures are staggering. Daily foreign exchange turnover reached $3.2 trillion by 2007 and the gross value of derivatives something like $180 trillion (Dumenil and Levy 2011). US financial assets grew from four to ten times GDP between 1980 and 2007. The global levels were lower but the growth even more rapid from 1.5 to 4.5 (Ashman et al. 2010). Ideas of ‘Casino Capitalism’ (Keynes 1973, Strange 1986) capture something of the craziness of contemporary finance but can reinforce a liberal vision of individual speculators anonymously contributing to the swirl. Much has also been made of ‘disintermediation’, the rise of new vehicles and new institutions that can sidestep conventional bank lending and the reach of states. In reality, finance, like the rest of modern capitalism, was dominated by giant corporations. Banks remained central to most financial activities and bank concentration increased extraordinarily. Most of the money being used in the exotic new schemes was itself borrowed from banks and most of hedge fund assets were themselves handled by big investment banks (Economist 2007c). Ertürk and his co-authors characterize hedge funds as ‘war machines’, as not just traders but as ‘active manipulators of those trades’ (2010: 9). Dymski similarly describes growth in the size and power of ‘the mega-institutions at the heart of the modern financial system’ (2011: 63).These institutions became adept at disguising their borrowing as investment and their liabilities as profits.They introduced ‘many

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new gimmicks designed to appropriate surplus value from the rest of the economy’ (Nesvetailova 2007: 49).The share of declared US corporate profits going to financial services rose from 10 to 40 per cent from the early 1980s to 2007, even while the sector only employed 5 per cent of the workforce. Its share of the stock market rose from 6 to 19 per cent (Economist 2008c).The interests of finance and of individual capitalists could thus have come into conflict with the long-term interests of the capitalist class in accumulation. Dumenil and Levy locate the ‘inner dynamics of this social and international order…in the quest for high income’ (2011: 171). However, such a quest could only be successful at a particular conjuncture. As described above, recovery from the crisis of the 1970s involved more extensive accumulation strategies. This increased profit rates while lowering rates of investment.The corollary of this is that money went into finance.Total profits for US corporations show a clear upward trend from the mid-1970s but ‘retained profits’ fell (Dumenil and Levy 2011). The difference lies in the payments of interest and dividends.The escalating salaries of the highest wage earners similarly fuelled finance.The inverse relationship between financialization and real economy investment seems well established. ‘[B]y around 2000 non-financial corporations as a whole held more than half of their assets in the form of financial assets’ (Milberg and Winkler 2010: 297–8). Investment in new capital in a world of overcapacity was a long-term and essentially speculative proposition. Surer returns could be achieved on financial markets or in already existing assets acquired through company mergers and take-overs. Corporate borrowing was used to fund equity purchases, mergers and acquisitions but also buy-backs of corporations’ own shares – the value of which conveniently increased on the rising demand – rather than new investment (Brenner 2003, Henwood 2010). Meanwhile, for banks, the relative lack of demand for new loans encouraged the search for new sources of profit. Where there was productive investment, it was increasingly oriented towards lower-income countries. This then fed back into financialization in at least two significant ways. First, cost reductions from off-shoring increased profits but rather than this leading to new investments at home it reduced the need for these investments ‘freeing earnings for the purchase of financial assets and raising shareholder returns’ (Milberg and Winkler 2010: 276). Shares continued to be listed in the US even as the productive activities went abroad and share values were boosted by the repatriated profits. Second, the lower-income country production, whether foreign or domestically owned, was often oriented towards sales back in rich countries, contributing to the trade surpluses of many such countries and relying on the US and other rich country deficits and the currency recycling on which this depended.The changing and asymmetrical trading relations, discussed above, relied on but deepened financialization and the role within this of the US dollar. As seen above, the use of the dollar gave the US advantages of seigniorage in that it could pay its international debts using its own currency.The foreign dollar reserves were then returned to the US at low interest. Government paper, primarily US Treasury bills, was perceived as the safest asset and the real return on American debt held by foreigners between 1973 and 2004 was just 0.32 per cent

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(Callinicos 2010). Foreign central banks were the main buyers (Zezza 2011). By 2008, China owned $808b of a total of $3,253b Treasury securities, Japan $660b (Census 2012). State policy therefore supported both domestic and global financialization.The move from a high to low interest rate regime at the Federal Reserve under Greenspan from 1987 to 2006 was a conscious reorientation but was itself made possible by this international regime.The inflationary threat had been seen off and cheap imports also kept prices down. The ‘Greenspan Put’, in particular, now involved sharp cuts in interest rates to reassure indebted borrowers in times of trouble that they could continue to service debts and pursue financial speculations. Henwood (1998: 161) describes how [i]t wasn’t luck that gave us this turn of events, but government policy – the bank and S&L bailouts and sustained indulgence by the Fed. The welfare state may have been shredded for the poor, but not for big business, which can screw up grandly and still count on an expensive rescue. This, of course, helped make finance a much less speculative activity. However, it was underpinned by the willingness of both foreign governments and domestic corporations to buy the US government paper at low interest rates. Increased supply kept the price low and enabled the low interest rate policy and thence the growth of domestic debt. Within finance, speculation lifted nominal asset prices way above anything existing outside financial markets. Many of the exploding array of financial assets could themselves function as money, or near money, and could (somewhat precariously) store value and be used as a medium of exchange, being sliced and rejoined in new derivatives. That this explosion of financial assets was not causing significant inflation is testament to the dissociation from the wider economy. Financial assets were substantially being used to buy other financial assets, not capital or consumer goods. The plus side of this for authorities committed to beating inflation was that inflation was transferred to (invisible) financial assets allowing low interest rates to continue (Krippner 2011). Ultimately, however, this still depended on an expectation of future returns. Individual speculators can gain by selling to each other but finance as a whole can only temporarily and partially detach from the real economy from which the surpluses ultimately come. Low interest rates also allowed the unusual situation in which the US consumption share of income rose, from 71 per cent in 1979 to 76 per cent in 2008 (Heston et al. 2012), even as the wage share of income fell. High spending by the rich accounted for some of this but the difference is also explained by borrowing. Much of this was foisted on vulnerable homebuyers. Other consumer debts also rose, for example supporting car sales (Panitch and Gindin 2010). Wider changes brought working class consumption into the financial market, through legislative changes that encouraged home ownership to the privatization of pension schemes.This has been seen as incorporating the working class into financialized capitalism. But the wealthiest 10 per cent owned 79 per cent of all stock market wealth in 2004 and

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the bottom 80 per cent saw their share of net wealth fall consistently from 1983 (Mishel et al. 2007). It was as borrowers that workers were particularly incorporated and important to capital. Net US household domestic debt jumped from 30 to 68 per cent of GDP between 1980 and 2008 (Dumenil and Levy 2011). This helped sustain demand despite falling relative and often real wages, while the ability to service such high levels of debt depended on low interest rates. Again, these were related to the role of the dollar. Financialization and the credit bubble was never simply a US phenomenon.The floating, competitive international currency regime introduced in the early 1970s made currency hedging a necessary business for trading firms. It was effectively possible to insure against losses due to changes in currency values of the countries of the firms with which business was conducted. Derivatives trades achieved some level of currency stability (Panitch and Gindin 2012). But currency trading became an activity on its own, with no immediate link to any underlying commodity trades in the real economy. Some other countries, most obviously the UK, were in a similar position to the US and a large proportion of the derivate trades took place in London (Gowan 2009). Declining rates of investment and the search for alternative sources of profits in finance and beyond national boundaries was common. The decline in investment in Germany, for example, helps explain why previously conservative regional banks looked for new vehicles in the now open financial markets of the US.Worldwide, the level of foreign assets held by banks leapt from 9 per cent to 59 per cent of GDP between 1977 and 2008 (Dumenil and Levy 2011). However, it was particularly the US amongst rich countries where consumption and domestic debt drove growth (Stockhammer 2011). By the 1990s, there was a real boom in the US economy, albeit more narrowly based than enthusiasts proclaimed. Financial exuberance outstripped anything in the productive economy. The Dow Industrial average rose twelve-fold from 1990 to 1999. The NASDAQ index of high-tech stocks rose by slightly less overall but with huge gains between 1995 and 1999 (Census 2012).When the bubble burst in 2000, Greenspan again responded quickly, and cuts in interest rates reassured investors.The subsequent recession was mild; a mildness that would be blamed for failing to clear out unsustainable speculations. As late as August 2007, optimists could still report that ‘[d]uring the past quarter century the American economy has been in recession for only 5% of the time compared with 22% for the previous 25 years’ (Economist 2007a).The economy and finance and speculation could all apparently return to health. The Dow had returned to its previous level by 2006 and because high-tech stocks looked less attractive, speculators rushed into apparently more secure assets in real estate, land and commodities based on land.

Conclusion The neo-liberal period had much in common with what had gone before.The US economy remained central while leading states supported capital restructuring. However, this now involved relatively less intensive strategies of accumulation,

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restoring profits rates through downward pressure on wages and falling capital compositions, and requiring mobility across sectors and borders. Final demand was limited by falling wages shares, in as far as these were not compensated by increased debt, and by chronic overcapacity. Rates of accumulation in poorer countries increased, in aggregate, but these fed trade surpluses and thence financial imbalances centred on the US.


Introduction ‘At first glance…the entire crisis presents itself as simply a credit and monetary crisis’ (Marx 1981: 621). Like others, the Crisis this time had deeper roots. This chapter has two sections. The first briefly retells the story of the financial crash and the immediate policy responses.The proximate causes of the sub-prime crisis and how this quickly spiralled into a sharp global recession are well established. The discussion here is framed by the useful and suddenly fashionable narrative of financial speculation described by Minsky (1992). There have indeed been financial bubbles and crashes for as long as capitalism. Each has its specific character but each also follows a recognizable pattern, through expansion and euphoria to crisis and repulsion. Beliefs that ‘this time is different’ (Reinhardt and Rogoff 2009) and that the financial system has been effectively tranquillized are repeatedly confounded. However, without addition, this narrative is potentially misleading. It locates the sources of instability within the mysterious and often mystifying world of finance rather than in broader social relations. Wicked financiers – and their villainy is not in dispute here – disrupt what might otherwise be harmonious relations between classes and countries. This narrative can also imply that the problems could be fixed by better management. In putting responsibility onto government and what Ivanova (2013) calls ‘artful tinkering’, Minsky converges with the mainstream, albeit from the opposite direction. Of course, that does not make such accounts wrong or absolve governments from responsibility. However, linking financial crises and changing state practices to dislocations of accumulation in the broader global economy provides a deeper explanation. The second section therefore goes on to argue that the Crisis can be better understood as a product of developments at the different levels discussed in the preceding chapters. Specifically, it shows how the financial bubble was the product of income

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inequality within the US, on which both increased borrowing and lending were predicated.This, however, reflected changing imperatives of capitalist accumulation, of falling investment within the productive economy and changing spatial relations of production, corporate relocation and the rise of new centres of accumulation particularly in Asia, and therefore also trade imbalances and currency recycling. All this was facilitated by states, not as a whimsical mistake but in the interests of capital, particularly of financial capital to be sure, but of capital in general, restructuring in the aftermath of a real crisis in the 1970s.Attempts to detach capital from constraints of space ran up against enduringly uneven geographies of production and consumption and the limitation of a specifically national currency, the US dollar, as the medium of circulation and measure and store of value.

From ‘Great Moderation’ to global crisis Minsky provides a powerful description of the logic of financial crises. In normal expansionary times, firms rely on ‘hedge’ finance.They borrow only what they will be able to repay through their cash flows. Protracted good times breed complacency – especially as memories of the previous crash become more distant. As expectations improve, financing tends to become speculative. Current profits can only cover the interest payments.The principal has to be rolled-over, on the hope that the underlying assets’ values will rise, as indeed they do, for a time. Finally, the speculative euphoria reaches the pitch where firms rely on ‘Ponzi’ finance (named after the fraudster of the early twentieth century), only able to repay even their interest through further borrowing, or by selling. This is unsustainable. Moreover, government monetary constraint can turn finance that was merely speculative into Ponzi (Minsky 1992). Once some speculators attempt to cash in their winnings at the top of the market, this can precipitate a fall, perhaps initially only in the rate of price increases, but even this can leave those relying on Ponzi finance unable to meet their obligations. Euphoria quickly turns to revulsion, which is propagated as asset values collapse on the rush to quit the market. This is a simple model but it contrasts with vulgar depictions of herd mentality or changes in individual psychology. On both the up- and down-swing, the investment decisions make sense for rational investors. So liberal accounts of the Crisis blamed the victims’ lack of ‘financial literacy’, but the way the market was structured there was little ‘irrational’ in poor Americans being sucked into cheap mortgages. Similarly, firms would have faced short-term losses had they bet against the bubble (Brancaccio and Fontana 2011). From Minsky’s perspective, financial growth relies on drawing wealth from elsewhere in the economy and the cycles can also have serious, and seriously sub-optimal, repercussions but it leaves unexamined the nature of the connections between finance and the wider economy. The model implies, as the Keynesian tradition more generally maintains, that the financial system should be more closely regulated, if not entirely controlled by the state and this involves some heroic assumptions about the character of the state and the prospects for benign oversight. However, the general schema appears to fit the

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experiences of the sub-prime crisis very well, and is used to organize what follows, although any discussion of the prospects of fulfilling Minsky’s fifth stage involving ‘recovery and renewal’ is left to the next chapter. Minsky’s first stage involves boom and monetary expansion. The previous chapter described a period of prosperity in the US from the mid-1980s. Within this, financial firms took an increasing share of total profits, government policy switched to low interest rates and a whole cornucopia of financial assets were created. It was a time of apparent stability and faith in the ability and willingness of governments to underwrite financial markets. By the 2000s, the US had become the centre of a new optimism, which in 2004 Bernanke termed ‘the Great Moderation’. Studies showed a ‘smoothing’ of the business cycle (Economist 2007b) and Lucas declared ‘the central problems of depression prevention have been solved’ (cited in Foster and McChesney 2012: 7).The complex models that Lucas and his co-thinkers championed, said that systemic risks were now lower. These estimates of lower risk themselves helped to keep interest rates low and the good times rolling. The longer they rolled, the longer since the last sign of trouble, the lower the estimates of risk became. What was called ‘fair value accounting’ priced assets not according to their original cost but according to whatever level speculation had raised them, building the results of previous levels of success into the value of the assets now being traded. Debts proliferated.They were repackaged or securitized and sold on. For example, higher-earning and riskier assets, like sub-prime mortgages, were combined with those offering a lower return to provide new products. Conversely, other Collateralized Debt Obligations (CDOs) could be split into junior and senior tranches, more and less risky and paying more and less accordingly. Innumerable new instruments were created and old ones traded in new ways.The Credit Default Swap (CDS) was perhaps the most notorious.‘The CDS itself was invented so that its primary issuer, AIG, could avoid the regulatory oversight that would arise were these underwriting arrangements classified as insurance contracts’ (Dymski 2011: 71). From 2000, it became legal to buy CDSs on non-owned assets, in effect to bet on company failures. As discussed in Chapter 8, the explosion of new instruments and new institutions peddling them, if anything, increased the size and importance of the banks.The money was often borrowed from banks in the first place and the new instruments were sold back to them, particularly a few leading ‘megabanks’ (Dymski 2011: 71). Banks, and depositors in them, enjoyed state protection and they were obliged to maintain adequate capital-to-asset ratios. However, investment banks and other funds, and latterly commercial banks themselves, quite legally trading on their own account, created vast amounts of credit unrestricted by the need to hold deposits. Between 1980 and 2008, gross consumer debt doubled in relation to GDP but this was amplified so that financial sector debts rose by a factor of five. The contrast with the net position is telling. Net household debts increased a bit more than the gross figure, up from 30 to 68 per cent but the financial sectors’ net position went from one of 103 to 152 per cent credit (Dumenil and Levy 2011).An additional amount almost half of US GDP was owed to its financial institutions.

