Bankruptcy of Bourgeois Economics
Breakdown of a Capitalist Economy
(Originally published in Scientific Socialist, Spring 2000)
The bourgeoisie has long corrupted every field of knowledge under its control. But in the current period of the general crisis, with its effects hurling the capitalist system into chaotic decay, entire disciplines have become completely bankrupt. Economics is a prime example.
Bourgeois economic theory under imperialism had already rendered itself useless in answering fundamental questions, but it once at least recognized some important aspects of the economic reality of capitalism and based itself on some accurate facts and statistics. No more. Now a panoply of false premises, irrational arguments, and doctored-up statistics comprises the arsenal from which neo-fascist economists advance their “theories” to cover-up or distort economic reality.
This is especially true in the
, where economic journals and the business press promote American capitalism as the “model” which all other countries must copy if they want to overcome economic difficulties and become “prosperous.” One of the claims used to justify this chauvinist propaganda is that the US has succeeded in “taming the business cycle,” proved by its recent “record-breaking boom.” However, a materialist analysis of economic developments and a brief look at the situation of the workers show that this “boom” is just another big lie of US neo-fascism. US
One very important point that is completely ignored is that “boom” periods in capitalist economies are history. Coupled with periodic crises, booms did exist as part of the cyclical development of industrial capitalism during the 19th century, but they ceased to manifest themselves in the same forms with the rise of imperialism and the general crisis.
A boom period typically expressed itself in its early phase with industries running at capacity with more or less full employment for the industrial workers and then went over to a phase of the expansion of industries and an increase of the labor force. This basic characteristic of capitalism - extended reproduction - propelled capitalist economies ahead. Also, working class movements were, by and large, in stronger positions to wrest concessions from capital, such as higher wages and improved conditions, during these phases of the cycle due to the increased demand for labor. But inevitably, these phases of “prosperity” resulted in crashes or “busts” brought about by a crisis of overproduction, which then set the stage for a new cycle to begin.
However, with the onset of capitalism’s general crisis after World War I, and especially since the end of the second world war, these periods of the cyclical development of industry in the advanced capitalist countries deteriorated into short spasms of economic “growth” and considerably longer and deeper “recessions.”
Constantly expanding and more efficient manufacturing facilities combined with the intensified exploitation of the proletariat maximized profits for the capitalists but exacerbated the basic contradictions of their economic system.
Chronic over-production began to supersede the “normal” boom-bust cycle because workers were paid less and less for their labor relative to the prices commodities were sold for on the market. Constant over-supply and diminishing demand, in turn, led to chronic unemployment. A section of workers - the reserve army of labor - which was idle during the depressions of industrial capital but quickly brought into the production process at the first phase of a boom, now was no longer needed at all, and thus became permanently unemployed and impoverished.
These new developments threw the entire economic cycle off track.
, for instance, the so-called “boom” periods shortened in duration from an average of 8-10 years before the first world war to an average of 3-4 four years in its aftermath. Furthermore, even during the upswings of economic activity, full employment was never achieved while the recessions all recorded higher rates of unemployment than the “busts” of the 19th century. US
The “boom” of the 80s and the current “historically long period of economic growth” that the bourgeoisie’s propagandists are now crowing about are even more convoluted, with their features hardly resembling those of extended capitalist reproduction. Perhaps this is what the bourgeois economists mean when they claim the business cycle has been “tamed”!
A look at these “boom” periods shows that industrial production, instead of expanding, actually declines in key raw materials and manufacturing sectors with the notable but unsurprising exception of armament production. In fact, in the early part of the 90s, when the present “unprecedented expansion” supposedly began, the economy was experiencing anemic if not negative growth in real terms.
