IN the age of imperialism or monopoly capitalism (which Lenin identified as the economic essence of imperialism) or even more in the post- war era of monopoly finance capitalism (as Sweezy and Baran had called it) crises, like capitalism in general, have taken on several new features, requiring us to go beyond Marx and enrich our understanding in light of the experience of the past hundred years.

Two Types of Crisis

A crisis can be (a) episodic/conjunctural, or (b) structural/ systemic. The former affects only some parts of the system or particular spheres – say financial or commercial -- or this or that particular branch of production, or a particular group of countries. It can be dramatically severe – the South Asian meltdown of late 1990s or the dotcom bubble burst in the first decade of the present century for example – yet amenable to a temporary or partial resolution by means of partial measures without greatly disturbing the existing modalities and structures of capital accumulation. Such crises are like “great thunderstorms” (in Marx’s words) through which they can discharge and ‘resolve’ themselves, to the degree to which that is feasible under the given conditions. This is possible because they do not call into question the ultimate limits of the established global structure in an immediate sense. However, the underlying deep-seated structural contradictions of capitalism wait to reassert themselves again in the form of the next violent eruption. In the process a point is reached where these contradictions no longer lend themselves to adhoc resolution by superficial measurers and their cumulative impact manifests itself in the shape of a structural/systemic crisis – one that is universal in character (affecting all segments of the international economy) and global in scope (sparing almost no country/region). Such is the nature of the crisis we are living through now. It affects the basic structure, the totality of the capitalist system and its very heart, which in our time lies in the hegemonic financial sector.

Relative to a thunderstorm-like episodic crisis, the time scale of a structural crisis is likely to be less instantaneous or convulsive and more extended and protracted; and its mode of unfolding might be called creeping, although it may start with violent eruptions like the collapse of Lehman Brothers and other biggies in 2008 and the “Great Crash” prefiguring the “Great Depression” (GD).

History of Structural Crises: An Outline Sketch

For Marxists the present worldwide structural crisis was not unexpected. To run and stumble from crisis to crisis, restructuring the accumulation process to cope with new challenges after major, epochal ones – such has been the mode of existence of late capitalism. Looking back on its history since the transition to imperialism began, we can locate four such structural crises that occurred with striking regularity at intervals of nearly four decades:

1. The “Great Depression” (as it was called before the greater one that struck in 1929) of 1890s was caused primarily by rapidly shrinking profits resulting from “cut-throat competition” among big trusts and cartels. In the US, the Sherman Act, the first major anti-trust legislation, was therefore passed in 1890. The profitability problem was sought to be overcome by structural changes like the rise of big international banks and the emergence of finance capital through “coalescence of bank and industrial capital”, domination of financial oligarchies and other monopolies, speculation overshadowing production and export of capital surpassing export of goods, etc. – as Lenin pointed out in Imperialism.

2. These changes led to the hegemony of and restoration of profits for finance based on overextension of debt and speculation on the bourses. But the “roaring 1920s” ended in the great stock market crash of 1929 and the GD that followed. How this crisis came about and was overcome we shall discuss shortly.

3. In the 1970s and 80s, the downward movement of profit rates resurfaced and, compounded by the oil crisis and chronic inflation, assumed the shape of stagflation. The crisis of the dollar and end of the Gold Standard became conspicuous fallouts of the crisis. Capitalism went through another bout of restructuring – the neoliberal globalisation and financialisation (more later).

4. And now this new model of growth is engulfed in a severe crisis apparently brought about by unscrupulous activities of greedy, “too big to fail” banks with full state support, and one that demonstrated the unsustainablity of credit- driven, bubble-led growth. The quest for a solution continues, with hardly a ray of light expected at the end of the tunnel.

This is not purported to be a complete account of the entire history: for example, we have not touched the role of wars. We have only tried to show that these epochal crises were watersheds differentiating distinct phases of late capitalism – violent ruptures leading to paradigm changes in its structure, in its forms and mechanisms, partly obfuscating the essential continuity of this mode of production. There is another important point, which we have saved for separate discussion in the last two chapters. It pertains to the impacts of mass movements, past and present, against attempts of the bourgeoisie and its state to transfer the entire burden of crisis on to the shoulders of the working people.

Among the four structural crises, we shall do well to take a closer view of the GD (and its consequences) and the present crisis. Both of them, significantly, had their common proximate causes in unfettered activities of monopoly finance capital (e.g., debt explosion and excessive speculation) and in this sense constituted crises of liberalism – liberalism of the old type then and of a new variety now.