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The state still underwrote much of this through policies of easy money. The ‘Greenspan Put’ reassured financial markets that government would step in with the necessary cash and low interest rates at any hint of trouble.The threat of general crisis after financial crashes in 1987, 1997 and again in 2001 had been seen off through credit expansion (Ivanova 2013). Successive administrations, going back to the 1970s, also orchestrated reforms that encouraged the growth of finance. Restrictions on inter-state banking and between different activities were lifted, as were interest rate ceilings. Privatizations created new tradable stocks, and pension reforms created new institutions that held and traded financial assets. By 2007, institutional investors held about $24 trillion, twice as much as banks and 38 per cent of the total assets of the financial sector (Nersisyan and Wray 2010). Housing reform and state-backed institutions to finance it encouraged home ownership.The regulatory institutions extended beyond the state. Notoriously, ratings agencies, which had been around since the early twentieth century, were given an explicit and lucrative role in which they claimed to be acting as independent assessors – and claimed ‘free speech’ rights on that basis – while being paid by the issuers of the securities they rated. As discussed in the previous chapter, ‘de-regulation’ is a misnomer, the system remained highly regulated but more than ever in favour of finance. The next stage in Minsky’s typology is euphoria. Speculation grew in different assets. Commodity prices boomed. Food prices jumped by 75 per cent from 2005 to the end of 2007 and wheat prices doubled in just four months of the latter year (Economist 2007f ). This appeared to reverse a long-term problem for many farmers, although even now they could be frustrated as corporations had locked them into forward contracts at the old prices. On the other hand, there were drastic consequences for food-importing countries and poor consumers, with food riots, for example in Bangladesh and parts of West Africa. Regulatory change encouraged institutional investors to pile into commodity futures markets, increasing the upward pressure (Wray 2008). Stock market prices, which had been hit by the bursting of the dotcom bubble, now re-inflated, almost doubling from their low of October 2002 to a peak in October 2007. The US real estate boom involved a relatively unspectacular near-doubling of house prices between 1997 and 2006 (Dumenil and Levy 2011). Other countries, including Britain, Sweden, Belgium, Spain, Ireland and Australia all had more seriously inflated property markets (Economist 2007b).The value of new mortgages in the US remained stable at just over $9 trillion in 2001–03 and 2004–06. The changes came when the share that was sub-prime, deemed higher risk and therefore paying higher interest, jumped from 8.4 to 19.6 and the proportion that was securitized from 55 to 79 per cent (Dymski 2010). Most of this change occurred in one year to 2004 and new housing unit permits peaked at 2,263,000 in September 2005 (Dumenil and Levy 2011). As property prices continued to rise, the collateral appeared good, even when borrowers had low incomes. Increasing numbers of variable rate mortgages were sold, accounting for almost half the market by 2005. These were attractive at the extremely low interest rates at the

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time. ‘[A]s late as 4 August 2007, Taylor claimed that the economy was up and running with no perceptible threat’ (Zezza 2011: 88). Lower risk did mean lower returns, hence the ‘moderation’, but borrowing ever more money could increase the returns.The speculative bubble spiralled upwards. The next and critical stage was reached by 2006, when the housing bubble peaked. Once the Federal Reserve raised interest rates to cool the bubble, mortgage payments jumped. Foreclosures rose by 93 per cent in a year from July 2006. Banks and specialist mortgage lenders suffered huge losses and some of the latter went bankrupt. Across the Atlantic, Britain’s Northern Rock, which had rapidly increased its share of the mortgage market using a similar model of lending without taking commensurate deposits, also faced huge losses. ‘On 30 January 2008 in one single report Standard and Poor’s downgraded more than 8,000 securities’ (Brancaccio and Fontana 2011: 42). For a while, the financial markets charged on, according to a much copied analogy, like ‘Wile E Coyote running over the edge of a cliff ’ (Economist 2008d). The collateral of people’s homes collapsed. But the money did not simply disappear and initially as one market faltered another surged.The major investment banks further increased the extraordinary levels of derivatives on their balance sheets with the CDS market, in particular, leaping ahead (Nersisyan and Wray 2010, Schulmeister 2013). But house prices continued to tumble and repossessions to mount. By July 2008 there were 18.6 million empty housing units in the US (out of a total of 129 million) (Economist 2008h). The numerous assets derived from mortgages became toxic.The speculative buying turned to selling. On 5 September 2008, the investment bank Lehman Brothers collapsed and was allowed to go under, the largest bankruptcy in US history (McNally 2011). The panic spread. And by the following day policy had changed and AIG, the world’s largest insurance company was rescued. By October 2008, the US financial sector had lost more than its previous five years’ after-tax profits. Stock market prices plummeted. By early 2009, financial sector stocks had lost nearly 80 per cent of their peak value, nonfinancial stocks nearly 60 per cent (Dumenil and Levy 2011). The phase of revulsion and propagation thus had a false start before turning into a full-scale crisis in late 2008.The propagation had several aspects. Genuine banks were obliged to maintain adequate capital-to-asset ratios and as their losses ate into their capital, itself valued according to assessments of risk that were now downgraded, they needed to offload assets, putting further downward pressure on their prices. Hedge funds tried to raise cash by selling their more liquid assets, often of commodities like oil, whose price then fell.The ‘junior’ tranches of CDOs (which paid higher returns because they were more risky) looked increasingly risky and bad investments. But the safer, ‘senior’ tranches paid less, and as they too became more risky their value could fall below par, a situation where they could not be sold at any price (Economist 2007h). With uncertainty surrounding exactly where the ‘toxic’ assets lay, banks became unwilling to lend, even to each other, and the whole system appeared to be on the point of freezing up. The size and importance of the US economy converted the bursting of the property bubble into a global crisis. Had it happened elsewhere, and similar things

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have often happened elsewhere, people would have lost their homes, a few local banks would have folded, and poverty and unemployment ravaged peoples’ lives, but for many outside the country it would have been just another salutary lesson for those who happened to read the inside pages of the business press. Centred on the US, it spread quickly, with a succession of European bank collapses in September and October. The crisis also spread rapidly from finance to the wider economy. House price falls left many home owners with ‘negative wealth’. New lending fell steeply. Housebuilders and the construction industry suffered as the number of new homes crashed from 1.29 million in 2005 to just 372,000 by 2009 (Dumenil and Levy 2011). Car firms’ sales slumped and GM had already closed four factories in the US by mid-2008 (Economist 2008f ). Chrysler and GM both received government bailouts but this did not prevent them going into administration. Foreign operations were abandoned; Ford’s Volvo was sold off, GM’s Saab allowed to collapse. After moments of hesitation, supposedly liberal governments jumped to the rescue, quickly finding vast sums to prop-up or to nationalize failing banks. Hardline, more consistent, economic liberals were critical, identifying the ‘moral hazard’ that irresponsible lenders were not weeded out of the system.The investment banks were not supposed to be provided with the lender of last resort protection enjoyed by commercial banks (and did not receive comparable supervision). But the dangers of a general banking collapse and a repeat of the Great Depression meant that although they squabbled over the detail, practical policy makers from across the political spectrum and across the world passed similar policies. Failing banks, loaded with bad debts, were rescued. If they failed, as Lehman Brothers had been allowed to do, the bad debts would be increased and spread. For example, Bear Sterns alone was a counter-party to $10 trillion of over-the-counter swaps (a little less than total US GDP) (Economist 2008a). For all that banks had been billed as ‘global’, even ‘stateless’, the relevant lender of last resort was seldom in serious doubt. As states rescued their banking systems there was also a competitive element. The Irish government offered depositors comprehensive guarantees. This threatened to undermine unguaranteed British banks and the British government denounced the Irish measure before quickly introducing guarantees of its own. States radically cut interest rates.The Federal Reserve rate dropped from five per cent in July 2007 to two per cent a year later then to 0.2 per cent by the end of 2008 (Fed 2011). As the Economist saw it ‘The Greenspan put has in effect been replaced by the Bernanke pushover’ (Economist 2007d: 95).The G-7 leading states resolved to act decisively (Wolf 2010). States around the world, in both rich countries and poorer ones like China, then threw money at huge stimulus programmes. The EU rules were quietly forgotten. Suddenly the policy shifts of the 1970s did not seem so great.There was even briefly talk of financial re-regulation and much discussion of a return to Keynes.The lessons of the 1930s had been remembered. Government intervention was swift and appeared successful. All this meant that government deficits rose. Between 2007 and 2010, net government debt increased from 48 to 75 per cent of GDP in the US, from 38 to

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73 per cent in Britain, from 80 to 113 per cent in Japan and by smaller, but often still substantial, amounts in other leading countries. In some smaller countries, debts jumped far more dramatically, notably from 11 to 60 per cent of GDP in Iceland and from 11 to 75 per cent in Ireland (IMF 2013). It all appeared to work. States were no longer powerless. At a global level, a sharp downturn in 2009 was followed by recovery. As the next chapter will discuss, the government debts soon became a reason, or at least excuse, to move to redeem them through drastic cuts in public spending. Internationally, indebted countries faced creditors and the IMF insisting on restructuring along predictable liberal lines, to make workers pay at home while orienting national economies towards exports to earn foreign currency. But state intervention did appear to have averted disaster. At least in its first four stages, the sub-prime crisis, as many authors have pointed out, closely fits Minsky’s schema. Minsky also acknowledges that the need to draw assets from elsewhere in the economy is a limiting feature and that the bubble’s bursting can have serious repercussions. However, it says little about the relations between finance and the wider economy. The preceding chapters here developed an analysis that puts the Crisis into a broader analytical and historical context.The following summary can therefore be brief.

The Crisis as the product of structural dislocations of capitalist accumulation Income polarization helped create both the demand and supply for finance. The previous chapter described how inequality increased in the US from the early 1970s, whether this is measured in terms of individuals’ income or as shares going to capital and labour.The GINI index, which measures inequality on a scale from 0 to 100, went from 30.1 to 36.9 between 1979 and 2006 (Solt 2008–09). The wage share of income fell from 59.6 to 56.6 (OECD 2007). These wage figures include exploding executive salaries so underestimate the class polarization. Inequality was also strongly racialized; although it had narrowed over the previous 20 years, the ratio of white to black average wealth was still ten to one in 2004 (Mishel et al. 2007). It was poor but also particularly non-white neighbourhoods that were vulnerable to predatory sub-prime mortgage lending. Black employment fell by 2.4 per cent even in the boom from 2000–07 and black incomes fell by about 3 per cent (McNally 2011). This falling labour share of income occurred even as more people worked longer and harder, particularly through women’s greater participation in paid work.This also increased the need to buy commodities to replace work that might once have been done at home. On the demand side, low income increased the need to borrow. The rise of borrowing was particularly rapid in the 2000s, almost doubling in seven years, and of this, the share of mortgage debt grew from 65 to 73 per cent. Low interest rates meant that the household debt service ratio crept up more slowly from 12.9 to 14.5 between 2000 and 2006, but it gradually ate into people’s ability to repay (Census various years). Home loans were the largest item but workers also

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borrowed massively to buy cars and other goods. At low incomes, increasing numbers were sucked into extremely high-interest ‘pay-day’ loans. The other (supply) side of this was a greater propensity to lend.At root here were the higher incomes of corporations and the rich. Their readiness to throw money into the financial system put downward pressure on interest rates, enabling the apparently virtuous cycle of financial expansion. Their increasing enthusiasm to venture into finance reflected overcapacity and uncertain returns within the productive economy and a commensurate unwillingness to commit to new investment. The previous chapter discussed the multi-faceted process of capitalist restructuring. Falling wages increased profits but corporate investment fell and saving rose. Stock markets became nets ‘sinks’ rather than sources of funds to industry as profits were used to buy companies’ own shares, inflating their value; a classic example of the creation of what Marx described as fictitious capital (Henwood 1998, Choonara 2009). As productive economy firms became more financialized, their high retained profits lowered the demand for conventional bank lending and banks accordingly sought new, more profitable lines of business. Money flowed into finance. Financial firms grew richer, both absolutely and relatively. For some accounts, there are perennial reasons why profits are not re-invested in expanding and improving productive capacity; overcapacity and low demand are endemic to capitalism, at least since the last quarter of the nineteenth century (Foster and McChesney 2012). However, there were specific reasons why this increased hugely in the years preceding the Crisis. High rates of investment and pay had underpinned the crisis of the 1970s and produced the strategic response of reducing relative spending on both investment and wages. Wages shares of income fell in most rich countries, particularly in the US, but with accumulation taking more extensive forms, rather than capital investments soaking up the extra profits generated by intensified exploitation, these were speculated at home and abroad. US-centred accounts stress the extraordinary imbalances and financialization within that country but this was also part of a global story. Even influential liberal accounts stress the significance of global imbalances (Wolf 2010, IMF 2011a). Some radicals accordingly play down their significance, objecting particularly to how such an emphasis can appear to involve a nationalist transfer of blame from the US to China (Panitch and Gindin 2010). Chinese surpluses were half US deficits. However, the domestic and international debts are closely linked. The financial system’s apparently virtuous cycle of easy credit and growth was reinforced by a corresponding cycle of US imports and trade deficits, paid for by cheap loans back to the US from the trade-surplus, creditor countries. However, the corollary was that the US productive economy was gripped by a vicious cycle of overcapacity and low productivity growth. Corporate restructuring restored profit rates but, as above, these did not lead to increased investment, and instead fuelled financialization. Domestic overcapacity reinforced an unwillingness to invest at home, which reinforced a loss of competitiveness and of market share as more investment went to lower-wage locations abroad.The ‘foreign’ investment was made both by the corporations themselves and by foreign companies but

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both fed back into problems of domestic overcapacity and financialization. Foreign investment produced about half of US corporate profits and these too could be put into finance rather than the productive economy at home. They boosted share prices in the US, even when the operations were overseas. US trade deficits were covered in dollars, which returned from the surplus countries and ended up fuelling the financial system. Imports from lower waged locations could reduce consumption costs and inflationary pressures, which then allowed looser monetary policy and borrowing. Domestic and international indebtedness increased together. Meanwhile, for many countries, the export markets became increasingly important in maintaining demand.There was then an apparent symbiosis.The possibility of export-oriented success was sustained by the enduring ability of the US economy, its domestic demand problems notwithstanding, to act as what has been termed the ‘importer of last resort’ (Albo 2002). Trade surpluses were denominated in dollars, ‘sterilized’ or absorbed by states at home and then reinvested abroad, principally in US government paper. Many foreign financial firms directly bought into the US market, others were thus doing so indirectly. US bonds acted as what Panitch and Gindin describe as a ‘vortex for drawing other countries’ savings to American financial markets’ (2010: 11).Two-thirds of all foreign exchange reserves were accumulated in seven and a half years from the beginning of the new millennium (Wolf 2010). Once the dollars returned to the US, they could be recycled. So although there was a policy ‘choice’ to adopt low interest rates, this could only work given that there were ready buyers of bills and bonds at low rates.Where there were limited bases for speculation in domestic markets, financial institutions could move into expanding financial markets, elsewhere, particularly the US. So, for example, the once conservative German Landesbanken had jumped onto the bandwagon and were amongst the first casualties of the credit crunch (Brummer 2008). While the US was at the centre of the global financial system and meltdown, many other countries were in a comparable position. Britain’s experience was quite similar and (at slightly higher rates) foreigners were prepared to hold pounds. Europe’s trade, as a whole, was roughly balanced but that masked the divergence between growing German surpluses and deficits in Spain, Greece and several countries in Eastern Europe, which would be badly hit in the crisis. Iceland epitomizes the concurrent accumulation of domestic debt and large trade deficits.There were exceptions. Australia, with major debts and deficits had (at the time of writing) escaped the worst of the financial storm. Ireland had trade surpluses but accumulated debts and would be one of the worst hit.There is, nevertheless, a fairly clear pattern that countries whose trade position became more negative, also tended to increase their domestic debt. Financialization had a logic of its own and its own cast of extraordinary rogues but their prominence was predicated on restructuring and thence dislocations in the productive economy. Similarly, the imbalances were not some unfortunate misalignment, susceptible to re-engineering, but reflected the character of accumulation at a global level. The restructuring, both within finance and in the productive economy, was enabled by a series of state reforms. The Crisis can appear to confirm