A significant factor causing this economic malaise was the drive of the
monopolists to shift a large amount of their production facilities to the neo-colonies, where the working classes are ultra-exploited for maximum profits - a shift that had been going on throughout the 80s, but which began to take full effect at the end of that decade. “Restructuring” to a “service-based economy” meant layoffs due to savage rationalization schemes and industrial decay. This “new economy” has enabled the capitalists to continue maximizing profits, but labor has paid dearly, not only during the recession at the turn of the decade, but throughout the 90s as well. Approximately 17 million workers lost full-time steady jobs in manufacturing and administration during 93-97 alone, and the already tiny unionized work force lost even more ground. US
Over the last four or five years, another “new economy” has emerged in the US - the “high-tech” economy driven by the “technological revolution,” including the computer industry and the Internet. However, while wide-scale computerization and other technological advances in manufacturing, administration, medicine, education, etc., are taking place, and while the Internet is creating different forms of the circulation of capital and distribution of goods, these changes have not translated into the extended reproduction of basic industries. There has been no boom here.
On the contrary, the industrial base of the US has continued to shrink with the increasing imports of commodities from the American monopolists’ “off-shore” manufacturing facilities as well as from foreign producers. This trend is sharply reflected in the ballooning trade deficit. Also, the fact that basic manufacturing industries have fired over 350,000 workers over the last two years alone does little to support the claim that the economy is “roaring ahead.”
But what about the heralded “historically low-level of unemployment” in the country? Doesn’t this prove that the economy is “red hot”?
Here several factors must be considered. One is that, like its Nazi mentor, US neo-fascism has attempted to “solve” the problem of unemployment by converting “one job into two.” Part-time, temporary, and other “flexi” or “non-standard” jobs have replaced millions of full-time, steady positions. An estimated 30 million American workers - over one fifth of the labor force - now toil in these marginal jobs. But they are counted in the same category as full-time workers by the Bureau of Labor Statistics, which deliberately fabricates numbers to promote the illusion that “full-employment,” exists. Surveys, not actual data, are used to compile figures, and these surveys count anyone that has worked at all during a particular week as “employed.”
While there may be more jobs available now than in the last “down-turn” (1989-1991), approximately half of all new jobs created during the current “boom” have been temporary or part-time, where workers are ultra-exploited, and receive very low wages and few if any benefits. At the same time, there is a continuous recycling of labor in all sectors to keep wages down and productivity up.
Naturally this kind of “full employment” has not led to substantial pay increases but, at best, minuscule raises for the majority of workers - another disparity between what typically occurred in a classic boom and what is happening during the present “unbelievable surge” in the US economy. Labor had already been hit with a 20% cut in real wages over the decades of the 70s and 80s while productivity steadily rose. This is an unprecedented reduction of income for workers. Not even the 19th century industrial proletariat in the US or England faced such a brutal attack. Furthermore, workers’ wages have not recovered at all in the “as good as it gets” 90s. According to a recent report, the pay for workers earning less than $65,000 a year rose barely enough to keep up with inflation for the period 94-99.
Apart from rollbacks in pay and cuts in benefits, American workers have become increasingly impoverished over the last five years because of rising inflation. It is quite obvious that the overall cost of living has increased substantially even though the government and business press never tire of bragging about the “historically low inflation rate.”
Again, the BLS uses “sampling” rather than raw data for its calculations; moreover, it takes into account “statistical averages” of a wide range of commodities that are rarely if at all bought by workers. If one were to assess the rise in prices by limiting the category to commodities that the workers purchase most frequently based on their needs, the inflation rate would stand at 3-4 times greater than the official figures routinely dished out. A very practical reason for cooking up the low inflation rate is to supply the capitalists and the government with justification for minimizing increases of wages and social insurance payments.
Well then, how is one to explain the “robust consumer confidence” and the seemingly “endless buying sprees” of the working class? Surely demand is up, and if demand is up, it’s because of the “wealth effect” of the “new economy powering ahead” and Wall Street’s “bull market.”
More lies. The masses are, in fact, worse than flat broke.
Whatever increase exists in demand for goods by the workers, it is clearly not because of their higher incomes. Instead demand has been artificially stimulated by a massive rise in credit, loans, and mortgages that the finance capitalists have been pushing on the masses to compensate for the cuts in their real wages and declining consuming power. As a result, the workers are not enjoying “unprecedented prosperity” but groaning under debt bondage, the likes of which have never been experienced by any working class past or present.
