Don’t like trickle-down economics? Talk to your dog about it

In observance of the holidays, a little whimsy this week.

If a theory doesn’t work, create and fund “think tanks” and buy the media to tell everybody it does.

Well, it works for the one percent. Why shouldn’t it work for you? How else to account for the fact that three decades of that thin gruel of an economic theory, “trickle down,” is still peddled as the cure for what ails us? Never mind that it is precisely trickle-down ideology that led us to economic crisis and stagnation.

The idea does seem, to put a gentle spin on it, counter-intuitive: Shower money and tax cuts on the very wealthy, and some of their gains will then “trickle down” to the rest of us. It’s been mighty dry for three decades, but it must be admitted that it has worked out well for the very wealthy.

The usual response when a well-promoted ideology fails — and so it is here — is to claim in a loud voice that the real problem is a failure to apply the ideology with sufficient zeal.

So maybe the solution is that trickle-down ideology should be applied to more spheres of life.

Take medicine, for instance. Talking to a doctor and having a prescription filled out makes it too easy on the sick. Instead, everybody should have a portion of their wages sent directly to a doctor, in case they should need health care in the future. Those who pay the most are first in line when sick. The rest can stand outside the office — on the sidewalk, please; let us not have the grass trampled — and wait for vials of medicine to fall out the window.

By arranging for the medicine to go to the rich who can afford to buy their way to the head of the queue, a natural order is established, and the rest merely need wait for some of that medicine to trickle down. The wrong medication fell, you say? Well, you shouldn’t have gotten sick in the first place.

For that matter, supermarkets are too egalitarian. Where is the market discipline sorting the worthy eater from the unworthy eater? A proper trickle-down regime would arrange for food to be given only to those with the highest income; what the rich didn’t care to consume would then be offered to those not at the top of the food chain. Please wait outside until then. Hey, you over there — get off the grass!

I admit that I had not applied trickle-down with sufficient zeal. For instance, I hadn’t thought through how we could apply it in our everyday lives. For instance, what if the ideology was not limited to humans, but applied to dogs and cats? We could save a bit of work. We’d just put food on the table, and whatever crumbs fell off the table — trickling down — could be scooped up by them.

I hadn’t thought of using such a method to feed the cat back in the early days of Reaganite trickle-down. Never mind that the cat knew I was a soft touch and, besides, she could tell time. I would come home from my newspaper job as a young reporter a little past midnight and the cat would be waiting for me when I parked whatever early-model wreck I was driving at the time.

The cat knew I would feed her, which I did, and then she’d meow for me to let her out. Then again, the cat wouldn’t have starved as she was a good hunter. But that isn’t what is meant by trickle-down, unless the cat occasionally left the odd bird around for other neighborhood cats. I didn’t keep track of what the cat killed, nor had I ever known her to discuss economics.

The Shetland sheepdog wasn’t necessarily a good example, either. Admittedly, the dog was quite patient when it came to sitting at attention during dinner, so could be considered willing to wait for scraps to trickle down her way. Inherent in any systematic willingness would be a rugged individualism — a dog-eat-dog mentality, shall we say — but the dog and cat instead tended to work well together.

They were the best of friends, and sometimes swapped dinners. Bad dog! Bad cat! Subverting the natural social darwinism of nature! I can’t say what the dog thought about this, either. She was smarter than most dogs (her ancestors were bred to do a job, not look good in somebody’s lap) but I had never known her to discuss economics, either.

We never do know what our pets are thinking, do we? Well, in the case of dogs we do have some idea: They would like to eat. Had I ever managed to speak Dog (I never have had an aptitude for foreign languages), the conversation might have gone something like this:

“You know, after all these years, you might think about learning to make your own dinner.”

“Dinner? Did you say dinner?”

“Yes, but you already ate. I don’t mean dinner now, I mean dinner in the abstract, as a future concept.”

“Dinner? I would love to eat.”