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interpretations of these as ghastly mistakes, producing an unsustainable disembedding of market relations from their ultimately social bases. Worse, what we experience is the inexorable consequence of ‘state retreat’. What were once the most powerful institutions of contemporary capitalism committed euthanasia some time after the 1970s and are now incapable of regulating effectively. Of course, reforms can have unintended consequences. But they involved different regulations rather than the abandonment of regulation and were driven by changing imperatives of capitalism. Capitalism’s reorientation from the 1970s may appear short-sighted; unsuccessful compared to the very strong growth of the preceding period and in the light of the Crisis. However, the crisis of the 1970s was severe and its resolution provides the basis for understanding the emergence of policies prioritizing increased capital mobility and weakening labour. Anti-labour policies were often primary in the policy shifts. Swathes of antiunion laws were passed while a mixture of coercion and negotiation battered down wages. The tax burden shifted from corporations to workers. An influential argument of state retreat sees the more mobile, especially financial capital, gaining power over immobile states and labour (Frieden 1991). However, while money could be easily transferred across borders, these transfers were perfectly traceable by leading states and occurred with their blessing (Henwood 1998). Financial activities actually became more concentrated within the richest countries, particularly in the US and its willing accomplices in London. Nor was there any systemic reduction in states’ involvement in the reproduction of labour power. Health, education and other social spending increased across rich countries. Financial capitalists and the already rich did gain most and most obviously, and as financial institutions’ wealth grew, so did their ability to influence policy. The proximity of various merchant bankers to the levers of political power and the ‘revolving door’ between the state and private institutions became a particular scandal as bailout money soon re-inflated extraordinary executive bonuses. However, while many individual productive capitalists were undermined by globalization and financialization, capital as a whole, rather than just financial capital, favoured liberalizing reform. Much of productive capital itself became heavily financialized. Moreover, capital in general now sought greater mobility – the ability to shift between sectors and across borders to exploit new resources, especially cheaper labour. Financial mobility is a precondition for this. Capital in poorer countries, too, and capital able to locate into poorer countries, gained access to rich country markets, enabling a redoubling of an export surplus orientation, not held back by low wages and lack of demand at home and sustained by the ability to send accumulated dollar reserves back to the US. States enabled rather than resisted these shifts. This should not reify states’ powers, which were always limited in the context of an essentially global capitalist system. The Crisis was ultimately a product of the uneven distribution of value at a global level and the inability of national monetary arrangements to overcome Capital’s spatial and sectoral dislocations. Aggregate rates of gross fixed capital formation (GFCF) fell from the 1970s. The aggregate decline was gradual but hugely uneven. Falls in many rich countries were also

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underestimated by the figures, which included increased investment in unproductive activities, especially in finance and real estate. There were particularly substantial moves away from manufacturing investment. Meanwhile in poorer countries, notably but far from exclusively in China, there were huge increases in GFCF including manufacturing investment. However, this new investment was often less productive than the globally most efficient in terms of output per hour.This was part of what earlier chapters termed a strategy of extensive accumulation, in contrast to the intensive modes that dominated earlier periods. Amongst other things, it involved increasing the spatial separation between production and consumption. The more extensive growth involved sectoral changes, including a more rapid increase in demand for crude materials and fuels than for capital goods. Primary commodities’ trade rose accordingly. Demand for workers’ consumption goods increased, especially for food, as diets changed and consumption grew in economies like China. Long-term underinvestment in primary sectors also now presented an obstacle to accumulation and drove up prices. The inherently limited supply and non-produced character of land, made land itself, land-based products and an array of assets derived from them, look secure, particularly to investors fleeing the immateriality of the dotcom bubble.This raised prices beyond all relation to their value and took an increasing share of the total social surplus. As discussed in Chapters 3 and 4, socially necessary labour time is determined at a global level, often making it very hard to determine exactly how much labour is needed. Competition, including international competition, precludes any common capitalist objectives beyond basic imperatives to maintain the extortion of the surpluses from the direct producers. Productive and unproductive capitals equally claim their shares of value.There is no higher logic to drive investment into activities that in the long-term are economically, let alone socially, useful. If financial markets in New York or London suck in money from around the world this can increase national wealth in the US or UK as much as any new manufacturing capacity. Different strategies of exploitation compete with each other. There are vast differences – particularly between countries – in labour’s conditions and productivity, with values only ‘resolved’ retrospectively and approximately through competition on highly imperfect international markets. In particular, the distribution of value is mediated through money. Even with commodity money, for Marx, the store of value and medium of circulation functions come into conflict.This is accentuated by reliance on a national fiat currency, particularly the global reliance on the US dollar. Persistent imbalances reveal, and heighten, the dislocations between the essentially global constitution of values and the institutional particularities of this monetary form.The US dollar and its capacity to store value allows the US to run systematic deficits. The very existence of these deficits, of imbalances rather than equilibrium, in the global economy, makes the value stored by such dollars uncertain. Growing deficits implied currency overvaluation and the dollars’ value fell, without reducing the trade deficits.The Crisis interrupted this fall with a predictable ‘flight to quality’. For all that vast quantities of new money had been devised, the Crisis made clear that the financial sector

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itself cannot produce the highest quality money, which was now in very short supply (Howard and King 2008). Demand for US dollars and US Treasury Bills jumped, even though the US was at the centre of the problem. Once the panic subsided, the dollar resumed its downward slide. To quite where remained uncertain. The next chapter will resume the story of the aftermath of the Crisis but the fundamental dislocations appeared to remain unremedied.

Conclusions Every crisis has an element of the accidental and incidental, a particular spark that lights the tinder. Even with hindsight, we cannot say that the US housing bubble was bound to burst in 2006. A currency crisis based on the extraordinary US current account deficits seemed at least as likely a denouement. Nevertheless, it is possible to trace the development of financial speculation and instability. Speculation had a logic of its own and produced an equally explicable revulsion and propagation once the bubble burst. However, the growth of finance in the US was generated from within, and limited by, the broader political economy. It depended on the ability to draw wealth from workers, from other sectors and other parts of the world and on the support of powerful states. The room for particular speculations were created by capitalism’s broader dislocations; changing income distribution within and between countries and international imbalances. These were themselves produced by changed forms of accumulation in response to, and in recovery from, the crisis of the 1970s.The role of the US dollar as the effective unit of account, medium of circulation and store of value fostered enduring dislocations between the global production of value and its price measurement in the currency of a national economy whose position in the world was changing and uncertain.This created space for mediation and speculation, in what appeared to be a mysterious financial world apart, determining social processes but not itself determined by them.The crash at least dispelled some of the illusions.


Introduction This chapter considers the repercussions of the Crisis. There has been a tendency on the left, not for the first time, to see this as the crisis to end crises. As discussed, particularly in Chapter 5, crisis means ‘decision’ or ‘turning point’ and hitherto even the deepest have been followed by periods of recovery.This does not mean it must happen again, but we should beware predictions of imminent demise. Crises are never bad for everybody and are certainly not experienced evenly or equally. Leading economies went into recession by late 2008 and the global economy contracted sharply in 2009.This was very uneven and although growth rates fell in most countries, a majority did still grow. In most places, the recession was followed by apparently quite strong recovery. However, by 2012, this remained extremely uneven and apparently fragile. As the usually optimistic IMF reported,‘[r]isks for a serious global slowdown are alarmingly high’ (2012b:13). Writing in early 2013, there is little evidence of a radical turning point. Most policy responses deepened the existing trends.The situation of workers deteriorated, particularly in rich country economies. Rates of capital accumulation continued their downward slide and continued to be reoriented towards poorer countries. Global trade imbalances shrank with the crisis but soon began to re-inflate.This implies that however real the recovery, crucial underling dislocations remained uncorrected. The next section provides a brief systemic review of the economy during and after the crisis.The subsequent two sections discuss the economies of major highincome and poorer countries respectively.The first focuses particularly on the US and Europe, the second on China, India, Russia and Brazil. The much stronger overall growth in poorer countries raises questions about the basis of this accumulation and whether it is sustainable, which are introduced here but to which the next chapter returns in more detail.

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The uneven recession and recovery By late 2008, most leading economies were contracting and there was a sharp recession in 2009 (see Figure 10.1). Global GDP fell by 2.2 per cent. High-income countries, as a group, contracted by 3.7 per cent.The figure for the US was 3.5 per cent, for Japan 5.5, Germany 5.1, France 3.1 and Britain 4.0. Amongst rich countries, there were a few exceptions. Australia for example grew by 1.4 per cent, although even this involved a decline in per capita terms. Some countries did much worse. Latvia’s GDP collapsed by 17.1 per cent while in both Lithuania and the Ukraine the figure was 14.8 per cent. However, the contraction was far from universal and a majority of the countries for which data are available (96 out of 185) grew in 2009, 29 of them by more than 5 per cent; China and India by 9.2 and 8.2 per cent respectively (IMF 2013). By 2011 the IMF was celebrating a ‘sharply reduced rate of job destruction’ and a year later reporting that ‘GDP, consumption and investment have rebounded more strongly than after most past recessions’ (IMF 2011: 1, 2012a: 38). As discussed in the previous chapter, governments responded with alacrity to prop up failing financial institutions and with what appeared to be effective monetary and fiscal policy.The global economy returned to healthy 4.3 per cent growth in 2010 although this tailed off the following year (IMF 2013). Fallacies of state powerlessness and of the separation of finance from national authority were starkly revealed. Despite a pervasive rhetoric of state retreat, many of the welfare systems of the previous period also remained substantially intact and

10 8 Low and middle income

6 4


2 0

High income 2004





–2 –4 –6 FIGURE 10.1

GDP growth 2004–2011.

Source: IMF (2013).




142 Recession or renewal?

‘automatic stabilizers’ now kicked in. People paid less tax and claimed more welfare benefits. State spending and debt increased accordingly. As will be discussed, many states quickly (and for many commentators too quickly) moved to policies aimed at reducing their spending and debt but in only a few cases was this brought back to 2007 levels. All this provoked talk of a ‘return to Keynes’. As discussed in Chapter 7, the term ‘Keynesianism’ is slippery. In many respects, Keynesianism had never gone away. High levels of state economic intervention had become the norm. On the other hand, anti-Keynesian policies to support finance and financial mobility were never seriously challenged in the aftermath of the Crisis. Hopes for a more radical reorientation proved over-optimistic. In particular, talk of a New Deal along the lines of the 1930s or the post-WWII reconstruction underestimated the importance of the social movements that had achieved these and the lack of anything comparable this time.The labour movement across the developed world remained severely weakened. Signs of revival would develop but mainly in defensive responses to austerity rather than in asserting alternatives. In this situation, however sensible such economic reorientation might be from an abstractly theoretical ‘declassed’ perspective for national or global prosperity, imperatives to restore profits tended to predominate and to deepen the path cut in the previous period. Profits did recover.Viewed from the perspective of the 500 largest corporations as listed by Fortune (2013) there is a clear pattern of decline in 2009 and somewhat fragile revival. Table 10.1 shows the combined revenues and profits of these 500 largest firms and the number of them recording a loss in each year. In 2009, total profits slumped and more than a fifth of all these firms reported losses. This included 20 from within the top-100. Predictably, financial corporations were amongst the biggest losers but several large non-financial corporations, including General Motors, Pemex (the Mexican oil company), Delta Airlines, Hitachi, Alcatel-Lucent,Toyota and Time Warner, were also in the red.There was a dramatic reduction in the number of loss-making firms by 2011, the list including only eight of the 100 largest.This number fell to just seven in 2012. However, beneath these giants, things appeared to deteriorate with 58 of the top 500 reporting losses.The Crisis remained an ongoing and uncertain process. The concentration of profits amongst the top 100 firms increased substantially, even as their share of the total revenues fell.

TABLE 10.1 Fortune Global 500 companies, revenues and profits 2006–2012

2006 Total revenues ($ trillion) 18.9 Total profits ($ trillion) 1.2 Number reporting losses 20 Source: Calculated from Fortune (2013).







20.9 1.6 17

23.6 1.6 25

25.2 0.8 104

23.1 1.0 72

26.0 1.5 35

29.5 1.6 58

Recession or renewal? 143

Some of the details and problems of this renewed growth will be discussed below. However, in light of the preceding analysis, two important underlying features are worth emphasizing. First, global rates of capital formation continued their downward trajectory and spatial reconstitution. Globally, the rate of Gross Fixed Capital Formation (GFCF) dropped steadily from 21.7 per cent in 2007, to 19.3 in 2010 with only a marginal rise to 19.4 per cent in 2011 (World Bank 2013). So although by 2012 the IMF was celebrating a recovery of investment, it acknowledged that unlike past recessions, investment in ‘structures’ continued to fall and that global inventories continued to be run down (IMF 2012a). The systemic figures also conceal the sharp global divergence, with substantial falls of capital formation in high-income countries but the maintenance of more or less pre-Crisis rates and, because the economies were growing, rising absolute levels, in poorer locations. Expansion in East Asia was strongest. Figure 10.2 shows the absolute levels of GFCF and, given the short seven-year period, remarkable change, in the regional pattern. Second, the previous period was one of labour retreat and rising inequality, particularly in high-income countries and this tended to deepen with the Crisis and its immediate aftermath. The ‘normal’ experience in crises has been for the labour share of income to rise (IMF 2012a). Not least, this happens because there is a spectacular writing-off of fictitious financial assets of the very wealthy. Capital’s response, predictably, was to make workers pay. More remarkable is the extent to which they succeeded, both through direct wage repression and though public spending cuts and tax increases (Albo and Evans 2010). In the US, the labour share

10000 9000 8000

High income Sub-Saharan Africa


Latin America and Caribbean


Europe and Central Asia (developing only)

5000 4000

South Asia East Asia and Pacific (developing only)

3000 2000 1000 0 2005








Gross fixed capital formation by region, 2005–2011 ($ billions).

Source:World Bank (2013).

144 Recession or renewal?

of income fell. Elsewhere there was a slight increase in 2009, but already by 2010 levels had also fallen below those of 2008 in Japan and the UK.The compensation share varied considerably between continental European countries but in aggregate remained slightly above than pre-Crisis levels.This was still far below those experienced as recently as the dog days of Thatcher and Reagan in the late 1980s (OECD 2012, IMF 2012a, Schulmeister 2013). Unemployment rose in all major rich country economies and remained very high despite a return to growth. It was, as Summers admitted ‘a statistical recovery and a human recession’ (cited in McNally 2011: 24). Globally, there were still about 30 million more people out of work in 2011 than in 2007, a much slower recovery than in previous post-war recessions (IMF 2012a). The experiences in terms of capital formation and wages both suggest a continuation, even deepening, of the extensive strategies of accumulation identified as characteristic of the post-1970s economy. The next section will look at how this developed within different countries and regions before the final chapter returns to the global level.