The yearly increase of loan and credit card defaults, foreclosures on mortgages, and personal bankruptcies supply incontrovertible evidence that the masses can neither afford the basic necessities to achieve a modest standard of living nor the “generous financing” schemes that the capitalists offer them to live the “good life.”
And as far as the incredibly stupid propaganda goes about the majority of American workers becoming wealthier as “owners” of companies through stock investments, all that need be pointed out is that the capitalists and their cronies - the top 10% of the population - owns 90% of all stocks while workers “own” only about 5%, and most of these indirectly through pension plans. The “profits” made do not even come close to making up for the cuts in wages and benefits they have been slammed with in the “new economy.” Meanwhile, the “small investors,” that is, the gentry, who “play” the market with the remaining 5% of shares, have been duped into an elaborate pyramid scheme to “get rich quick, and are actually fleeced of millions of dollars annually.
American neo-fascism deludes itself into thinking that the anti-worker policies it has incorporated into the economy have solved fundamental problems of capitalism’s crisis. But both these policies and their consequents are symptomatic of an economy in chaotic decay, where the capitalist relations of production themselves are in the throes of decomposition.
How else can one explain why American workers have received unprecedented cuts in their incomes and have been paid far less than the value of their labor for nearly three decades - to the point where they are languishing in permanent and unparalleled debt?
How else can one explain why an expanding section of American labor, now almost one-third the workforce, no longer has even a modicum of job security either in “good” times or bad, but has been reduced to a migrant workforce, which sells itself into part-time or temporary capitalist slavery at wages that are inadequate to purchase even the basic necessities life, such as food, clothing, shelter, and health care?
The professional hypocrites in government, corporate chieftains, ideologues, and other flunkies of the financial oligarchy flatter themselves about how this ultra-exploitation and degradation of the labor force prove the US economy to be the highest, strongest and most dynamic form of capitalism. They have been pushing for their American “model” to be adopted in Europe, where the working class movements are much larger and stronger than in this country. US neo-fascism, as the spear-head of counter-revolution on all fronts, would like nothing better than “new flexible labor markets” to replace the “outdated European systems” that “concede” too much to the unions. The modern-day American hitlerites want to destroy the unity and organization of the working class on all continents to further their objectives of unbridled exploitation of labor and plunder of natural wealth.
But American capitalism’s “new model” is a sign not of strength but of the extreme weakness of its economic system. And the raving propaganda about it illustrates the dementia typical of a dying class.
The most significant economic consequences of this exploitation and degradation of American labor are the unprecedented impoverishment and debt of the working masses and the tremendous reduction of their purchasing power, which only aggravate the crisis of chronic over-production.
When workers are paid considerably less than the value of their labor for such a long period, as has occurred in the US, a society built upon capitalist commodity exchange is no longer viable. Purchases of goods and services by the masses that rely more and more on credit and loans rather than wages is putting an enormous strain on the entire credit system and will shortly lead to its breakdown, signaling the beginning of the end of the “miracle economy,” which will collapse of its own weight.
On the Brink
World Economic Crisis Hits US Harder
(Originally published in Scientific Socialist, Spring 2001)
The Spring 2000 issue of Scientific Socialist carried an article on the US “miracle economy,” reporting how, apart from other miracles, it had supposedly “tamed the business cycle.” At the time, the neo-fascist mass media and especially the business press were beside themselves over the possibility that the US had eliminated economic crises. Another example of American superiority had almost been incorporated into the litany of state dogma. Our analysis exposed the ridiculousness of this and other claims, pointing out that the US economy was already in the midst of a crisis that would ultimately lead to its collapse.
What a difference a year makes. Since late fall, all this triumphalism of neo-fascism has evaporated before an economic “slowdown” that some analysts believe may even turn into a “recession.”
Right now the bourgeoisie’s economists and “business leaders” are debating whether the US will slide into a recession or not. A dark cloud of uncertainty hangs over their heads.