“Right, but you do understand that I am speaking of future dinners? Your ancestors were smart enough to keep the sheep from wandering off and probably were capable of grabbing themselves something to eat in the field.”

“Eat? Yes I am ready to eat!”

“I think we have that established. You have always been a loyal friend, and I appreciate that when you are riding in the car you always try to attack the attendant at the gas station on our behalf, but it wouldn’t hurt to help out a bit around the house.”

“Do you notice that scary hose the attendant sticks in the car? What if it is some sort of terrorist weapon? And, besides, he never feeds me.”

“Ah ha! You can conceptualize the future: Terrorism won’t become a national obsession for another two decades. This is the still the 1980s, when terrorism is called ‘low-intensity conflict.’ ”

“It’s only called low-intensity conflict because the terror campaign is waged by the side that Reagan is funding, the Contras. And Reagan has never fed me, either.”

“Okay, you got me on both of those. Neither of us could conceive of voting for Reagan. Now I’m hungry, too. Would you like to eat?”

“Yes, but you know very well I can’t open cans.”

“Don’t worry about it. I’ll never let you go hungry.”

Trickle-down never does seem to work.

Speculators trade in two weeks what the world makes in a year

Speculation rests on phenomenal amounts of money sloshing around the globe. We could call this endless wave a permanent tsunami, except that would grossly understate the size of the financial wave.

If we could pile up all the money that is exchanged in financial markets and make a literal wave out of it, it would make for an astounding sight were we on the International Space Station, towering above the clouds. The wave would rise so high it might swamp the space station itself.

All right, I am getting fanciful here. And we wouldn’t want to contemplate having to bail out the space station in zero-G conditions. But we are talking about an international financial industry that has truly grown to monstrous proportions, beyond any reasonable necessity.

How big? The combined daily trading average on the world’s foreign-exchange, bond and stock markets is very roughly about US$6 trillion. If that total seems amazing, it is for good reason: By way of comparison, the gross domestic product of the world is about $65 trillion. To put it another way, in 11 business days financial speculators trade instruments and contracts valued at more than all the products and services produced by the entire world in one year.

Most of us are familiar with stock exchanges, and that is the financial market that draws the lions’ share of corporate mass media attention. But that is actually only a tiny portion; an average day’s turnover on the world’s stock markets amounts to $270 billion. Bond markets (government debt, corporate debt and the myriad of “asset-backed” securities continually cooked up) are several times larger, and foreign exchange is vastly larger than bond markets.

Much of this daily $6 trillion turnover is in derivatives, swaps, futures contracts and assorted legerdemain. Almost all of this is nothing more than self-interested speculation; trading for the sake of the largest possible short-term profits regardless of the cost to the rest of the economy or the destabilizing social costs of these giant pools of capital sloshing around the world, pouring in capital here and pulling capital there as opportunities for short-term profits wax and wane.

Why do stock markets exist?

In theory, stock markets exist to distribute investment capital to where it is needed and to enable corporations to raise money for investment or other purposes. In real life, neither is really true. A corporation with stock traded on an exchange can use that status to issue new shares, raising money without the burden of dealing with lenders and paying them interest. But large corporations can raise money in a variety of ways, for example by issuing bonds or other interest-bearing debt, or by selling shares directly to private investors.

Nor do corporations necessarily wish to float new stock — doing so is disliked by investors because profits are diluted when spread among more shares. Instead, it is more common for large companies to buy back shares of their stock (at a premium to the trading price), which means less sharing of distributed profits.

From 1981 to 1997, for example, non-financial corporations in the United States bought back $813 billion more in stock through buyback programs and corporate takeovers than they issued.* That is money that was diverted from investment, employee compensation or community development, and constitutes still more money stuffed into financiers’ pockets.

Most of the action on stock exchanges is simply speculation, and as computers become more sophisticated, the speculation drives higher trading volumes and becomes more remote from the actual business of the company in which stock is bought. “Day trading,” where speculators buy and sell stock within minutes to earn profits on price fluctuations became common in the 1990s, but in the following decade the big Wall Street firms showed their muscle while bringing speculation to an unprecedented level.