The Crisis in high-income countries This section looks at the crisis in rich countries. It begins with the US and then considers the Eurozone before commenting briefly on Japan and the UK. The European crisis is the starkest but deep problems persist across the major highincome countries. Resource-exporting countries, like Canada, Australia and Norway, appear to be in a healthier position.They are not discussed in detail here but their stronger performance is tied to international trade and therefore the fragility of commodity prices and the performance of others.Their contribution to global GDP was relatively small. As seen above, the overall performance of highincome countries remained weak. The US recovered relatively strongly.After a slight fall in 2008 and deep contraction in 2009, growth rates of around 2 per cent were restored in 2010 and continued into 2011 when output rose above pre-Crisis levels (IMF 2012b). Profits rebounded. However, the return to growth remained problematic. Domestic demand remained weak. From the start, as Morgan Stanley (2009) reported, ‘corporate America has ruthlessly controlled costs in this downturn [and]…compensation of employees fell by 6% over the year to March – an unprecedented decline’. Unemployment remained at very high levels, 9.6 per cent in 2010 and only down to 8.1 per cent by 2012 (IMF 2013). Many of those with jobs desperately ‘de-leveraged’, paid back what they could of their debts so that debt-to-income levels fell, but low real estate prices depressed net worth so many more people now had negative equity; net debts rather than assets (IMF 2012a). Depressed consumer spending also meant there was little incentive for capital to invest in the real economy. Investment recovered from the extraordinary low of 14.7 per cent in 2009 to 15.5 per cent in 2011 but this was still not being directed towards capital formation which continued on its long-term, downward trajectory (IMF 2013,World Bank 2013).

Recession or renewal? 145

The government response had been quick, rescuing failed financial institutions and then with both monetary policy and with fiscal stimulus measures.There is little doubt that this ‘worked’ in the sense of preventing the apparently imminent meltdown. However, even slightly more radical Keynesians demanded much higher levels of spending.The effectiveness of intervention was also severely limited by the manner and conditions in which it was implemented. Easy money, cuts in interest rates and quantitative easing, put cash back into the banks.The hope, or at least the justification, was that this would then be lent; spent or invested in the wider economy. But large corporations, on the whole, were already cash rich. Meanwhile, whatever the official lending rate, banks were reluctant to lend to high-risk households and small companies (IMF 2012b). Banks were more inclined to simply take the money abroad, where it could earn higher interest (Hudson 2012) or to return to familiar practices, including the payment of huge bonuses. Obama delivered little on promises to radically overhaul the financial system. Substantial federal spending was also off-set by cuts at state and local level (Foster and McChesney 2012). Federal debts rose. Net debt reached 75 per cent of GDP by 2010 and continued to edge upwards (IMF 2013).These were unremarkable levels, comparable to those with which several countries had lived for years. Nevertheless, reducing debts became a pressing political issue. By August 2011 a deal was done to cut government ‘expenditure by 1.5% of GDP over a period of 10 years, tax increases were excluded’ (Schulmeister 2013: 401).This was not enough and almost immediately the ratings agency, Standard and Poor’s, downgraded federal credit.This was effectively a political move in favour of deeper austerity; for lower government spending, less welfare, more profits. Because its debts are overwhelmingly denominated in its own currency, in US dollars, it is hard to imagine how the Federal Reserve could default, which is what the ratings agencies are supposed to be evaluating. A political impasse around threats of an approaching ‘fiscal cliff ’ of scheduled automatic tax increases and spending cuts was then broken with deals for further if less radical scaling back of spending.There was a certain consistency in the US adopting doses of the medicine previously prescribed to other debtor states but American capital was in a very different situation to that in poorer countries. While happy with bailouts and tax reductions and with reductions in welfare, capital remained cautious about full-blown austerity, and stock markets looked very fragile when state support was wound back. Export competitiveness was important to some sectors but for the national economy as a whole, trade surpluses were not an option and much of US capital continued to live in the leeway allowed by the international use of the dollar. US trade deficits did initially shrink in 2009, but because of a fall in demand for imports. By 2011, the merchandise deficit was back to $785 billion, below the highs of 2005-08 but again on an apparently upward trajectory (Comtrade 2011). Once again, the system was dependent on the willingness of exporting countries to hold and lend back dollars at low interest, at rates which now again failed even to cover the falling value of the dollar as it resumed its pre-Crisis depreciation. There were questions as to whether or for how long this was sustainable, but for

146 Recession or renewal?

the time being, the US economy fared much better than most high-income country economies. As seen in the previous chapter, the financial crisis spread quickly across the Atlantic. By 2008, a profound recession gripped Europe, which would see only modest flickers of revival over the next few years. Across much of the continent, economies stagnated or contracted. Unemployment soared. By 2012, it averaged over 10 per cent across the 17-country Eurozone. It exceeded 20 per cent in Spain and Greece. Repeated bouts of financial attack hit weaker European governments. There were fears that the Euro would not survive. Far worse, there were fears that Europe had entered a new era of long-term austerity and depression and that this would spread. In a real sense, Europe was the victim of contagion of the Crisis centred on the US.The open economy had enabled financial operators from around the world to move into the American market and lose accordingly when the bubble burst. However, many vulnerabilities were made within Europe. Borrowing had actually increased more rapidly within several Eurozone countries than it had in the US. There were common patterns of declining capital formation, producing an increased supply of finance seeking more profitable returns, of banks seeking new customers as corporate borrowing declined and, although domestic inequality was less stark, there was also increased consumer demand and debt in many countries. Many countries had also become locked into permanent trade deficits, which they paid for by borrowing. To understand the unevenness within Europe it is worth briefly recalling the character of ‘neo-liberal’ Europe, which had become embedded long before the crisis. The European Union (EU) or Maastricht Treaty of 1992, agreed rules that governments should not run annual deficits of more than 3 per cent of GDP or cumulative total debts of more than 60 per cent. Inflation was to rise no more than 1.5 per cent above the average of the lowest three rates in the Union.The EU was pledged to ‘Stability and Growth’. Growth always came a distinct second. Unemployment remained high even in the boom years preceding the Crisis. By 2006 it was over 10 per cent in Germany, 9 per cent in France and Spain and 7 per cent in Italy. Real expansion was already the slowest since the 1930s. Stability was privileged through coordinated financial restraint. Monetary policy protected asset holders from having the real value of their money inflated away. Financial confidence in turn was supposed to mean that corporations and individuals had access to relatively easy credit.This was achieved by extending the ‘German model’. As Chapters 7 and 8 argued, the success of this model was based on the effectiveness of domestic anti-Keynesian strategies for an export-oriented economy in the context of an expansionary global system. Like the German Central Bank before it, the European Central Bank was ‘independent’, setting interest rates according to EU rules rather than following the demands of particular governments. Amongst other things, the common currency further reduced governments’ policy options.Without control of their own currency, they could neither print money to pay their debts nor devalue to increase export

Recession or renewal? 147

competitiveness. Governments apparently had little choice, although powerful countries like France and Germany did sometimes break their own spending rules. From the start, the Eurozone produced significant asymmetries, notably in international trade. As seen in Chapter 8, the largest European economy, Germany, enjoyed rising trade surpluses. Many other countries developed growing deficits. It is easy to see why. Normally, a trade surplus tends to push up a country’s currency value, attracting more imports while making exports more expensive and therefore less competitive. Deficits suggest that a country’s currency is overvalued and should fall. The Eurozone as a whole remained somewhere close to a trade balance with the rest of the world. Within it, the single currency meant that Germany did not get any revaluation and nor did countries like Spain and Greece devalue as conventional theory says they should. The trade experiences diverged. The trade deficits had to be covered by borrowing. The system therefore ultimately not only obstructed growth but also undermined stability. The diverging trade experiences also contributed to diverging borrowing costs. With stability, there should be little difference in the interest rates between countries. Lenders get the same return from different governments – 2 per cent interest on a million Euros from the German government is the same as 2 per cent from the Greek government. Providing both pay. As risks increase, the situation can change rapidly, and fear, even a small fear, that a country might default or drop out of the Euro meant investors demanded higher interest to take the risk. But if higher debts created the greater risks in the first place, greater risks now meant higher borrowing costs and bigger debts. It becomes a vicious circle. Nor is this simply a passive process of risk evaluation. Speculators scent blood. Credit rating agencies oblige by downgrading a country’s status, allowing creditors to demand higher returns. Indeed, had ‘objective’ evaluations of risk been the only reason for interest rate differentials they would presumably have existed much earlier (Schulmeister 2013). Speculators could effectively bet on governments’ failure and their speculations made failure more likely. Again there was a vicious circularity as countries’ debts increased and their creditworthiness fell. The interest rate for Greek government bonds shot up from late 2009, reaching over 40 per cent by the second half of 2011. Rescue packages coordinated through the ‘Triad’ of the IMF, European Central Bank and European Commission, brought this down to below 20 per cent and, with the conservative government’s election secured, to around 10 per cent by mid-2013.This was still an extraordinary level, particularly for a country whose economy was consistently contracting and the means of payment therefore falling (Schulmeister 2013).The speculators also now moved from one country to the next. Spanish, Portuguese and Italian bond rates also rose steeply. As Schulmeister argues ‘[e]ven an interest rate level of “only” 6% for Spanish and Italian bonds is not sustainable since the economies of both countries will grow at a much smaller rate’ (2013: 393). The bigger, richer European governments of Germany and France stepped in to lend to particularly debt-ridden governments, like Greece, as the commercial markets dried up. But they demanded policies that would quickly reduce the

148 Recession or renewal?

deficits and guarantee they got their money back. So governments announced cuts in jobs and services and in the wages of public employees. Austerity was deemed the appropriate means of redeeming government deficits, and when this proved insufficient, the logic was to demand more austerity (Schulmeister 2013). The about-turn from Keynes to austerity was made incredibly quickly, with unemployment still rising and any growth still fragile at best. For Keynesian economists the policy shift made little sense. However, the rationale was clear. Over the previous period, Europe’s competitiveness relative to the US had tended to decline. Labour’s retreat had been much less marked and state spending, especially welfare spending, more substantial (Glyn 2006). In sharp contrast to the US, there had been quite a steep decline in average working weeks in core European countries, although not, it should be stressed, in peripheral ones like Greece.The Crisis, particularly high unemployment, provided an opportunity to produce real restructuring along neo-liberal lines in excess of anything achieved in the previous decades. While imposed by international creditors, at least sections of the local elites supported austerity and gained from lower wages and the desperation for employment created by shredding welfare states. Greece received most attention, largely because austerity and privatization met such a high level of resistance. However, the cuts were also drastic in some smaller countries.As McNally reports,‘Latvia has fired one third of all teachers and slashed pensions by 70 per cent. Ireland has chopped wages of government employers by 22 per cent’ (2011: 4). In the past, and despite often devastating human consequences and the swallowing by rich country creditors of huge chunks of their productive revenues, several poorer countries had recovered and grown after structural adjustment. However, the absence of their own money supply or control of their currency values makes the path to growth through austerity particularly narrow within the Eurozone. Even those major countries that retained currency autonomy struggled badly. Japanese GDP recovered in 2010 to grow by 4.5 per cent but by 2011 it slipped back into recession (IMF 2013).The Crisis exacerbated longstanding problems of stagnation. There was little scope to cut already very low interest rates and the Crisis meant yet more government spending and debt. Japan’s new fiscal spending package was worth close to 5 per cent of GDP (IMF 2009b). Government deficits, already much higher than in the US or EU, shot up to an estimated 131 per cent of GDP by 2012 (World Bank 2013).This is worth emphasizing because although this represented a problem for the Japanese government and economy, there was no suggestion that it involved a crisis threatening imminent catastrophe or requiring the radical austerity inflicted in Europe. There were, however, some familiar stories. Labour costs were cut further, and firms destocked and ran down inventories. Consumption taxes were raised to cut the public deficit. Consumption fell, with particularly sharp declines in demand for durable goods like cars (IMF 2008, 2009a, 2009b, 2012a). Exports still increased, to new highs by 2011. In particular, Japan increased its exports to China, and this compensated for declining markets in high-income countries. However, trade surpluses became harder to sustain, especially with the (sporadic) appreciation of the yen as a safe haven currency and as

Recession or renewal? 149

the carry trade unwound to some extent (IMF 2008). As the yen rose, imports surged and by 2011 Japan ran a deficit in merchandise trade, almost unthinkable over the previous decades (Comtrade 2011). Austerity limited the scope for the export surplus strategy, especially as more countries attempted to imitate it. It remains conceivable that it might work for some if the labour movement is sufficiently acquiescent, but even severe cuts are no guarantee. In Britain, profits and top incomes recovered quickly while over the five years to 2013, workers’ pay fell 6 per cent in real terms (McNally 2011, Allen 2013). A devalued pound would increase competitiveness and there was anecdotal evidence, for example, of the negative impacts this had south of the border in Ireland. However, financial interests, so important in Britain, seem likely to resist. Conversely, there is relatively little manufacturing left to take advantage of reduced real wage costs and even should there be currency devaluation, any export-led recovery would take considerable time – much as was seen with the US dollar devaluation after 2001. Factory output in early 2013 remained 10 per cent down on 2007 levels (Allen 2013). Eurozone stagnation seemed likely to continue and this would limit British markets. Britain’s situation remained unlike that of countries in the Eurozone, and control of its own currency gives it some policy options. Manufacturing decline can be exaggerated and in certain sectors Britain remained a major net exporter, for example of chemicals, particularly pharmaceuticals, and of power and specialized machinery (Comtrade 2010). However, Britain remained a long-term net importer and outward foreign investor. Radical devaluation was unlikely and a looser coalition for domestic restructuring appeared to prevail. Britain’s parallel move to austerity is a reminder that Eurozone exit was not in itself a recipe for a happy Keynesian future. National strategies moved quickly to attempts to make workers pay for the crisis. In high-income countries it was far from apparent that this was sufficient to restore growth. However, at least several poorer countries appeared to fare much better.