How tiresome all this talk has become! One thing is certain. We will never get the truth from the fascist oligarchy’s representatives and economists on what is happening.
The current ills of the US economy do not result from any temporary “downturn in business activity.” They stem from the intensifying effects of a long-standing and chronic crisis – the general crisis of world capitalism with the economic crisis at its base. Since it emerged during World War I, the general crisis has continually deepened in succeeding periods. We are presently living through the sixth period that began in the late 80s. Developing over these 12 plus years has been a profound economic crisis. What are the features of this crisis?
The present crisis has turned into the first post-war world economic crisis, i.e. a crisis, with a magnitude not seen since the Great Depression of the 30s. It is a world crisis both in the sense that it embraces all countries from the imperialist centers to the neo-colonial periphery and that it affects all areas of production, e.g., raw materials, agriculture, industry, etc
Another feature of this crisis has been the continuous and increasing indebtedness of many countries, including those of the former Soviet bloc countries and their now openly capitalist progeny as well as the neo-colonies in Asia, Africa and South America. As a result, a huge section of the world has been saddled by the international financial consortiums with astronomical debt and usurious interest, putting these countries perpetually on the verge of bankruptcy. In order to avoid default, the governments of these debtor states have been forced to obey the imperialists’ dictate for refinancing their loans by stepping up their “austerity” policies, or putting it frankly, by increasing taxation and eliminating vital social benefits for the broad masses.
One phenomenon peculiar to this crisis is that it began as a crisis of underproduction in the Soviet Union and its Eastern European vassal states. Underproduction, usually brought about by war and its devastating aftermath, was in this case primarily caused by the extreme militarization of the Soviet economy, forcibly supported by the economies of other countries in the Soviet bloc. Weapons production was given the highest priority while commodity production to meet the needs of the masses remained at a low level. Such a policy is unsustainable since no economy can indefinitely allocate disproportionate amounts of labor and resources to weapons production without eroding and eventually ruining the economic base. This is precisely what happened in the Soviet bloc.
Yet, the present economic crisis, like all the previous ones, has over-production as its fundamental cause. Throughout most of capitalism’s history, over-production periodically occurred when more goods were produced than the market could absorb because of the limited purchasing power of the masses. However, a profound change took place after World War II, when over-production became chronic due to: (1) the continual reduction of incomes for the bulk of the consumers (2) the advance of technique to increase productivity and (3) the growth of industrialization in the neo-colonies where ultra-exploited and semi-slave labor is readily available.
These factors condition a constant tendency for more goods to be produced than the masses can afford to buy. Over the last quarter century capitalism has responded to chronic overproduction with numerous schemes to balance supply and demand, such as “just-in-time”inventory policies to avoid “overcapacity problems,” and “easy credit” for consumers to bolster their purchasing power. Nevertheless, overproduction and its negative effects have persisted and resonated throughout the economy.
In the present period, the crisis of chronic overproduction is compounded by the shrinking world market. For example, because of the severe economic dislocations in the former Soviet bloc and the neo-colonies, many of these countries no longer provide viable markets for the export of goods. Furthermore, a degenerative inter-imperialist war has broken out and is increasingly laying waste not only to countries, such as Iraq and Afghanistan, but also to entire regions, such as the Balkans, the Caucuses, and central to northeast Africa. Clearly, their economies provide little opportunity for trade, except for the arms trade.
During the years 90 - 96 the crisis of overproduction intensified on a world scale. Although it was temporarily alleviated in the West by a still more massive infusion of capital into the credit markets, and more rescheduling of loans and “aid” for debtor countries, by the summer of 1997 it became apparent that these measures had not averted the crisis. In fact it reemerged with even greater intensity. In Asia, the neo-colonies and Japan sunk deeper into an economic morass and were now dragging China into a slump with them.
For the next year and a half, the media and business press focused mainly on volatility in the global financial and currency markets, making up fairy tales about the true causes of the crisis as it unfolded. But this volatility was symptomatic of far greater economic turmoil in Russia and the Southeast Asian “tiger economies.”