These firms created sophisticated computer programs that buy and sell stocks in literally milliseconds. The programs issue thousands of buy orders that are canceled in minuscule fractions of a second in order to manipulate prices to the benefit of the computer owner. These price differences are only pennies, but are done on such enormous scale that the profits skimmed in this fashion are estimated to be as high as $21 billion per year — only a “handful” of these high-speed computer traders account for a majority of all stock-exchange trades.**

Speculation for its own sake

Speculation tends to reinforce itself. During the two years I spent working on a financial news service during the 1990s stock-market bubble, I repeatedly heard traders say the dramatic price rises could not last but they would continue to ride the bubble as long as the consensus view that the long bull market would continue remained in place. The primary reason for why market players believe stock prices will rise at a given time is because they believe other market players believe stock prices will rise. Not nearly as “scientific” as financiers would have you believe.

Bond and foreign-exchanges markets are no less fueled by speculation, and it is the gargantuan size of these markets that give the larger players in them the power to dictate to the world’s governments, extracting budget-busting bailouts, imposing austerity and raising their needs above all social considerations.

Their size is truly monstrous: the world’s 1,000 largest banks held an estimated US$102 trillion of assets in 2011. Separately, the “shadow banking” system (hedge funds, private-equity firms and other investment companies) is worth an additional $67 trillion.*** Financiers hold an amount of capital that is more than two and a half times larger than the world’s gross domestic product.

As more money is diverted into speculation because there are insufficient opportunities for investment, the size of the financial industry and the percentage of corporate profits claimed by the financial industry steadily grows — the size of both banks and unregulated “shadow banks” have increased since the beginning of the economic crisis in 2008. This capital is a function of the amount of money flowing upward to the rich becoming larger than they can use for personal luxury consumption or investment; these torrents of money are diverted into increasingly risky pure speculation.

Too much money comes to chase too few assets, rapidly bidding up prices until there is no possible revenue stream that can sustain the price of assets bought at inflated levels, triggering a crash. The very size of financial markets is a major contributing cause of economic instability. That size is in turn a product of the continual downward pressure on wages — an increasing share of corporate revenues go toward executive pay and profits as the share going toward wages declines.

A financial industry swollen to such gargantuan sizes have no relation to the actual needs of the economy. It is money that could be used for wages (which would strengthen the economy) or for productive investment were it not so concentrated and under-taxed. Austerity, after all, is only for working people.

* Doug Henwood, Wall Street [Verso, 1998], page 3
** Charles Duhigg, “Stock Traders Find Speed Pays, in Milliseconds,” The New York Times, July 24, 2009
*** TheCityUK; the Financial Stability Board

Tuition battles, debt and union-busting: The many faces of neoliberalism

The eleven students who barricaded themselves inside Cooper Union’s tower have ended their occupation, but their struggle resonates well beyond the New York City university. Inextricably bound up in the movement to save Cooper Union’s tradition of free tuition and enable meaningful student and faculty participation in the affairs of the university is a struggle against neoliberalism.

The victorious students who endured police violence and heavy-handed legal tactics during the months of the Québec student strike earlier this year; the unsustainable student debt burying students across the United States; the union-busting offensives in Wisconsin; and the latest anti-union effort in Michigan — to name only some of the struggles from 2012 alone — should not be looked at in isolation but rather are part of a continuum of which Cooper Union is one manifestation.

Workers’ struggles and students’ struggles are linked, and not simply because today’s students are tomorrow’s workers. Education is now treated as a commodity — professors are increasingly part-time adjuncts and students are expected to hand over ever larger sums of money for tuition, and students are encouraged to think of higher education in mercenary terms, as nothing more than technical training for a job rather than (or in addition to) an opportunity to improve oneself through study. Being an employee in a capitalist enterprise is indistinguishable from oneself being reduced to a commodity — we have no choice but to sell our labor if we intend to eat and keep a roof over our heads.