The rapid recovery and growth of poorer countries and regions This section surveys the much more positive experiences of important poorer country economies.As seen in Figure 10.1, growth in poorer countries as a whole dipped to 2.7 per cent in 2009 but then recovered. Of poorer regions, only Latin America experienced outright contraction in 2009 and there too growth rebounded strongly. Developing economies in Asia grew at more than 7 per cent even in 2009 and at over 9 per cent in 2010.This section focuses on the ‘BRICs’ – an awful term coined by merchant bankers Goldman Sachs to group four large, important and apparently successful but in many other respects very different poorer country economies. China’s remarkable growth continued. Chapter 8 argued that China’s phenomenal expansion from the late 1970s and particularly from the 1990s should be understood primarily in terms of domestic capital accumulation. China mobilized very high levels of capital investment to achieve productivity growth (Hutton

150 Recession or renewal?

2006). In doing so, it moved up the value chain producing more sophisticated goods. However, the high and rising rates of investment were the obverse of low and falling consumption shares of income.This meant that although driven primarily by internal processes of accumulation, China’s growth was tied to the global economy. Exports surpluses avoided demand problems. The Crisis initially hit quite hard. In the early months, China experienced a stock market crash in which equity prices more than halved. Exports suffered and the current account surplus shrank from 10.1 to just 2.8 per cent of GDP between 2007 and 2011. However, China only suffered a mild economic growth slowdown. As in many rich countries, the state, through the Peoples Bank of China, responded rapidly through monetary easing, lowering interest rates and reducing reserve requirements. Interest rates would remain low into 2012 (IMF 2008, 2009a, 2012c).The Chinese state, through public enterprises, Central and Local Government, also undertook a massive spending program, amounting to $585b dollars. This was mainly directed towards strategic industries and infrastructure, rather than consumers, but with some spending on new social programmes and low cost housing (OECD 2010, Foster and McChesney 2012). Ten priority sectors were identified, from shipbuilding and petrochemicals to logistics. Spending on railways, roads, airports and electricity took 37.5 per cent. The Crisis response thus meant that the fall in exports was offset by an increase in domestic investment and, to a lesser extent, consumption. With this, China appeared to be fulfilling its side of calls to rebalance the global economy. Sustained rapid growth meant that consumption levels rose. Particularly in urban areas, the consumption of durables like refrigerators and washing machines reached very high levels (OECD 2010). However, this needs to be qualified because, despite some controversy (Huang 2013), domestic consumption continued to fall as a share of national income. As the IMF acknowledge, an increasing migrant share of the labour force, probably accounting for around 40 per cent of employment in urban areas (OECD 2010), helped to keep wages low. By 2012 the ‘household income to GDP ratio [wa]s not yet on a firm upward trend’ (IMF 2012c: 23). Spending was also being fuelled by the low interest rates and rising debts (IMF 2009b). Real estate prices shot up and by 2012 there were warnings of overinvestment and asset inflation. More fundamentally, it is questionable whether rises in domestic consumption could be sustained without undermining profits and growth. The strategic response to the Crisis drove the investment share of income up still further, from 39.1 per cent in 2008 to 44.8 per cent in 2010 (Heston et al. 2012). In principle, domestic investment might equally provide the demand but this would involve a reorientation of the economy away from consumer goods; and creating more capacity potentially produces greater demand problems in the future. Capacity utilization, which had been nearly 80 per cent before the crisis, fell to around 60 per cent (IMF 2012c). Without a substantial revision of the earlier growth model, the recovery of export demand would appear to remain vital.The Crisis changed China’s trade position (see Figure 10.3), with a further reorientation

Recession or renewal? 151

away from the US and Europe towards other Asian markets, accelerating the trend of the preceding period (IMF 2009a). However, the net surpluses with the US and Europe remained undiminished. China still ran a substantial trade surplus even as imports jumped from $954b in 2009 to $1,809b in 2012 (IMF 2012c). China’s growth has been predicated on at least relatively low wages not only as the basis for an export surplus but also for the high profits that allow sustained reinvestment. The ‘rebalancing’ of the economy that mainstream commentators advocated ignores this simple fact. However, while China’s investments added to global overcapacity and strained the export-oriented model, they did not necessarily constitute an immediate problem for China. Indeed, by investing while others stalled, China may have sustained or even increased its relative competitiveness. Its share of world manufacturing continued to increase. In some key industries, notably in automobiles, there was a dramatic transformation in the Crisis period with China’s share of the world production more than doubling to around 22 per cent by 2008–09 (OECD 2010). China’s size and strength now mattered crucially to other countries. Most obviously its rebound boosted imports from other Asian economies (like Korea and Indonesia) and from suppliers of raw materials (like Australia) (IMF 2009b). As Figure 10.3 shows, other Asian countries continued, in aggregate, to run large trade surpluses with China. Its demand for a range of base metals continued to boom even as that in the rest of the world economy shrank (IMF 2011a). At least in the short-term, although many did suffer the sharp contraction of 2009, China’s rapid rebound helped several other East Asian economies to weather the Crisis relatively well. However, embroiled in increasingly intense intra-Asian networks, many would appear to have become increasingly vulnerable to changes in the largest economies. The IMF reports, a ‘sharp slowdown in China’s investment growth would also lead to a decline in financial asset prices abroad, as well as base metal





200 100 Exports


China’s changing trade relations, 2006–2010 ($ billions).

Source: Comtrade (2010).



West Asia

South East Asia

South Asia

Latin America

East Asia

North America

Sub-Saharan Africa

Developed, Europe

Developed, Asia-Pacific


West Asia

South East Asia

South Asia

Latin America

East Asia


North America


Sub-Saharan Africa


Developed, Europe


Developed, Asia-Pacific



152 Recession or renewal?

prices (particularly zinc, nickel, copper, lead, aluminium, and iron ore)…’ (2012c: 26). Many oil-exporting economies also continued to grow quickly on a similar basis. Oil prices fell with the recession and exporting countries often suffered accordingly but prices remained at historically high levels and exports and growth quickly recovered. Asia’s (and the world’s) second most populous country, India, also appeared to weather the Crisis successfully. It had appeared vulnerable to some of the same processes of domestic liberalization and financialization of high-income countries. Its earlier strong growth had included, and for some authors was based on, increased consumer spending by the relatively rich (Ghosh and Chandrasekhar 2009). Capital was typically on a much smaller scale than in China. However, rates of investment also rose quite steadily. GFCF reached 30 per cent of GDP in the mid-2000s, twice the rate it had been in the early 1970s.Although this was a lower level than China, capital accumulation was similarly the major contributor to economic growth, with its importance relative to the growth of labour and sectoral shifts increasing between 1996 and 2011 (OECD 2011c,World Bank 2013). India also experienced substantial net capital inflows, which more than covered its trade deficits, and this allowed India to also build up foreign currency reserves. The Crisis quickly hit India’s stock market and industrial production fell. However, fears of a wider slump were not realized.The Reserve Bank cut interest rates and increased credit access for businesses. It also implemented a fiscal stimulus package, aided in doing so by what remained overwhelmingly a state-owned banking sector. The stimulus was relatively modest at around 1 per cent of GDP but the transmission of the crisis to India remained at least delayed. Trade had increased but India was less open than many other developing countries in Asia. It also ran deficits rather than surpluses. Much of India’s service trade was protected by the way it was locked into relatively long-term contracts. From the second half of 2009, net capital inflows returned to high levels of about 4 per cent of GDP. There was a speculative element to this, with inflows a hedge against investments in more exposed economies elsewhere in Asia. Similarly, a threat that remittances, particularly from the US would fall was offset in the short-term by returnees bringing their savings with them (Ghosh and Chandrasekhar 2009). For whatever reason, rising levels of capital formation continued and growth remained strong. Russia largely falls into the category of successful oil exporters. From the collapse of Communism, until almost the end of the 1990s, there had been steep economic decline. Thereafter, the economy grew strongly until the Crisis. This was substantially based on fuel and to a lesser extent metal exports. Russia’s experience was quite unlike China’s in that investment rates remained very low and capital stock very old. Capital formation edged upwards in the 2000s, in contrast to the highincome countries, but this still left ‘a high proportion of plant and equipment fully depreciated [and]…much of Russia’s infrastructure…in a poor condition’ (OECD 2011a: 35). Productivity growth was accordingly slow. Output per hour worked, relative to rich OECD countries, remained well below 1991 levels.To compensate, the total number of hours worked increased rapidly, in part because employment

Recession or renewal? 153

rates went up but particularly because each worker worked longer. Inequality grew, rapidly in the 1990s and more slowly in the 2000s (OECD 2011a). Like other fuelexporting countries, Russia remained vulnerable to the historical volatility of commodity prices. State revenues were similarly dependent on levies on fuel producers or from the revenues of the state-owned firms. Russia was badly hit by the 2009 recession and although strong growth returned in 2010 and 2011 this did not recover the lost ground; Russia was still poorer than it had been in 2008. Russia’s deficit in non-fuel trade blew out to over 12 per cent of GDP.This was more than covered by its primary exports but indicated a significant vulnerability. Brazil was in a somewhat similar position to Russia. From the mid-1990s Brazil followed substantially neo-liberal policies or what the OECD call a ‘strengthened macroeconomic framework’ (2011b: 8) somewhat moderated under the Lula and Rouseff administrations, when rising minimum wages and increased social spending broadened domestic demand (Schmalz and Ebenau 2012). Investment and saving remained low by Latin American standards and interest rates very high, typically around 30–35 per cent. Rates of investment in infrastructure were particularly low, especially with falling public sector investment. However, capital formation did grow, with GFCF rising from 15.3 to 19.3 per cent between 2003 and 2011, with only a modest drop in the upward trajectory in 2009 (OECD 2011b). Brazil became self-sufficient in oil by 2006 and by 2010 had a 130-million-barrel surplus. The industry was substantially nationalized so state revenues rose with exports. Foreign debt could be repaid and the state gained political leeway (Schmalz and Ebenau 2012). Exports fell steeply with the Crisis and net manufacturing exports went negative in 2008. By 2010 the overall current account deficit reached $47 billion or 2.3 per cent of GDP (OECD 2011b). About 800,000 mainly industrial jobs were lost in the three months to January 2009 (Schmalz and Ebenau 2012). However, the recovery was rapid. Anti-cyclical measures of interest rate cuts and spending were passed, mainly based on an acceleration of the ‘Greater Brazil Plan’, which envisaged a 3 per cent rise in the investment share of GDP but also including cuts in consumption taxes and additional social spending.The investment plans would continue even as huge cuts to the federal budget were announced (OECD 2011b, Schmalz and Ebenau 2012). However, the recovery of fuel prices and oil exports again underpinned renewed growth. Across Latin America as a whole, GDP fell by 1.6 per cent in 2009 but recovered at rates of 6.4 and 4.7 per cent the following years.The region was less open to international trade than Asia, and rich countries accounted for a declining share of Latin American exports. Blighted European markets were also relatively less important. Intra-regional trade was much weaker than in Asia (accounting for around 18 per cent of exports) while East Asia, particularly China, accounted for an increasing share of Latin American exports, up from just 2.5 per cent in 2000 to 12.3 per cent by 2011 (Comtrade 2011). Finally in this section, Africa’s uneven experience in the Crisis highlights many of the same problems. Still, on average, desperately poor, most African economies grew even in 2009 – the relatively better-off, South Africa, Botswana, Namibia and

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Libya being important exceptions. Many African governments also pursued countercyclical policies – notably with the toleration (even encouragement) of their IMF and WB overseers. Bond describes how ‘[a] few countries went further: new exchange controls helped Tanzania, Rwanda and Kenya fend off hostile financial forces.These classically Keynesian strategies also explain why Africa did not suffer as much as other regions during the crisis’ (2011: 4). Growth rates quickly rebounded in 2010. Official figures suggest that in only a few countries, like Nigeria, did the Crisis have a major impact on unemployment although unofficial rates may have been worse, for example with 1.5 million job losses and worsening inequality in South Africa (Bond 2011). A fall-back in continental growth to 4 per cent in 2011 is attributable almost entirely to the collapse of civil-war-torn Libya. However, the experiences were predictably uneven. Greater integration into the global economy increased vulnerability so it was the poorest countries, relatively isolated from trade and financial flows, which tended to be less affected by the Crisis. The relative success stories also included some formerly very poor countries like Ghana but the trade balance from sub-Saharan Africa as a whole, quite strongly positive in the years preceding the Crisis (this was the Washington Consensus line they had been following), now went negative (IMF 2010a). Oil exports fell significantly with the Crisis and growth rates in countries dependent on them declined accordingly (IMF 2010a). Countries in North Africa, with export markets in Europe, appeared to be particularly adversely affected given that region’s traumas (IMF 2010b). Conversely, much of the overall rebound of growth was due to oil and to a lesser extent other commodity exports (IMF 2011a). As historically, these were unstable and subject to resource depletion. As commodity prices rose, improving export performance, this increased fuel and food costs and hit many of Africa’s poor particularly hard.

Conclusions This chapter outlined the unevenness of the Crisis and the variety of the national responses to it. However grim things may look for many people and many countries at the time of writing, since 2009 the global economy has been growing. Significant economic as well as human problems remain. In high-income countries, particularly in Europe, declining investment and low demand were exacerbated by austerity policies. Stronger recovery was achieved in leading poorer countries but much of this remained tied to international trade and to the deepening of forms of accumulation that existed before, and substantially caused, the Crisis.This raises important questions of whether and to what extent growth is sustainable, which will be discussed in Chapter 11.


Introduction The chapter discusses possible directions of capitalism in the aftermath of the Crisis.The failure to anticipate the sub-prime crisis dragged economic forecasting deeper than ever into disrepute. Confident anticipations of a rosy capitalist future had become commonplace in ideologies of efficient markets, the absence of alternatives, the end of history. If the Crisis has only dented such hubris it has achieved something.We cannot know the future, even in a probabilistic sense. However, this does not render it random. Crises are usually (and this time clearly) periods of increased social contest in which competing strategies are developed and advanced. It is necessary to be cautious but some outcomes seem more likely than others. Knowing something about what caused the Crisis can illuminate likely future trajectories and their limits, can identify the interests pushing or obstructing particular reorientations and therefore inform strategic thinking about alternatives. The chapter concentrates on two possibilities; either extending the path of the last few decades or of a return to more organized and statized forms of accumulation. To continue along existing trends would mean that the Crisis turns out not to have been a crisis after all, not a ‘turning point’. This is mainly what has happened so far and seems set to continue in the short-term. It is unlikely to prove sustainable. The breakdown reflected deep underlying dislocations that have not gone away. The second possibility has two variants. Great hopes were expressed during the Crisis of a ‘return to Keynes’, involving more managed capitalism and more equitable development in leading high-income countries. Initial responses confirmed the possibility of effective state action but the prospects for major economic reorganization or substantial financial re-regulation soon faded. Significant social struggles would seem to be needed even to reinstate any major reorientation onto the policy agenda. A different version of the reform thesis sees

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a more organized capitalism coming to dominate by way of rapidly growing poorer countries. Much stronger growth was re-established in many such economies, where state intervention (despite great variation in both form and content) often remained an accepted part of the development strategy. China, in particular, was soon again growing very fast, even as its export markets stagnated. However, there was little evidence of a decline of international interdependence or of re-localizing capital relations, and the realization of any autonomous national sources of growth therefore also faces significant obstacles. Some final reflections turn to the possibilities for more radical change. Here the discussion is necessarily tentative, predicated more on the difficulties of achieving the other alternatives than on the strength of existing trends.Yet the unevenness of capitalism does mean that there are always counter-trends, alternative sources of growth and spaces of resistance.