Russia’s government went bankrupt due to monopolist plunder of its treasury and a collapsed economy. It defaulted on over forty billion dollars of debt owed to the “Paris Club,” a consortium of big imperialists.
At the same time, a number of Asian neo-colonies were continuing to be seriously affected by the drying up of demand for the commodities they produced. As a result, domestic sales and exports dropped even more, more factories shut down, and bankruptcies rose. Many enterprises defaulted on loans extended to them by local banks. In turn, local banks fell behind on loan payments to the international financiers, as did governments, which had lost much tax revenue because of the crisis. Thailand and a number of other countries were forced to devalue their currencies in hopes that this would cheapen the costs of their commodities for export, but the glut of goods was so large, the lowering of prices proved ineffective, and the Southeast Asian “tigers” remained mired in crisis. Since Japan and China relied heavily on the markets in this region, their economies too continued their downward spiral.
The bourgeoisie began to grow apprehensive over the deteriorating situation, but US imperialism, championing the infallibility of capitalism, hastened to allay fears that the turmoil in Southeast Asia could cause a “global recession.” And at the beginning of 1999 it declared that the IMF and World Bank, granting huge emergency loans to the bankrupt countries, had both restored “stability” to the region and calmed international financial and currency markets. The “financial crisis,” we were told, was now “contained” and would not spread worldwide.
This was far from the truth. At the very time the imperialists were uttering these statements, the economic crisis was deepening throughout the world, engulfing Australia and New Zealand and the entire South American continent. Only over the past year have there been scattered, piecemeal, and oblique reports in the major newspapers about recessions in these regions. Western Europe has also been languishing in an economic malaise for nearly a decade although the official line portrays it as enjoying a “modest recovery” in the last few years, while the Russian Federation, Eastern Europe, and Africa continue to have extremely weak or dysfunctional economies.
These perturbations, caused by an acute turn in the crisis of chronic overproduction, have brought about a greater contraction of the world market, curtailing both the export of capital and international trade. These perturbations have reached the US to make a bad economy worse.
Massive layoffs are taking place throughout the country. Although these are nothing new for the “new economy,” company announcements and figures published by the government indicate a sharp spike in the numbers of unemployed over the past year. Hardest hit are the workers in basic manufacturing, technology, dot.com “start-up” companies, and the financial sector.
The layoffs in the basic manufacturing and technology sectors are being caused, in part, by the falling off of exports to the neo-colonies, especially to South America where the crisis is far more serious. Tens of million are jobless and have drastically cut down on their purchases, even of basic necessities. The debacle of the dot.com companies resulted simply because there was little global or national demand for their product. Many of the dot.com companies turned out to be receptacles corporate neo-fascism set up to temporarily deposit some of the abundant surplus of college- trained labor and downsized workers. As well, they were used to scam unwitting investors in the stock market out of billions of dollars with the hoax that the US was generating a “new, booming hi-tech economy” where they could get rich quick. Now, since the “tech bubble has burst,” banks, brokerage firms, and other financial units that had hired more employees to take full advantage of this swindle are throwing them into the streets.
Apart from these developments, there is the ongoing job elimination brought about by the monopolization of enterprises, which has increased enormously during the current period. These “mergers and acquisitions,” almost always result in “restructuring” of the companies involved and the “downsizing” of their work force.
Rising unemployment and underemployment, already plaguing nearly a third of the American workers, will aggravate the economic crisis nationally by further reducing the purchasing power of the masses and swelling the glut of commodities on the market, thus leading to even more layoffs. Some bourgeois economists are predicting a “recession,” rather than merely a “downturn,” but the proletariat should prepare for something far more serious than either of these.
Indeed, in analyzing the current situation, it is becoming increasingly evident that the US economy is on the verge of a breakdown not unlike the one that led to the collapse of the Soviet Union. How is this possible in the “sole superpower,” with the biggest and strongest capitalist economy of any other country? How can this happen in the citadel of world imperialism? Because the US, driven to extremes to maintain its dominant position in the capitalist camp, is in the process of destroying its own economic base.