From Great Depression to ‘Golden Period’

As mentioned above, the big monopolistic banks and corporations that marked the advent of imperialism at the turn of the 20th century went about their reckless plunder in a way that led to the Great Depression. Combined with other factors like powerful struggles of working classes (more on this later) and the political challenge posed by vibrant socialism, the devastation caused by GD forced the lords of capital to mend their ways to some extent. This came to be known as the New Deal (in the United States) and welfare state/ social democracy (in Western Europe).

Inequality of Wealth and Income

(From memoirs of Marriner S. Eccles, who served as Chairman of the Federal Reserve under Franklin D. Roosevelt from November 1934 to February 1948. Here he gives his own interpretation of the Great Depression.)

“As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation’s economic machinery. [Emphasis in original.]

Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.

That is what happened to us in the twenties. We sustained high levels of employment in that period with the aid of an exceptional expansion of debt outside of the banking system. This debt was provided by the large growth of business savings as well as savings by individuals, particularly in the upper-income groups where taxes were relatively low....The stimulation to spend by debt-creation of this sort was short-lived and could not be counted on to sustain high levels of employment for long periods of time. Had there been a better distribution of the current income from the national product – in other words, had there been less savings by business and the higher-income groups and more income in the lower groups – we should have had far greater stability in our economy. Had the six billion dollars, for instance, that were loaned by corporations and wealthy individuals for stock-market speculation been distributed to the public as lower prices or higher wages and with less profits to the corporations and the well-to-do, it would have prevented or greatly moderated the economic collapse that began at the end of 1929.

The time came when there were no more poker chips to be loaned on credit. Debtors thereupon were forced to curtail their consumption in an effort to create a margin that could be applied to the reduction of outstanding debts. This naturally reduced the demand for goods of all kinds and brought on what seemed to be overproduction, but was in reality underconsumption when judged in terms of the real world instead of the money world. This, in turn, brought about a fall in prices and employment.

Unemployment further decreased the consumption of goods, which further increased unemployment, thus closing the circle in a continuing decline of prices.

This then, was my reading of what brought on the depression.” [from Beckoning Frontiers (New York, Alfred A. Knopf, 1951)]

 

Essentially, the rich reckoned the time had come to accept some sort of compromise and a modicum of regulation, hoping that by giving up some of their privileges, they would be able to preserve most of them. Key sectors of the economy, including banking, transportation, electric power, and communications were thus brought under state regulation. Big corporations began to – in the US they were compelled to by the National Labor Relations Act, known as the Wagner Act (1935) – bargain with labour unions rather than trying to crush them. Important social programmes such as unemployment compensation and public health care were created and expanded.

Simultaneously, the Marshall Plan was launched by Washington to aid the process of rejuvenation of war ravaged economies of Japan, East Germany and other allies, while the IMF and the World Bank were set up to help development under US tutelage.

In the US, the marginal income tax rate on the rich rose to 92% on the highest incomes in the early 1950s. Abandoning the old “free market” belief that recessions and depressions would automatically cure themselves, governments began to intervene more vigorously (through fiscal and monetary policies for example) to stabilise the economy and keep the unemployment rate low.

All this, together with other factors like the pent up consumer demands of war years, ushered in the so-called Golden Age of Capitalism (1948–73) which experienced unparalleled growth in advanced capitalist countries. While evils of imperialism did not vanish, there was noticeable improvement in the economic conditions and purchasing power of the working people in these countries, which helped sustain extended reproduction, but sure enough, not permanently.

1970s: Crisis Strikes Again

In two to three decades, the space for expansion newly created by the devastating war was exhausted. From late 1960s and particularly since the oil shock (1973) which substantially raised production costs, the bad old maladies began to resurface: overproduction, excess capital, dwindling profit rates. In the face of heightened competition from firms in Japan and the newly industrialising countries, employers in the US and Europe tried to push their labour costs down, giving rise to sharpened conflict between labour and capital. The ruling classes went on an offensive – as we shall soon see – both directly (e.g., by crushing strikes and curbing TU rights) and indirectly through the state (e.g., transfer of state funds from social programmes to the private sector in the shape of trade credits, direct subsidies, tax cuts for corporations and the rich etc.; privatization of public services – which also helped capitalists find investment opportunities for their excess funds – and so on).