Deepening fault-lines Earlier chapters argued that the key characteristic of capitalism for the 30 years preceding the Crisis was a tendency towards extensive accumulation. High capital compositions and high wages had substantially generated the crisis of the 1970s.The need to overcome them dominated Capital’s strategies and regulatory change in subsequent decades. Labour shares of income declined. Investment fell at a systemic level and was redirected towards poorer locations. States supported this, attacking labour and reducing barriers to capital mobility between sectors and across borders. Income inequality, Capital’s declining propensity to invest in the productive economy and the development of global imbalances fed financialization. Chapter 10 argued that the post-Crisis turn to austerity, particularly in major high-income countries, strengthened this trajectory. Schulmeister writes of Europe how ‘[o]n the one hand, a policy based on the neoliberal paradigm had paved the way for the financial crisis, on the other hand, the (austerity) measures to overcome the crisis are derived from the same paradigm’ (2013: 39). In aggregate, wages and employment fell across high-income countries. The dismantling of welfare states, in particular, appeared to take a deeper turn. As the next section will discuss, there are many criticisms of this policy but driving down wages helped to restore profits and could potentially increase national competitiveness. At the time of writing, the return to ‘sound’ monetary policy and reducing government debts, combined with extremely low interest rates, had again restored financial confidence. US stock markets reached new heights. Large profits could be made in new speculations, notably from investment in governments’ debts, providing the governments obligingly paid. Beyond finance, corporate profits increased. In most countries there was a return to growth.There were important exceptions, particularly across southern Europe, but high-income countries’ economies as a whole grew by 3.0 per cent in 2010, 1.8 per cent in 2011 and 1.3 per cent in 2012 (World Bank 2013). The growth was moderate, to be sure, but real. The decline of growth rates as stimulus measures were wound back did raise questions about whether recovery was sustainable.There are troubling parallels with the

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Great Depression in the US and the sharp slip back into recession in 1937, as spending was withdrawn. Relatively healthy growth in the US and Canada contrasted not only with the European periphery but also with its leading economies. GDP growth in 2012 was less than 1 per cent in Germany, France and the UK (World Bank 2013). The reasons for firms’ reluctance to invest were intensified; overcapacity increased and final demand took a battering. Rates of Gross Fixed Capital Formation (GFCF) slumped further. However, the Crisis did not involve anything amounting to ‘creative destruction’. As throughout the supposedly neo-liberal era, giant firms typically had the resources to defend themselves and received implicit guarantees from states unwilling to allow recessions to run their full, catastrophic, course (Brenner 1998). Again, the swift state interventions prevented any generalized economic ‘shake-out’. Economic concentration, particularly of financial assets in corporations ‘too big to fail’, reached new heights. This increased the firms’ power, not least to demand resources from the rest of their national economies, especially from workers, which in turn exacerbated the lack of demand and lack of productive investment. The contradictions of the extensive and financialized form of accumulation reappeared. US trade deficits quickly resumed their upward trajectory and the dollars continued to return from the exporting countries. Far from going into reverse, the volume of foreign currency reserves almost doubled between 2007 and 2012 and of this the share held by poorer countries went up from 59.0 to 66.2 per cent.The dollar proportion of the ‘allocated reserves’, those for which the currency was known, fell from 65.3 to 61.9 per cent but this still represented a huge increase in the absolute levels of foreign dollar holdings (Cofer 2013). Rates of capital formation, notably in China, took another upwards leap. International trade levels soon rebounded. The net outflow of capital from high-income countries to relatively poorer ones accelerated. For some smaller countries, austerity could potentially repeat the ‘success’ of the earlier structural adjustment or Washington Consensus model through an exportoriented growth but slower growth and weakening markets in high-income countries made this harder to sustain. Most countries remained open to capital flows. This helped attract money borrowed at low interest within core, highincome economies, particularly the US. It might also prove to be vulnerable to increases in those interest rates, as had happened so many times before (UNCTAD 2011). Nevertheless, for the time being, the global imbalances and their underlying causes seemed set to increase. Sections of US capital appeared to favour more full-blown domestic structural adjustment as a solution. In many respects, the US was in a similar position to many poorer countries which had previously been hit by crises based on speculative bubbles and financial inflows.The Tea Party and Republican Right opposed further Federal spending and called for severe budget cuts. There was an important constituency for this. US capital still exported vast amounts and these exports rebounded from the Crisis much more strongly than did those of Germany and Japan, for example. In services, particularly financial ‘services’, the US remained the world leader.There were powerful social forces relatively sanguine about domestic

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markets, supporting austerity and dollar decline. However, these export sectors were a relatively small part of the US economy, and while US capital could agree on wage repression, drastic reductions in state spending and domestic consumption seemed likely to produce a general downturn of such destructiveness that policy only edged towards thoroughgoing austerity. At a global level, the relative success of the ‘neo-liberal’ model had depended on the (illiberal) role of the US economy at its centre. The use of the dollar as an international reserve currency gives extraordinary privileges of ‘seigniorage’; the right of the US to pay debts in its own currency and therefore also to default on its debts through currency devaluation. Its deficits had allowed America to remain the importer of last resort, without which the global economy seemed likely to descend quickly into generalized, outright recession (Wolf 2010). The dollar’s use reflects US ‘hegemony’, so emphatic at the end of WWII.To the surprise of many, this hegemony was confirmed rather than contradicted by the collapse of the Bretton Woods monetary regime in the 1970s with the persistent use of the dollar even completely divorced from gold and any commodity base. However, that hegemony now looks precarious, dependent as it is on capital inflows from countries much poorer than itself (Callinicos 2010). For the time being, powerful mutual interests preserve the system but the enduring willingness to hold and recycle dollars seem more the result of inertia than positive trust in the dollar or the US economy. Selling off dollar holdings would prompt price falls and devalue foreigners’ existing assets (Brenner 2003). The decline of the dollar would also undermine America’s ability to buy and provide the market of last resort. So existing trends continue. Productive capacity in the core economies continues to fall, unemployment remains high and domestic demand depressed. Global imbalances persist. Even the IMF acknowledges that while they do so, the recovery ‘stands on increasingly hollow legs’ (2011a: 26). This is not to suppose that collapse is imminent or that the exact crisis mechanisms will be replicated. House prices in the US seem unlikely to reflate quickly or financial institutions to extend credit quite as they had done. However, the same general strategies of extensive accumulation and an unreconstructed financialization seem set to continue.At best, they promise sluggish, jobless (or near jobless) growth supported by pragmatic state interventions, to block worse economic contractions and douse the social protests they provoke.

Prospects for a ‘re-nationalization’ of accumulation The second alternative envisages a return to Keynes, and to more organized and localized forms of accumulation. This had appeared quite likely in 2008–09. In high-income countries, the financial failures particularly underlined the still essentially national character of finance and its dependence on states. Almost everywhere, trust in non-state money, which had proliferated so extravagantly in the years preceding the Crisis, now shrivelled. In many countries, important financial institutions were nationalized.There was also some degree of re-nationalization

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in the productive economy, notably in the US government part-ownership of the rescued General Motors. The Crisis also involved, at least temporarily, a ‘partial deglobalization’ with falls in trade and some spatial re-concentration in a relative pull-back from foreign investments. Overall levels of investment dropped, with flows to high-income countries showing little sign of recovery by 2011 (UNCTAD 2011). However, optimism for real change at the level of state policy and that the Crisis would lead the economy down more attractive paths soon faded (Nersisyan and Wray 2010). As above, any redirection did not go far and broader state interventions remained limited. Keynesian critics complained of insufficient amounts of fiscal stimulus but also of the largely unchanged financial and regulatory environment. Schulmeister argues ‘that (pseudo-Keynesian) deficit spending policies cannot do their job under “finance-capitalistic” framework conditions’ (2013: 399). Banks often simply took the easy money and used it for further speculation, including against the governments that were lending it.There was little indication of a shift to more intensive forms of accumulation within high-income countries or of states imposing greater control over national economic direction.The initial stimulus measures gave way to austerity.Talk of radically re-regulating finance was reduced to a ‘specialists’ debate on technicalities’ (Stockhammer 2011: 237). However, the Crisis did show the hollowness of neo-liberalism in the sense that states had not been sidelined, rendered powerless by financialization and globalization. Effective state intervention was at least a possibility. The arguments against austerity and for policies that redistribute downwards continued to have a compelling economic as well as social logic. Inequality fostered the increased propensity both to borrow and to lend, which had led to the crisis. For much of the left, the failure of neo-liberalism still held out the prospects of a change of course, of a New New Deal or, better still, of a New Green Deal (Dannreuther and Petit 2013, Lipietz 2013). Just as the Great Depression was a genuine crisis out of which capitalism (finally) grew in new ways and led to substantive changes in state policy, so could this crisis led to much-needed changes (Dumenil and Levy 2011).The manifest failures of financial de-regulation required re-regulation. The contrast between the earlier (austere) Treasury View and the New Deal and Keynesian and Fordist growth of the post-WWII period warns against thinking that existing trends are bound to continue. The experiences in Greece, for example, confirms that marginalized ideas like default and withdrawal from the Euro can quickly become real political possibilities (Callinicos 2012).The failure to address the fundamental dislocations continues to make the prospect of a return to more statized forms of capitalism attractive to many commentators. The inter-war experience also recalls that economic redirection was a social achievement rather than simply the product of wise policy change. Perhaps the most theoretically developed advocacy of such a transformation this time round is that of Dumenil and Levy (2011), which draws explicit parallels with the 1930s. According to Dumenil and Levy ‘[n]ationalism or patriotism, on the part of the upper classes, is crucial to the advance of national economies’ (2011: 27). They

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explain that this may need to be encouraged by new class alliances, arguing that managers are the crucial hinge group within a ‘tripolar class configuration’, of ‘capitalist classes, managerial classes and popular classes’ (2011: 14–15). In the 1930s, these managers and technocrats, employees but high-waged employees, sided with labour, in fact led labour, in instituting the New Deal and the compromises of managed capitalism on which the post-war settlement was based. Come the 1970s, managers switched their allegiance from the social democratic compromise and followed capital down the path of neo-liberalism.Their upper echelons penetrated the most intimate mechanisms of finance and, as a whole, the managers benefited from higher wages and the accumulation of financial assets.This enables Dumenil and Levy to suggest two likely paths out of the current crisis. Both would require the reassertion of the independence of this managerial layer. A right-wing option would be for managers to assert their leadership over the upper classes, rein in the excesses of financialization – and the distribution of profits to personal income – to ensure more reinvestment and technological advance within the country.A leftwing option would be for them to lead the popular classes into a more thoroughgoing redistribution and reorganization, a form of new, New Deal. Both alternatives face problems. Sound economic arguments are seldom sufficient and, as yet, there is little sign of social struggle in core economies, of the sort that preceded the New Deal or post-WWII reforms. Restructuring since the 1970s has also significantly reshaped capitalism, strengthening specifically internationalist elements and weakening those for whom stronger domestic investment and markets would prove at least relatively acceptable. More even than in the 1930s, reform (however much it might prove to be in Capital’s long-term interests) would have to be forced on reluctant capitalists. It is not clear that the managerial layer identified by Dumenil and Levy has either the political muscle or the economic interests to overturn the neo-liberal trajectory. Labour too has been disorganized. It was suggested earlier that this weakness is not structurally determined and that potential bases of resistance still exist but, in this context, it is also worth emphasizing that the Keynesian period represented a reincorporation of labour to capitalist imperatives. It was a way of overcoming labour’s militancy and threat. For labour to be as assertive as necessary (however unlikely this may seem) and yet so accommodating to strategies of national capitalist accumulation, seems to lower considerably the probability of achieving such a reorientation. Liberal policies, despite the experience of the Crisis, continued to dominate. To Keynesian critics this looked like economic ‘madness’; the triumph of a now-doomed ideology. Unfortunately, as Konings writes ‘the Keynesian understandings of the Crisis suggest a communal interest in re-regulation that is hardly reflective of existing levels of inequality’ (2010: xii).They overlook the powerful forces driving Capital’s extensive accumulation strategies. An alternative argument for a new, state-led, phase of accumulation envisages this being led by poorer country economies (Nölke 2012).While the IMF (2011a) predictably advocated austerity to reduce the deficits of debtor countries, it also proposed a parallel set of reflationary policies to reduce the surpluses in countries

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like Germany but also in China and other poorer net exporters. As discussed in Chapter 10, the state in China and India had retained control of banking sectors and this helped them to make strategic investments rather than just passing temporary stimulus measures. Both countries experienced only a mild slowdown in 2009 and then continued to expand rapidly. State ownership of key resources, of oil in Russia and Brazil, also helped these countries to avoid some of the adverse aftershocks and both economies were soon growing strongly again. In the short-term, trade imbalances did fall, particularly with reductions to China’s surpluses. In China, in particular, growth had raised incomes and living standards dramatically over the previous thirty years and this raised the prospect of a ‘Fordist’ moment, of a virtuous cycle of domestic accumulation and consumption like that achieved in high-income countries during the 1950s and 1960s. China has also long confirmed the reality of state-led development.The Crisis response further raised the levels of domestic investment and, to a lesser extent, consumption. Were domestic consumption to replace foreign markets (previously so important) in a sustained way, this would imply higher labour shares of income and therefore lower profits and slower growth. Again, there is likely to be resistance from within Chinese capital and the Chinese state.There might, however, be a stronger potential constituency that would benefit from such a change than amongst western capitalists. Even at reduced levels, profits and growth in the Chinese context could still be high by international standards. The working class in China, while as yet poorly organized and resisting only sporadically, would also appear to have the potential to become a powerful social force with interests in redistribution.This would, however, require substantial and disruptive restructuring. There is, as yet, little evidence supporting claims of ‘decoupling’, of successful poorer countries’ experiences becoming dissociated from those of the rich countries. Most indicators suggest a deepening integration, whether measured by levels of trade and financial integration or in terms of the correspondence of national growth rates.The structural dependence on foreign markets is particularly stark for primary product exporting countries but the export-orientation is almost in the DNA of capital in many developing countries and reorientation would require major reorganizations not only between classes but also between firms and industries. Any lowering of growth and disappointment of expectations risks provoking new discontents. Rulers seem likely to be wary. Finally, the creation of any Fordist moment in poorer countries faces fearsome obstacles in terms of its environmental impact both in terms of pollution and resource depletion. There are, therefore, some indications of a partial retreat from some of the trends of the earlier period, some reduction in trade imbalances and some indications of greater state involvement in the economy, particularly in finance. The Crisis did involve, at least temporarily, a partial ‘deglobalization’. However, even economies in which there was a high level of national economic coordination, most obviously China, but also the self-proclaimed socialist regimes in Venezuela and Bolivia, were soon again increasing their levels of trade and becoming more deeply locked into networks of global capitalist accumulation. Global levels of trade resumed their

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growth. Unusually high levels of corporate savings were also being parked in foreign affiliates, not invested in the real economy.There were changes but nothing comparable to the reorientations produced by the crises of either the 1930s or 1970s.There was no general ‘return to Keynes’ in high-income countries. Nor, in poorer countries, were moves to domestically oriented patterns of accumulation the dominant trend.There has been a tendency to think of this as a policy error, reproducing the sources of instability. However, it was driven by enduring imperatives of capital, now more than ever spanning across borders, and of state functionaries to pursue competitiveness of their national spaces of capital accumulation.To break with this would require a more fundamental social as well as economic rupture.