All this requires atomization of society: set off at each other’s throats, fiercely competing over scraps. It is solidarity that breaks this pattern. Thus it was not surprising when a Cooper Union spokesman, presumably speaking for the president, Jamshed Bharucha, issued a statement claiming that the occupiers “do not reflect the views of a student population of approximately 1,000 architects, artists and engineers.” Did they do a survey? One suspects not.

The suggestion here seems to be that the strikers are unreasonably “spoiled,” an intimation made during recent student occupations at nearby New York University and the New School. Note that the student strikers in Québec were similarly denounced when they took to the streets in massive numbers to block an increase in tuition although Québec already had the lowest tuition of any Canadian province.

This is a favorite neoliberal tactic — attempt to engender jealousy that somebody has something you don’t have, and loudly proclaim that something should be taken away from them. This tactic was on ample display during Wisconsin Governor Scott Walker’s unilateral attempt to eliminate collective bargaining for Wisconsin state-government employees and impose draconian cuts to education and social programs. Government workers and unions were the designated scapegoats, making their pensions easy targets; Republican Party operatives went to rural counties and made sure to play up the fact that most people no longer have pensions, while government workers do.

Although a similar effort was defeated in Ohio, by forcing a referendum that was won, Michigan legislators this week approved legislation banning automatic payroll deductions of union dues. In states with such laws, unions are required to represent all workers despite receiving dues from only a portion of them, leaving unions with less resources and therefore weaker, and fueling the neoliberal ideology of hyper-individualism because “free riders” gain the benefits of collective bargaining by the union, funded by members, while not contributing dues.

Using the force of the state to break unions on behalf of capitalists to force reductions in wages is simply neoliberal austerity in legislative clothing.

Continued free tuition would be a victory for all students

Similar to higher union wages setting a higher bar for everybody’s wages, continued free tuition at Cooper Union should be defended as a gain for all students. Once lost, it is unlikely to be regained. The public City University of New York system had free tuition until 1975; tuition has risen fivefold since it was first instituted, well above the rate of inflation and a pattern replicated by public and private universities.

With that in mind, the demands of the Cooper Union student occupiers and their supporters, which have not been rescinded, are straightforward:

  • The administration must publicly affirm the university’s commitment to free education.
  • The Board of Trustees must immediately implement structural changes to create open flows of information and democratic decision-making, including making board minutes publicly available and the appointment of a student and faculty members.
  • President Bharucha steps down.

The students say Cooper Union’s weakened finances are a result of mismanagement. The university has been on a building spree of late, leveling two of its three main buildings and replacing them with expensive new buildings. In ending their occupation but vowing to continue to struggle, the students said:

“The problems at Cooper Union strike a nerve with millions of others struggling with student debt, administrative bloat, and expansionist agendas. We live in a world where massive student debt and the rising costs of higher education remain unchecked, where students are treated as customers and faculty as contracts. Cooper Union’s mission of free education affords equality and excellence and offers an alternative for a better future of higher education.

For over a century, the Cooper Union has sustained the mission of providing free education to all admitted students. After decades of financial mismanagement, the administration now seeks to implement tuition-based programs. Rather than dedicating themselves to the difficult task of maintaining the promise of free education — Jamshed Bharucha’s administration and the Board of Trustees have chosen to pass the consequences of financial and institutional mismanagement on to the shoulders of the college’s students, faculty, staff, alumni, and future generations. They’ve taken the easy way out.”

Not dissimilar to how working people are expected to bear the burden of an economic crisis caused by financiers while the financiers’ institutions are bailed out. Those same financiers are hungrily circling Social Security, falsely blaming one of the few remaining strands of the social safety net so that they can get their hands on it and plunder it for their personal profit.

Solidarity achieves tuition freeze in Québec

The struggle for a sane higher-education system is one that must be fought everywhere. The struggle to maintain free tuition at Cooper Union is not separable from the struggle to rein in out-of-control tuition increases elsewhere. The successful student strike in Québec, although centered on Francophone students in Montréal, nonetheless was a province-wide struggle that drew enormous support from working people. It was so successful, in fact, that it caused the provincial government to fall.