Neoliberalism and its Critical Features

This was about when, from mid-1980s onwards, liberalism – the doctrine of absolute freedom of capital from social control – returned with a vengeance in a new shape in a new historical context marked by the gradual retreat of (a) welfare state/social democracy in Europe; (b) the “actually existing socialisms” and (c) nationalist mixed economies in certain third world countries. Neoliberal capitalism was born. At first it was better known as Reaganomics and Thatcherism, and spread from the US and the UK through the developed economies and then Latin America to the rest of the world. Theories like monetarism, supply-side economics, trickledown theory (if top echelons get rich fast, the wealth will percolate down; so growth alone and not egalitarianism is to be cared for) etc were used to justify whatever capital found necessary. Even the name of the system was sought to be changed from good old capitalism – simple yet revealing – to the vague and ideologically cloaked term “free market” or “market system”. Side by side with a patently fraudulent economic system thus arose what John Kenneth Galbraith called, in the title of his last book, “The Economics of Innocent Fraud” (2004).

After more than two decades of good times for the super rich, the largely deregulated financial system collapsed in 2008, pulling the global economy down with it. The more important specific causes responsible for this can be located in three most visible features of neoliberalism in the advanced economies: international relocation and reorganisation of production and associated services; enormous debt traps that caught hold of individual consumers as well nations; unprecedented dependence on financialisation as a way of circumventing stagnation in the productive sector and on asset bubbles as growth steroids. These are the major factors that first promoted nearly three decades of economic expansion and then led to a massive crisis. Let us discuss these in barest outline.

First, the relocation referred above – a component of the accelerated global integration of capital, production processes and markets, briefly called globalisation – restored handsome profits for TNCs but led to huge job losses and relative destitution of the majority in the advanced capitalist countries. Inequality grew rapidly, as profits rose while workers’ real wages fell. Between 1979 and 2007, the average inflation-corrected hourly wage of non-supervisory workers in the US declined by 1 percent, while inflation-corrected nonfinancial corporate profits after taxes rose by a remarkable 255 percent. Surging profits pleased the capitalists, but it also gave rise to a problem: who would buy the growing output that comes with economic expansion?

The ‘solution’ was found in easy credit and subprime loans. As noted earlier, banks and other financial institutions made a fortune from these practices, while markets for goods and services were kept up by ordinary people buying with borrowed money. Here is the second feature of neoliberal capitalism: a veritable credit explosion and near absolute hegemony of the expanding financial sector. Big manufacturing businesses diversified rapidly into banking, insurance, real estate, wireless communications etc., which became their main source of profit. The beginnings of such trends were noted by Lenin in his time, but now they reached unprecedented proportions.

The repeal of the Glass-Steagall Act in the US (which was passed in the wake of the crisis of 1930s and prohibited the mixing up of ordinary commercial banking and the more precarious operations of investment banking) in 1999 symbolized the almost complete deregulation of the financial sector. It became extremely complex, opaque, and ungovernable, with huge banks and financial institutions pursuing ever-riskier activities. Reckless lending was also made to several nations, giving rise to the phenomenon of sovereign debt crisis. The US borrowed its way to growth and became the world’s largest debtor since the onset of the neoliberal era. It is currently spending more than 8% of its national income on interest payments, which is expected to rise to 17 % by the end of the 2010s.

The third feature of neoliberal capitalism has been a “stagnation-financialization trap”John Bellamy Foster and Robert W. McChesney, “The Endless Crisis”, Monthly Review Press . where a series of big asset bubbles An asset bubble occurs when speculative buying drives the price of some asset, such as real estate, far above its actual economic value., such as the dotcom and then the real estate bubble of the 2000s, temporarily help overcome the stagnation and then go bust.

Long ago, American economist Hyman Minsky theorized that cheap credit and easy liquidity would sow the seeds of an asset price bubble and when the inevitable crash came, businesses and households would find themselves in an over-borrowed situation. Broadly speaking, this was what happened. The 2000s real estate or housing bubble created an estimated $8 trillion of bubble-inflated real estate value, which was about 40 percent of the market value of homes in the United States. The real estate bubble created “fictitious” wealth that enabled people to borrow from banks to pay their bills, with their home as security. Household debt grew and grew, from a manageable 59 percent of household income in 1982 to an unmanageable 126 percent by 2007. Then the whole house of cards tumbled down. The banks held trillions of dollars in exotic assets that lost their value when home prices plummeted – suddenly they were bankrupt. Working people suddenly could not borrow any more but had to start repaying their debt in 2008, and so their purchasing power fell sharply, leading to a severe economic collapse. The big crisis had begun.