Re-locating capital and strategies of resistance The Crisis initially held out the prospects for more radical change, not necessarily for the better. Outrage at bank bailouts was expressed in stark alternatives,‘between “let ’em fail” and “address the injustice”’ but, as Dymski writes, ‘the anticipated showdown…never came to a head’ (2010: 101). Let them fail is a liberal argument, that the market should be a social-Darwinian world where the weak go to the wall. It is perhaps more honest than the standard practice, which celebrates free markets but gorges on corporate welfare. However, it presents an appalling vision unconcerned by human casualties and which, fortunately, has nothing to do with economic reality. On the other hand, demands to address the injustice found various expressions, sometimes in the proposals discussed above for a return to Keynesian policies but also in more radical, if not always theoretically developed, protests. The Occupy Wall Street movement stands out. Its demonstrations and camps claiming to represent the 99 per cent who were victims of financialization spread across the US and other countries and captured wider sympathy. It soon fizzled out. However, if capitalism is heading along paths already shown to be unsustainable, and the most obvious alternatives face substantial obstacles, the protests at least raise important questions of how to break the impasse. They raise questions of economic policy but also about the sort of social movements capable of achieving this. This book began by warning of the dangers of steering between too rigid a structural determinism and an eclectic voluntarism. It has defended the attempt to identify general trends, the major forces that led to the Crisis and directions in which the economy has since headed. Doing this always risks caricature and oversimplification. These are only general tendencies. The trend to more extensive forms of accumulation since the 1970s is only that.Wealth remains hugely concentrated within familiar locations.There is probably little prospect of ‘patriotic’ ruling classes deepening their investment in existing locations in high-income countries to develop specifically national strategies of accumulation. However, this persistent localization does imply both sources of dynamic change in particular places and local and national bases for resistance. In some countries, large sections of capital might have interests in limiting international competition and for a retreat from

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openness. A lack of competitiveness and relatively high wages in this context are not confined to rich countries. Chinese textile manufacturers face fierce competition from rivals in Vietnam and Bangladesh and might gain by moving away from trade-based growth and by increasing domestic consumption. More radically nationalist opposition includes the rise of the fascist right as a significant force in several Eurozone countries, in badly hit peripheral ones like Greece and Hungary but also in France and the Netherlands. Opposition to global capitalism, in particular the opposition through specifically national capitalism, need not mean a gentler, kinder form – any more than it did in the 1930s. Capital’s inertia also means that there are spaces of resistance for labour.At industry level, it is clear that not all workers are being undermined by off-shoring and an alleged ‘race to the base’. High-income countries’ share of investment shrank but continued to represent a hugely disproportionate share of the total in relation to population. Investment growth amongst poorer countries was concentrated in quite a small group, particularly in Asia. It was not the poorest that attracted most capital. Capital’s structure and restructuring mapped poorly onto any outcomes for labour organization or pay, perhaps indicating alternative, more political reasons for labour’s decline as well as an underutilized potential. Capital has achieved high profits. As Gordon (1996) described during the 1990s boom, the corporate world is less mean and lean than mean and fat.There was no objective lack of profit. Nor, at state level, was austerity demanded by some unsustainable threshold of debt. Making workers pay was a political choice.There is surely some scope for resisting at both state and industry levels even if reforms can never be permanently secured against capitalism’s competitive imperatives. It is true, as Dumenil and Levy recall, that the New Deal was achieved by class struggles and social forces that are not apparent today. But union organization in the US was considerably weaker in 1929 than it is now. Four years later it was being transformed. The New Deal in its extension into the post-war period was largely the product of these struggles and Capital’s reaction to them. It was less the result of a Keynesian blueprint than an unintended consequence of those conflicts, a compromise that betrayed hopes of more radical transformation, and which, sooner (in the US) or later (in Europe) provided the basis for unions’ long-term decline. It was possible for pro-labour reforms to be incorporated into successful strategies of capitalist accumulation but these eventually collapsed under the weight of capitalist accumulation and international competition. To aim to repeat such a contingent outcome combines a considerable optimism in the development of comparable social forces with a restrictive pessimism that they should again be reined in. No comparable rising has occurred in capitalism’s heartlands since the crisis of 2008 but there has been a new period of uprisings and resistance, from the Arab Spring to Greece and Spain and in a variety of protests that have flared around the world, at the time of writing most conspicuously in Turkey and Brazil. It is a truism that capitalism is a recent innovation and highly unlikely to survive for long.With what it will be replaced is hard to imagine. Environmental catastrophe and social breakdown seem strong contenders.The increasing prevalence of an

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awareness of potential disasters is no guarantee against them. But there are possibilities of change, based on a widespread disaffection with the predominant alternatives on offer and on a range of resistances and creative struggles. Such struggles are likely to have unintended consequences but at least raise the possibility of moves towards a conscious, collective reshaping of the world. The method adopted in this book suggests a few things about the political economy of global capitalism and the Crisis and about the prospects for change. The Crisis had a systemic character. It was not caused by a few rogue financiers. Tinkering with the financial system will not produce prosperity or prevent a recurrence of crises.The search for technical fixes is part of an apologetic, pro-capitalist narrative that tells us not to look for deeper, systemic flaws. Financialization was not simply the product of errant fractions of capital hijacking the system to their own agenda but the outcome of broader processes of restructuring and was supported by broader capitalist interests in leading countries. It may then have proved disadvantageous for capital accumulation as a whole but it has been part of a process by which corporate wealth grew to unprecedented heights.The restructuring and structural fault-lines that created the Crisis were the outcome of social struggles in response to the previous crisis.They were the unconscious resultant, a vector of still competing class and national forces within which capital was in the ascendant. The Crisis was unplanned but not simply a mistake. Leading states encouraged restructuring, in support of restoring profitability and national competitiveness. Nor do states now have separate interests, or powers of benign oversight, enabling them to permanently restore order. However, states do have real power; they can pursue different strategies within capitalism and act against particular capitals. There are distinct national spaces of capitalist reproduction and therefore spaces for resistance and alternatives within capitalism and within its national forms. But these are always insecure, constantly challenged by capitalism’s dynamic and unruly imperatives.There is no global state capable of bringing tranquillity to Capital’s disruptive parts, nor is there any single state comparable to that of the US at the end of WWII, capable of imposing this.The Crisis means an intensification of class struggle. This need not be conscious. Workers, for example, can and have accepted the need for national belt-tightening. However, the Crisis challenges old ways of doing things and creates the possibilities of new orientations both of capitalism and of new struggles and new ideas. Capitalism has become increasingly pervasive, colonizing more areas of social life and leaving less and less ‘outside’. There remain spaces of resistance within capitalism but challenging the specifics at least has potentially generalizing implications.


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abstraction: levels of 4–5 accumulation: contradictions of 157; crisis of 12; different rates of 68; by dispossession 110; labour-intensive 91–2; during long boom 97–8; moving investment to finance 112; overaccumulation 68; productive and unproductive capital 49; re-nationalization of 159–62; during ‘roaring twenties’ 91–2; slow pace of 48; social imperative 48; state-led 160–1; structural dislocations 134–9; underconsumption 65–7; unevenness on international and sectoral basis 103; wage-push theory 62–5; withdrawal of investment from manufacturing 112 acquisitions 54 Africa: countercyclical policies adopted 154; uneven experiences during Crisis (2008) 153–4 agglomeration economics 55 AIG 132 Alcatel-Lucent 142 alienation 4 altruistic behaviour 58 Aristotle 35 Asian ‘Tigers’ 118 aufheben 6 austerity: arguments against 159; in Europe 148; limited scope for export surplus strategy 149 Australia: GDP growth 141; impact of Crisis (2008) 136; trade deficits 123

Avineri, S. 16–17 Banaji, J. 15, 17 Bank of England 82 banks: nationalization of 133; reluctance to lend 145; threat of banking collapse 133 Bear Sterns 133 birth rates 43–4 Bismarck 86 booms, capitalist: booms and slumps 63f 5.1; conditions for 62; long boom see long boom; relation to slumps 61; in US economy 1951–2004 63f 5.1 borrowing: home loans 134–5; rise of 134 Brazil: ‘Greater Brazil Plan’ 153; neo-liberal policies 153; oil industry 153; rise in capital formation 153 Bretton Woods 97, 101–2, 104 Bretton Woods II 117 BRICS 149–54 British Parliamentary Acts 82 bureaucracy: in capitalist society 35 Callinicos, Alex 23, 71 Canada: trade statistics 91t7.1 capital: accumulation see accumulation; closure as defence of national interests 117; composition of 71, 72, 103, 104; concentration and centralization of 53; constant 72; contradictions of accumulation 157; in favour of liberalizing reform 137; fictitious 135; financial 54–5; fixed 68; following

Index 181

higher profits 52; G5 gross capital formation 111f 8.3; importance of managers to 160; mercantile 54–5; mobility and immobility of 54, 119, 137; particularity of see particularity of capital; potential labour resistance to 163; pressure to reduce wages 43; productive see productive capital; relation to labour 42; restructuring 115–20; state-led accumulation 160–1; structural adjustment in United States 157–8; subordination of labour 57; support of management for 160; unproductive see unproductive capital Capital: crises 3, 6; crisis theory 60; departments of capital 51–2; from the general to the particular 48; incomplete 9; wage-labour 57 capitalism: booms and slumps 61, 63f5.1; characteristics of 15; continuities of 16; contradictions in 20; crisis-prone system 60–1; downward trends in investment and productivity growth 110; drive to accumulate 48; dynamism and contradictory nature 61; early British 88; ecological damage 20; environmental impact 20; exploitation in 17–18; freedom of workers 42; hidden exploitation 30; illiberalism of 90–1; illusionary separation of politics and economics 18, 76; individualizing competitive imperatives of 58; long boom see long boom; lumpiness of 47–8; money as commodity 25; moving investment from manufacturing to finance 112; new workers and forms of production 58; origins of 88; people’s responses to 30–1; physical and immaterial production 49–50; power relations in 18; protectionism and monopoly 90–1; recovery 61, 71, 141–4; rises in productivity during 1990s and 2000s 110; state planning and bureaucracy 35, 36; tendency to increase productivity 70; trade statistics 91t7.1; value see value theory; wage labour for workers 42 Carchedi, G. 70–1 carry trade 123 Carter, President Jimmy 116 Casino Capitalism 123 Chair of the Federal Reserve 116 China: accumulation by dispossession 37; changing trade relations 2006–2010

151f10.3; economic growth of 149–50; expansion of working class 113; fall in trade imbalances 161; GDP growth 141; impact of Crisis (2008) on 150; increase in world competitiveness 151; increased share of world production 151; industrial value added per worker 114f 8.5; investment share of income 150; net surpluses with US and Europe 151; potential for working class organization 161; reorientation towards Asian markets 150–1; rise in consumption 150; size and significance of 121; state intervention in economy 150; terms of trade 119; trade deficits with Asian economies 151; trade surplus 121 Chrysler 133 Clarke, S. 81 class: definition 18–19; social relations 19 class struggles: conflict of social relations and production 25; feudalism 20; history of 18; individualistic and altruistic behaviour 58; in the workplace 58 Clinton, President Bill 120 Collateralized Debt Obligations (CDOs) 130, 132 commodities: exchange of 36; labour-power 32; production of 21; use value of 21; work required to produce 31 Communist Manifesto 78 competition: destruction of industries 52 concrete: experiencing the world 4; labour 35 consumer goods: industries 52; technological innovation of 72–3; types of 68 consumption goods: diminishing workers’ share of 103; labour power required for 41; wage labour required for 42 corporate power 53–4 credit bubble 126 Credit Default Swap (CDS) 130 crises see crisis theory crisis (1970s): decreasing productivity gains 103; fall of GDP 104; oil shock 104–5; rising wages 103 Crisis (2008): anti-labour policies 137; exacerbation of stagnation 148; fair value accounting 130; fall in GFCF 143; Great Moderation 130; housing bubble peak 132; impact in

182 Index

high-income countries 144–9; inflated property markets 131–2; interest rate cuts by states 133; labour retreat and rising inequality during 143–4; liberal accounts of 129–30; proliferation of debt 130; recovery in United States 144–6; restructuring in Europe 148; revulsion and propagation 132; rise in government deficits 133–4; speculation 131; spread from US to Europe 133; state provision of easy money 131; structural dislocations of capitalist accumulation 134–9; threat of general banking collapse 133; tumbling housing prices 132; understandings of 3; unemployment growth 144; uneven recession and recovery 141–4; see also Minsky, Hyman Philip crisis theory: booms and slumps 61; destruction of oldest methods of production 71; disproportionality 67–9; economic downturn and upturn 61; endemic to capitalism 60–1; evidence-based 61, 62; Marxist definition 60; problems of 73; recovery 61, 71, 141–4; rising wages 62–3; tendency of the rate of profit to fall 69–73; underconsumption and overproduction 65–7; uneven nature of 140; wage-push theories 62–5 currency devaluation 95 Davidson, N. 23 dead labour 70 Delta Airlines 142 demand 21 derivatives 126 de Ste. Croix, G. E. M. 18–19 determinism: Marxism and 4 Detroit 55 disproportionality: differing rates of accumulation 68; elimination of excess capital 68; industrial restructuring 68, 69; separation of production and consumption 67 distribution: in capitalist production 28 division of Labour 50 domestic labour: characteristics of 40; commodification of 44; contribution to value of labour-power 41–2, 43; debate amongst Marxists 40–1; decreasing birth rates 43–4; feminism and 39, 40; from unpaid to paid work 39; imposition of capitalism on 42; site of exploitation

42–3; third-party production 39–40; value production 40–1 DOW Industrial index 126 downturn 62 Draper, H. 24 Dumenil, G. 159–60 Eastern Europe: capitalist successor regimes 37 ecology: social development and 19 economics: separation from politics 18, 76 Economist 122, 133 employee compensation 64 Engels, Friedrich: on class struggles 18; distinction of species 17; on nature 16; state formation 76 environment: human-induced change 20; interaction with capitalist economy 20 Europe: common currency 146–7; decline in average working weeks 148; diverging borrowing costs 147; Maastricht Treaty rules 146; profound recession 146; soaring unemployment 146; trade deficits and surpluses 147; uneven impact of Crisis (2008) 146 European Central Bank 146 Eurozone 147 exchange rates 83 exchange value 31–2 exploitation: in capitalist society 17–18; in pre-capitalist societies 76; rates of 48 export markets 136 Federal Reserve 125, 132, 133, 145 feminism: time-use approach 40; value of domestic labour 39 fetishism 4 feudalism: development of centralized state 77; establishing legitimacy of 76; exploitation during 20, 76; growth of political power 77; importance of trade 77; surplus extraction 34 fictitious capital 135 Fiji 84 Finance, Insurance and Real Estate (FIRE) 112 financial capital 54–5 financialization: asymmetrical trading relations 124; Casino Capitalism 123; cost reductions from off-shoring 124; credit bubble and 126; disintermediation 123; domestic and global 125; domination by giant corporations 123; inverse relationship

Index 183

with real economic investment 124; logic of 136; low interest rates 125–6 Fine, B. 72 firms: assumption of rational capitalists 52; increased power of 157; large firms’ monopoly over small firms 53; owners and managers of 53; power and hierarchy in 36, 52; propping up of 52; state backing for 157 food prices 119 Ford Motors 91 Fordism 98, 103 foreign direct investment (FDI) 114 foreign exchange regime 102 Fortune Global 500: decline and revival of 142; revenues and profits 2006-2012 142t10.1 France: commercial bank nationalizations 99; economic growth during ‘roaring twenties’ 94; fall in GDP during World War II 96; G5 gross capital formation 111f 8.3; GDP contraction 141; joining the gold standard 94; lending to debt-ridden governments 147–8; soaring unemployment 146; state spending during Great Depression 96; trade statistics 91t7.1 Freeman, A. 71 Freeman, S. 50 free markets 35; influence of corporate power 53–4 GDP: falls during the 1970s 104; falls during World War II 96; global 141; global growth 108f 8.1; growth 2004–2011 141f10.1; growth in high-income and Asian economies 109f 8.2a; growth in poorer country regions 109f 8.2b; in Latin America 153; post-World War I 91; world trade increase 115 General Motors 133, 142 General Strike 1926 93 geographies of production: capital-intensive investment 55; industrial locations 54–5; mobility variations between sectors 54–5; problems of agglomeration 55; spatial inequality 55–6 Germany: annihilation of radical labour movement 100–1; anti-inflationary strategies 121; anti-Keynesian economic model 101; capitalistic growth 88–9; economic revaluations 102; fall in GDP

during World War II 96; G5 gross capital formation 111f 8.3; GDP contraction 141; gross fixed capital formation (GFCF) 104; impact of Crisis (2008) 136; industrial relations model 100; lending to debt-ridden governments 147–8; Plaza agreement 121; soaring unemployment 146; Social Market Economy 100; state-led growth 96; surpluses invested in production 101; trade statistics 91t7.1; trade surplus strategies 121; wage repression 118 GINI index 134 global imbalances: Chinese expansion 121–2; decline of US economy 120–1; deficits of national economies 123; role of the dollar 122; trade surpluses 121; United States deficits 122 Goldman Sachs 149 gold standard 92, 93, 94 goods see consumer goods; consumption goods Gordon, D.M. 163 government bonds 147 Great Depression: crisis of capitalism 159; falling wages 64; fear of repeat of 133; protectionism 95; state spending during 95–6; tariff raising policies 95;Wall Street Crash 1929 94 Great Moderation 130 Greece: austerity in 148; deficits 123; government bond interest rates 147; impact of Crisis (2008) 136; soaring unemployment 146 Greenspan 110, 111, 125, 126; ‘Greenspan Put’ 125, 131 gross fixed capital formation (GFCF): in Brazil 153; countries with higher levels 115; fall during the 1970s 137–8; global decline in 112, 143; global rise of 103; increase in China 138; in India 152; as a proportion of GDP 113f 8.4; regional analysis 2005–2011 143f10.2; in South Korea 104 growth rates 48 Grundrisse 2–3, 5, 76 Harman, Chris 71, 88 Harvey, D. 110 hedge funds 123 Hegel, Georg Wilhelm Friedrich: on meaning of sublate 6; vision of the state 85–6 Henwood, D. 125