It also helped that students were already organized in three student province-wide associations. The Québec government, then controlled by the Liberal Party, intended to raise tuition by 75 percent over three years. Protests and strikes quickly blossomed, shutting down universities and leading to street battles as police repeatedly attacked near daily demonstrations that sometimes numbered more than 100,000. The Liberal government dug in its heels, not only refusing to negotiate seriously but passing a law making the demonstrations illegal.

That move backfired, as the demonstrations over what become known as the “Maple Spring” in a nod to last year’s “Arab Spring” only grew bigger. After months of struggle, the government called an early election, which it lost, ushering in a Parti Québecois government that promptly rescinded the tuition increases, canceled the anti-demonstration laws and, in an environmental gesture, reversed the Liberal support for fracking. That victory did not come easily (the process is called “struggle” for a reason). A supporter of the strike who is long past being a student himself wrote on the Waging Nonviolence web site:

“The revolting students paid a heavy price. They put their academic year in jeopardy and many were beat up by the cops. Over 200,000 students maintained a strike for five months, 3,387 were arrested and hundreds injured — some seriously by plastic bullets and batons.”

Moreover, students estimate that the provincial government spent C$200 million, citing police and related costs, the value of canceled classes, the costs of personnel maintaining empty buildings and the cost of making up a lost semester. Martine Desjardins, president of the Fédération étudiante universitaire du Québec, the largest of the province’s student associations with 125,000 members, said to The Montreal Gazette that those costs exceeded what would have been collected from the tuition increases:

“The tuition for seven years was supposed to bring in about $170 million. So you can see it’s not about economics, but about ideology. It just doesn’t make sense.”

Explosion of student debt

College tuition in the United States is far higher than it is in Canada and has risen to the point that student debt is estimated to be more than US$1 trillion. A Center for American Progress report said U.S. tuition has increased more than 1,000 percent during the past three decades. (That is more than three times the official rate of inflation.) The report notes:

“One of the major self-inflicted causes is the consistent decline in state funding for higher education, which had helped colleges keep tuition affordable. The steadily and rapidly increasing cost of college nationwide prompted a dramatic rise in student borrowing—a natural result as families could no longer rely on scholarships, grants, and personal savings, which cannot keep up with the rapidly increasing tuition costs.”

Similar to governments running deficits because they borrow from the wealthy rather than tax them, financiers profit from the explosion of student debt. A major contributor to this mounting debt are for-profit private colleges, many of which enroll huge numbers of students, many unprepared for college, by virtue of government-guaranteed loans given with no oversight.

Just as corporate initiatives attempt to replace public primary and secondary school systems with “charter schools” run by corporations for the profit of executives, the neoliberal model of higher education is to saddle students with heavy debt. Not only is this profitable in the short term, but it also makes the students, once they enter the workforce, more pliable employees due to the massive loans hanging over their heads.

Corporate executives want students drilled for business needs, but refuse to pay taxes needed to support education. And they want students to shoulder the burden of tuition although they, and society as a whole, benefit from an educated workforce.

The idea that anyone achieves success all on their own is preposterous — all of us rely on institutions (including schools) and build on those who came before us. Least of all can capitalists who accumulate fortunes on the backs of students, employees and freelancers, and benefit from government-funded infrastructure, claim to be free of society. The neoliberal cult of individualism is a means to foster jealousy and atomization — and to keep the 99 percent subordinate.

Stagnation, not growth, is the norm for mature capitalism

Economic growth is supposedly the norm, necessitating that an explanation be found for slumps and stagnation. But are these reversed? Is stagnation is the norm with the periods of strong growth requiring explanation?

A two-decade “long depression” occurred after an 1870s bubble inflated by speculation in railroads and construction in North America and Europe burst; the Great Depression lasted more than a decade and ended only because of World War II; and stagnation had been the recent fate of the world’s advanced capitalist countries even before the economic crisis that broke out in 2007 and 2008.

There are no signs of any recovery; on the contrary unemployment remains high across North America and Europe, with consumer and governmental debt rising to unsustainable levels. This state of affairs is the new norm of capitalism, argue John Bellamy Foster and Robert W. McChesney in their newly released book, The Endless Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China.*

The authors, frequent collaborators in Monthly Review (of which Professor Foster is the editor), marshal an impressive collection of material to present an understanding of the capitalist dynamics that have brought the world to its present state of crisis and why that is the natural outcome of these dynamic forces, examining the crisis from a global perspective.

A structural crisis of capitalism is not the same as a standard “business cycle.” During the Great Depression, the U.S. economy moved through an entire cycle, but the “boom” period of the cycle merely gained back some of the dramatic losses of the early 1930s before the economy began sinking again in 1937. Periods of “epoch-making innovation,” such as that resulting from the steam engine or the automobile, have fueled growth for a time, but no such inventions are on the horizon today.

The reassertion of stagnation as normal state

Professors Foster and McChesney argue that, in the absence of such dramatic innovation, which have not occurred for several decades, stagnation is the expected norm, particularly in “mature” capitalist economies:

“The result was that the economy, despite its ordinary ups and downs, tended to sink into a normal state of long-run slow growth, rather than the robust growth assumed by orthodox economics. In essence, an economy in which decisions on [business] savings and investment are made privately tends to fall into a stagnation trap; existing demand is insufficient to absorb all of the actual and potential savings (or surplus) available, output falls, and there is no automatic mechanism that generates full recovery.” [page 12]

One way of conceptualizing that is to note that U.S. corporations are sitting on at least $2 trillion of cash — there are not enough investment opportunities to put that money, accumulated by a small number of hands, to good use. Investment decreases because demand decreases under the impact of stagnant or declining wages, and financial speculation increases.

The rise in the accumulated surplus leads to general deprivation. The “competitive capitalism” of the 19th century kept over-accumulation at bay through dramatic expansion but also through frequent bankruptcies, the authors write. In the modern era, they argue, there is a chronic buildup of excess capacity and thus stagnation, although regular business cycles continue. A lack of price competition caused by the consolidation of many industries into a small number of major competitors pushes prices higher, aggravating the erosion of living standards.

Price competition is ruinous to oligopolistic corporations, the authors argue, so they indirectly collude to prop up prices. (This requires no formal agreement when serious competitors can counted on one’s fingers.) Specific cases of price competition come in destructive forms, such as outsourcing huge amounts of production to countries with extremely low wages and sweatshop conditions. Firms compete through cutting production costs and by increasing market share through advertising and marketing techniques, rather on on retail pricing.

Thus, competition in a modern capitalist economy assumes a form drastically different than the mythological image of small firms competing on an even playing field commonly taught:

“Competition over productivity or for low-cost position remains intense, but the drastically diminished role of price competition means that the benefits of economic progress tend to be concentrated in the growing surplus of the big firms rather than disseminated more broadly by falling prices throughout the entire economy. This aggravates problems of overaccumulation. Faced with a tendency to market saturation, and hence the threat of overproduction, monopolistic corporations attempt to defend their prices and profit margins by further reducing capacity utilization. This, however, prevents the economy from clearing out its excess capacity, reinforcing stagnation tendencies. … Major corporations have considerable latitude to govern their output and investment levels, as well as their price levels, which are not externally determined by the market, but rather with an eye to their nearest oligopolistic rivals.” [page 37]

(The reference to “monopolistic corporations” in the quote above does not refer to a “pure” monopoly, but rather a handful of corporations that, as a group, act in a monopolistic manner — “monopolistic” and “oligopolistic” are used interchangeably throughout The Endless Crisis.)