184 Index

Himmelweit, S. 40, 43 historical materialism: class formation 25; in Russia 26 Hitachi 142 housing booms 112 Iceland: impact of Crisis (2008) 136 IMF (International Monetary Fund) 99, 118, 140, 141, 143, 150, 151–2 India: capital accumulation 152; fiscal stimulus package 152; GDP growth 141; GFCF 152; impact of Crisis (2008) on 152; Reserve Bank 152 inflation: financial assets 125; high 116 interest rates: carry trade 123; downward pressure on 135; high 116; low 125–6; low rate policies 119; raising of 118 International Financial Institutions (IFIs) 99 international relations: timeless laws 15 international trade: lower barriers 117 International Trade Organization 97 investment capital 54 Ireland: austerity in 148; impact of Crisis (2008) 136 Italy: government bonds 147; soaring unemployment 146; trade deficits 123; trade statistics 91t7.1 Japan: consumption fall 148; economic bubble bursts 121; exports increase 148–9; G5 gross capital formation 111f 8.3; GDP contractions 96, 141; gross fixed capital formation (GFCF) 104; low-wages economic strategy 101; Plaza agreement 121; recession 148; significant economic growth 101; surpluses invested in production 101; trade statistics 91t7.1; trade surplus strategies 121; union strikes 101 ‘J-curve’ effects 122 Keynesianism: during long boom 99; post-Crisis (2008) 142 Keynes, John Maynard: Bretton Woods and 101–2; on Germany 96; growing influence as government adviser 96; paradox of thrift 47 Kliman, A. 71 Krippner, G.A. 116 labour: anti-union laws 137; centrality of 30; as a commodity 32; concrete 35; dead 70; disorganization of 160;

domestic see domestic labour; incompletely commodified 31; living 70; mobility of 52; paid see paid labour; in primitive and commercial society 31; production and reproduction of 30; productive and unproductive 49; relation with capital 42; resistance to capital 163; social see social labour; socially necessary see socially necessary labour time; solidarity movement 58; as source of exchange value 31–2; spent 44; state 36–7, 37; subordination to capital 57; support of management for 160; value of labour-power 34–5, 38, 43; wages see paid labour; see also value theory; work labour-power see labour labour theory of value see value theory Lakatos, I. 5 land: ownership of 56–7, 82; rent-seeking 56–7 Landesbanken 136 landowners: distinct group 82; organization of 57 Latvia: austerity in 148 Lebowitz, M.A. 57 Lehman Brothers 132 lending: downward pressure on interest rates 134–5 Lenin,Vladimir Ilyich 71 levels of abstraction 4–5 Levy, D. 159–60 Libya 154 Lithuania: GDP contraction 141 long boom: Bretton Woods 97, 101–2; capital accumulation during 97–8; capital-intensive accumulation 97, 97–8; in Japan and Germany 100–1; rising wages 98; state intervention 97, 99 lumpiness of capitalism: methodological collectivism 48; methodological individualism 47–8; particularity 47, 48; rational expectations hypothesis 47 Luxemburg, Rosa 65 Maastricht Treaty 146 McCarthyite witch-hunting 98 machinery: production of 72 Malthus,Thomas Robert 20 Mandel, E. 68 manufacturing 112 Marglin, S.A. 43 market economy: naturalization of 18 Marshall Aid 102

Index 185

Marxism: autonomistic readings of 57; determinism 4; forwards and backwards ordering 5; French 98; historical materialism 25 Marx, Karl: on the changing form of value 34; on class struggles 18; on contradictions of capitalism 65; criticism of Hegel’s vision of the state 85–6; critique of profit 32; on disproportionality 67; on distinction of species 17; on economic processes 18; on exploitation 17–18; general and abstract categories 15; globalization of capitalist economy 83; on labour and nature 21; labour theory of value see value theory; mainstream economics 4–5; method of political economy 2–3, 5, 6; on nature 16; on novelty 15–16; on overproduction 67; particular interests of the state 86; productive and unproductive labour 49; on protectionism 89; specificity of capitalism 33; on state formation 79; on technological innovation 72; on value and surplus-value 32; on the value of labour power 34–5, 50; value theory see value theory; on world trade 88 Meiji 86 mercantile capital 54–5 mergers 54 Mesopotamia 20 metabolic rift: Cartesian dualism 21; unsustainable environmental destructions 20 methodological collectivism 48 methodological individualism 47–8 Mexico: debt default 118; terms of trade 119 Miliband, Ralph 80, 85 Mill, J.S. 82 Minsky, Hyman Philip: boom and monetary expansion 130; euphoria 131–2; financial growth 129–30; logic of financial crises 129 modes of production 25 monetarism 116 money: commodity 25; exogenous and endogenous 83; particularity of 51; store of value 51; transactions with foreigners 25 money economy: particularity of 51; separation of politics and economics 51 Monopoly Capital school 65 monopoly capitalism 53–4

Morgan Stanley 144 NASDAQ index 126 National Recovery Administration 95 nationalized industries 50 nature: people and 16; society bound up with 19 Negri, A. 63 neo-classical economics: fall in GDP 39; universalizing assumptions of 48 neo-liberalism 160 New Deal 95, 159, 160, 163 Nigeria: impact of Crisis (2008) on 154 Nissan 101 Northern Rock 132 novelty 15–16 Obama, President Barack 145 Occupy Wall Street 162 OPEC 103, 104 overproduction: overreaching of capitalism 67 paid labour: employee compensation 64; executive pay 111, 134, 149; GINI index 134; impact on unpaid labour 43; income inequality 111–12; increase in 43; inequality of 134; pressure on profits 63; relation with capital 57; rising wages 62–3; rising wages during long boom 98; underconsumption and 65; uniqueness under capitalism 33; upturns and downturns 64; wage demands 63 paradox of thrift 47 particularity of capital: commodities and distinct lines of business 51; departments of capital 51–2; large firms 52, 53–4; migration to higher profits 52; money economy 51 Pemex 142 Peoples Bank of China 150 perfect competition 51 Plaza agreement 121, 122 Polanyi, K. 76, 82 politics: separation from economics 18, 76 ‘Ponzi’ finance 129 Portugal: government bonds 147 Poulantzas, N. 79–80 prices: fixing of 53; hidden exploitation 30; and profits 32; socially necessary labour time 36; see also value theory private property: workers excluded from owning 79 producer goods 68

186 Index

production: bureaucratic organization of 36; horizontal relations of 63; increases of 22; physical properties 21; social and geographic locations 21–2; social relations of 25; vertical relations of 63 productive capital: alternative markets 116; distinction with unproductive capital 49; division of labour 50; employment by capital 50; equal rights for capital 48–9; state labours 50 productivity: increasing 52 profits: commodity production 31; critique by Karl Marx 32; equalization of rates 38; post-Crisis (2008) 142; prices and 32 property: land ownership 56–7, 82; private 79; rent-seeking 56–7 property market 131–2 protectionism 95 Putnam, R.D. 58 Quick, P. 42 ratings agencies 131 rational expectations hypothesis 47 recessions 62, 64, 141–4 recovery 61, 71, 141–4 Regulation School 98 Renault 37 rent-seeking 56–7 Republican Right 157 Ricardo, David: criticisms by Karl Marx 5, 33; labour theory of value 31–2, 34, 41; pricing theory 32; use-value 21; wages 57 Roosevelt, Franklin D 95 Rosdolsky, R. 57 Rosenberg, J. 23–4, 24, 76–7, 88 Royal Navy and Navigation Acts 88 Russia: historical development of 26; longer working hours in 152–3; poor infrastructure 152; successful oil exports 152–3; trade surplus 122; see also Soviet Union Saab 133 Saudi Arabia: trade surplus 122 Schulmeister, S. 147, 159 Secombe,W. 41, 42 seigniorage 25, 122, 124, 158 serfdom: exploitation in 17 Silicon Valley 55 slavery: exploitation in 17 slumps, capitalist: relation to booms 61; in

US economy 1951-2004 63f 5.1 Smith, Adam: conventional Marxist understandings 39; labour theory of value 21, 31, 41; price theory 30; Wealth of Nations 31 Smoot-Hawley Bill 95 social labour: changing nature of 17; see also work Social Market Economy 100 social relations of production 25 socially necessary labour time: determined on a world scale 38; determined post-event 58; fight for 57; industry level 52; market mechanisms 32; notion of value 28, 34; prices and 36 society: commonalities 16; forms of exploitation 17–18; inter-societal relations 24; part of nature 19 solidarity movement 58 South Korea: state-led strategies 118; terms of trade 119 Soviet Union: absence of law of value 36–7; capitalist successor regimes 37; destructions of wealth 37; trade statistics 91t7.1;Tsarist state 84; see also Russia Spain: government bonds 147; soaring unemployment 146; trade deficits 123 Standard and Poor 145 state capitalism: former communist regimes 36–7; intervention in provision of public goods 38 state labour 36–7, 37 state planning: in capitalist society 35 states: as an abstraction 87; achieving class unity 81–2; acting against particular capitalists 86; anti-labour strategies 119; autonomy of 85–7; capitalist reproduction 80; capitalist social relations 82; class bias of leaders 80; competing capitalist interests within 81; development during feudalism 77; early British 88; economic intervention 66, 79, 97; foundation of 9–10; Hegel’s vision 85–6; illusion of neutrality 78; integration with society 86; inter-state competition 77–8, 84; intervention during long boom 99; legitimacy of 75; maintaining exploitation 78; managing competition 78, 79; nation 10; organization and management of capitalism 10–11, 79; organization of money and finance 82–3; origins of 24, 76; particular interests of 86, 86–7; planning in capitalist society 35; plural

Index 187

81; protection of private property 10; pursuit of capitalist imperatives 79–80; pursuit of own interests 74; reorientation of 115–20; retreat from economic management 137; social contradictions of 78; spending 83, 96, 119, 120, 141–2; support for early capitalism 88; territoriality of 82;Tsarist 84; twentieth-century increase in size of 87; unique interests of 10; various roles of 79 Structural Adjustment Programmes 118, 119 sublate 6 sub-prime mortgages 130 supply and demand: smooth adjustments to 52; underconsumption and 66 Supreme Court 95 surpluses: in China 151; expansion of the market 65; export 149; in feudalism 34; invested in production 101; of production 17–18; in Russia 122; in Saudi Arabia 122; trade 121, 122, 147; in United States 92 surplus-value: absolute 57–8; capitalist competition 32; drain on 66–7; relative 57–8 Sweden: state spending during Great Depression 96 Taft-Hartley anti-union legislation 98 Tahiti 20 Taiwan 118 Tea Party 157 technical progress: class relations of 22 tendency of the rate of profit to fall (TRPF) see TRPF (tendency of the rate of profit to fall) Thatcher, Margaret 117 theory of crisis see crisis theory time: annihilation of 55 time-use approach 40 Time Warner 142 Toyota 101, 142 Treasury View 119 Trotsky, Leon: historical materialism 25–6; theory of development 22; on Tsarist state in Russia 84 TRPF (tendency of the rate of profit to fall): capitalist recovery 71; constant rates of exploitation 70; contradictions in capitalism 70; diverse interpretations of 70; intensified depreciation 71; Marxist scholarship on 69–70; problem

for recovery theory 70–1; restoration of rate of profit 71; technological innovation 72 Ukraine: GDP contraction 141 underconsumption: low wages 65; state intervention 66; theoretical problems of 65 uneven and combined development (UCD): dynamism of capitalism 23; implications for contemporary Marxist research 26; interactive societies 24; mechanisms of political power 76–7; national social relations 25; rational individualism of states 23; state formation 24; worldliness of capitalism 22 unions 137 United Kingdom: declined state intervention 93; decline of British capital 92–3; economic growth during World War II 96; G5 gross capital formation 111f 8.3; GDP contraction 141; impact of Crisis (2008) 136; imports and exports 149; increase in executive pay 149; industrial decline 93; production for soft markets 93; shrinking gold reserves 93; ‘Sterling bloc’ 93; strong financial sector 93; trade deficits 123; trade statistics 91t7.1; ‘Treasury View’ 96 United States of America (USA): 1933 Banking Act 99; balance of payments deficit 102; banks’ reluctance to lend 145; ‘big bang’ 116; Bretton Woods 97, 101–2, 104, 117; capital controls 101–2; consumption levels growth 92; developing deficits 122; dollar, fall and rise of 104, 116–17; economic growth during World War II 96; economy during ‘roaring twenties’ 92; financial sector growth 100; G5 gross capital formation 111f 8.3; GDP contraction 104, 141; gold-dollar link broken 104; government expenditure cuts 145; government rescue of failed financial institutions 145; gross fixed capital formation (GFCF) 104; importer of last resort 136; industrial value added per worker 114f 8.5; international use of the dollar 145, 158; largest economy post-World War I 91; opening up of domestic markets 97; overcapacity and low productivity growth 135–6; Plaza

188 Index

agreement 121; problematic economic growth 144; profits of financial services 124; property market 131–2; recovery post-Crisis (2008) 144–6; rise in federal debts 145; seigniorage 122, 158; state spending increases 119; structural adjustment of capital 157–8; Super Imperialism 119; trade statistics 91t7.1; trade union membership decreases 91; Wall Street Crash 1929 94 unpaid labour: unproductive capital 50 unpaid work: proportion of national wealth 40 unproductive capital: distinction with productive capital 49; equal rights for capital 48–9; manufacturing sector 50; sectors of 50 unproductive labour: drain on surplus value 66–7 US Congress 82 use value: of goods 21; in private and public sectors 36; state production of 38; unpaid labour and 41 US Treasury Bill Standard 117 value theory: activities of work 31; distortions of price system 29; distribution and production 28; existence of value in different societies 30; manifestation of value 30; prices and 28, 30, 32–3; problems of 29–32; social forms of value 34; socially specific value 33; social necessity of work 29; state capitalism and 37–8; understanding differences between societies 34; unpaid labour 41; value and non-value producing labour 37; welfare states 38; work and production 36; see also domestic labour; Ricardo, David; Smith, Adam

Vandesteeg, B. 50 Volcker Shock 116, 118 Volvo 133 wage-push theories: class struggle 63; employee compensation 64; growth and recession 64; horizontal relations of production 63; impact of wages on recession and recovery 64–5; rising wages 62–3, 64; vertical relations of production 63 wages see paid labour Wall Street Crash 1929 94 Walras, Léon 82 Washington Consensus 118, 119 Wealth of Nations 31 welfare states: value production 38 Wood, C.A. 76 work: avoidance of 18; economic centrality of 31; paid and unpaid 39, 40; qualitative activities of 31; social necessity of 29; workplace heterogeneity 58; see also labour; paid labour; social labour; value theory workers: achieving higher wages during long boom 98; extension of proletariat 43; limited consumption of 65; struggles during Great Depression 95; wage labour required for reproduction 42 World Bank 99 world trade 115 World War I: end of illiberal capitalism 90; impact on world economy 91 World War II: increase in government expenditure 96 WTO (World Trade Organisation) 117 Yom Kippur War 104