“The stagnation tendency endemic to the mature, monopolistic economy, it is crucial to understand, is not due to technological stagnation, i.e., any failure at technology innovation and productivity expansion. Productivity continues to advance and technological innovations are introduced (if in a more rationalized way) as firms continue to compete for low-cost position. Yet this, in itself, turns into a major problem of the capital-rich societies at the center of the system, since the main constraint on accumulation is not that the economy is not productive enough, but rather that it is too productive.” [page 38]

Crisis is not a bolt from the blue

The current slump — ongoing stagnation following a steep downturn — is decades in the making. The Great Depression was ended by the massive spending needed to fight World War II, but the boom period of the 1950s and 1960s wound down as pent-up consumer demand was satiated, the final boosts from the automobile ran their course, the stimulus of the Vietnam War ended, and new productive capacity in Europe and Japan contributed to a global surplus. Professors Foster and McChesney demonstrate that financialization was the response to the stagnation that began to grip capitalist economies in the 1970s.

“[U]nable to find an outlet for its growing surplus in the real economy, capital (via corporations and individual investors) poured its excess surplus/savings into finance, speculating in the increase in asset prices. Financial institutions, meanwhile, on their part, found new, innovative ways to accommodate this vast inflow of money capital and to leverage the financial superstructure of the economy up to ever greater heights with added borrowing — facilitated by all sorts of exotic instruments, such as derivatives, options, securitization, etc. Some growth of finance was, of course, required as capital became more mobile globally. This, too, acted as a catalyst, promoting the runaway growth of finance on a global scale.” [page 42]

As a result, debt and financial profits increased much faster than the overall economy. Financialization rests on increasing asset prices; thus, a series of financial bubbles was necessary to keep the whole thing going. As instability increased, repeated central-bank interventions were necessary to deal with a steady outbreak of market and currency crises. The increasing power of financial institutions enabled them to induce governments to deregulate markets, encouraging ever more risky behavior.

The effect of these developments, the authors write, is a “stagnation-financialization trap,” whereby financial expansion has become the main fix for the system, which merely enables the cycle of crises to continue without dealing with the underlying structural weaknesses.

“Today’s neoliberal regime itself is best viewed as the political-policy counterpart of monopoly-finance capital. It is aimed at promoting more extreme forms of exploitation. … Neoliberal accumulation strategies, which function with the aid of a ‘predator state,’ are thus directed first and foremost at enhancing corporate profits in the face of stagnation, while providing further needed cash infusions into the financial sector. … Neoliberalism has also increased international inequalities, taking advantage of the very debt burden that peripheral economies were encouraged to take on, in order to force stringent restructuring on poorer economies.” [pages 44-45]

Thus, the system’s only answer has been attempts to re-inflate new asset bubbles. Globalization has only made this problem a global one:

“At the world level, what can be called a ‘new phase of financial imperialism,’ in the context of sluggish growth at the center of the system, constitutes the dominant reality of today’s globalization. Extremely high rates of exploitation, rooted in low wages in the export-oriented periphery, including ‘emerging economies,’ have given rise to global surpluses that can nowhere be profitably absorbed within production. The exports of such economies are dependent on the consumption of the wealthy economies, particularly the United States, with its massive current account deficit. At the same time, the vast export surpluses generated in these ‘emerging’ export economies are attracted to the highly leveraged capital markets of the global North, where such global surpluses serve to reinforce the financialization of the accumulation process centered in the rich economies.” [page 63]

International oligopoly supplants national oligopoly

The concomitant need for growth under the rigors of capitalist competition fuels corporate mergers; such combinations are necessary to buoy profits via increasing market shares when markets are mature. Because of globalization, the tendency toward oligopoly now takes place on an international scale.

This internationalization of oligopoly gives a false impression of renewed national competition, professors Foster and McChesney argue, because national firms are subsumed by international firms as part of the process of globalization. As under earlier, national scales, few corporations can survive this competition. The 500 largest corporations in the world collectively earn revenues of about 40 percent of world gross domestic product! [pages 76-77]

As ever more power accrues to the capitalists who reap the profits from these corporations, they can move production, or, as is standard in the apparel and computer industries, subcontract production to the places with the lowest wages and longest hours, thereby accumulating fantastic profits and reversing, for now, earlier downward pressures on profits.

“Corporations seek, by means of divide-and-rule strategies, to gain advantages over different local, regional, and national labor markets, benefiting from the reality that, while capital is globally mobile, labor — due to a combination of cultural, political, economic, and geographical reasons — for the most part, is not. Consequently, workers increasingly feel the crunch of worldwide job and wage competition, and giant capital enjoys widening profit margins as the world races to the bottom in wages and working conditions. …

The conflict between workers is engendered by capital through the creating of an industrial reserve army of the unemployed. This divide-and-rule strategy integrates disparate labor surpluses, ensuring a constant and growing supply of recruits to the global reserve army, which is made less recalcitrant by insecure employment and the continued threat of unemployment.” [pages 114-115]

Chinese wages, for instance, have remained at about five percent of the U.S. level since the Deng Xiaoping-led imposition of capitalism in the late 1980s because of hundreds of millions of displaced rural farm workers streaming into cities; rural incomes are still lower than average city wages.

Nonetheless, sweatshop pay and conditions are so poor in China that the pattern is workers staying for at most a few years then returning to their villages because physical survival under such conditions for much longer is impossible. That they can return is because the Chinese government has not yet succeeded in eliminating rights to the land held by villagers, a remaining vestige of the Mao era that, ironically, props up the sweatshop system. Those land rights are a social benefit that enables migrants to survive their stints working in sweatshops.

On such horrific conditions rests modern capitalism. Nor are workers, primarily in advanced capitalist countries, who have steady employment the norm, when viewed on a global scale. Using International Labour Organisation figures as a starting point, professors Foster and McChesney calculate that the “global reserve army” — workers who are underemployed, unemployed or “vulnerably employed” (including informal workers) totals 2.4 billion. In contrast, the world’s wage workers total 1.4 billion — far less! [pages 144-146]

Failure of orthodox economic ‘theory

The authors note that orthodox economics assumes that new industrial development will eventually employ all these people, a hope based on ideology and not on reality. The countries that industrialized in the 19th century, particularly Britain and other European countries, were far from able to absorb all their displaced farmers — each experienced massive emigration. But today’s developing countries can’t export their population; as a result, the economy can’t possibly grow fast enough to absorb all their reserve labor armies even if the global economy weren’t in a years-long slump.

China and India contain too large a reserve army of labor for wages to substantially increase there; therefore Chinese and Indian consumption will not be a path out of world economic crisis as many orthodox economists and political leaders have hoped, according to The Endless Crisis. Orthodox economics, dominated by rigid Chicago School thinking, completely failed to predict the financial meltdown and subsequent stagnation. The reason for that lies in orthodox economics existing as an ideological campaign that long ago severed itself from analyzing the real world.

“Their abstract models, geared more toward legitimizing the system than to understanding its laws of motion, have become increasingly otherworldly — constructed around such unreal assumptions such as perfect and pure competition, perfect information, perfect rationality … and the market efficiency hypothesis. … This is an economics that has gone the way of stark idealism — removed altogether from material conditions.” [page 5]

The Endless Crisis is a welcome, and very needed, departure from the usual apologetics for capitalist outcomes. Professors Foster and McChesney provide a single source for understanding the present economic impasse, laying out with devastating precision the reasons for the economic crisis, the inevitability of crisis, the inequality and instability inherent in the capitalist system, and the need to move to a more humane system. Transcending capitalism and creating a better world can only be accomplished internationally, with working people around the world linking together. The authors write:

“Never before has the conflict between private appropriation and the social needs (even survival) of humanity been so stark.” [page 63]

Past structural crises of capitalism could be overcome because there was still room to grow. But when there are no more new markets to conquer, deprivation for the many is the only way for the few to continue to accumulate in a system dedicated to that ever narrower accumulation.

* John Bellamy Foster and Robert W. McChesney, The Endless Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China [Monthly Review Press, New York, 2012]