Modern capitalism, monopoly capitalism, has created conditions that are distinct from those that existed during its industrial period. As a result, some of the laws of modern capitalism have also changed, among them the law of surplus value. As Stalin argued:
The law of surplus value must be made more concrete and developed further in adaptation to the conditions of monopoly capitalism, at the same time bearing in mind that monopoly capitalism demands not any sort of profit, but precisely the maximum profit. That will be the basic economic law of modern capitalism.
He continues with what he describes as a roughly formulated version of this law:
…the securing of the maximum capitalist profit through the exploitation, ruin and impoverishment of the majority of the population of the given country, through the enslavement and systematic robbery of the peoples of other countries, especially backward countries, and, lastly, through wars and militarization of the national economy, which are utilized for obtaining the highest profits.
How is this law operating in the US and what are the consequences for the country after having conformed to this law for an extended period of time?
The bourgeoisie has maximized its profits by reducing the American work force to the most exploited and impoverished in the “advanced” capitalist countries. Wages, generally, provide a minimum for livelihood plus some savings. This is what is known as the value of labor. While it is true that wages can sink below the value of labor and that there is always the tendency for real wages to fall, the American working class has had its real wages slashed approximately 30% over the past 25 years. This illustrates a brutal and extreme form of exploitation that has pushed wages to an unprecedented low, relative to their value. With their incomes falling, the masses were forced to spend what little surplus they had, so savings are now non-existent for the majority of the proletariat, a fact that is reflected in the negative savings rate nationally.
In addition to lowering their incomes and depleting their savings, the capitalists have done everything possible to maximize their profits by eliminating or curtailing company sponsored medical insurance and pension plans. The federal government has also instituted draconian cuts in health, education, housing, retirement, and welfare programs, making the people pay more and more for social benefits to which they should be automatically entitled for paying some of the highest taxes in the world. These cuts in federal spending were implemented for only one reason. They have freed up more compartments of the national treasury for the fascist oligarchy and other corporate welfare recipients to plunder. By far the biggest recipient, completely interlocked with the oligarchy and integral to the militarized economy, is the “defense industry,” where maximum profits are guaranteed.
But the bourgeoisie’s exploitation and robbery of the working class doesn’t stop here. A capitalist economy cannot sustain itself when workers are impoverished with little or no purchasing power. Thus, over the past 25 year period as the workers were having their incomes slashed, the financiers introduced the credit card system and liberalized loan and mortgage eligibility. Today, after decades of being forced to maintain their living standards by charging and borrowing, the masses are buried under mountains of debt. They are literally living in debt bondage. And because the interest rates charged by the banks and other lenders are kept so high while wages remain so low, there is almost nothing, short of declaring bankruptcy, the people can do to escape. That is why, in the face of growing personal bankruptcies, whose numbers can only explode if a “recession” hits, the oligarchy’s politicians are trying to rush through laws minimizing the amount of debt forgiven. What next? Debtors’ prison?
Here we have a striking example of the absolute impoverishment of the workers. The average worker today earns 30% less in real wages than 25 years ago. Yet this impoverishment is camouflaged by a credit and loan system that allows workers to borrow many times their annual income. But at what cost? Not only are they poorer; they are in a permanent state of debt bondage. And, on top of that, they are more intensely exploited. Workers today have to work longer hours and spend more energy for every hour of work than before.
Naturally what the working class loses, the capitalists gain. The US bourgeoisie has been able to maximize profits handily on the backs of the ultra-exploited, impoverished, and debt-ridden working class. Why American labor has permitted itself to be driven backwards to this wretched state is the subject of another discussion, but suffice it to say that the US neo-fascist regime is the most repressive, terroristic, and manipulative of any state in undermining and liquidating the struggles of the proletariat.
But what are the consequences of such extreme policies?
In fanatically adhering to the law of maximum profits, US capitalism has brought its economy into contradiction and is in the process of negating the laws of commodity production, especially the law of value. For example, labor power is no longer bought at its value, that is, the value of those commodities the worker must consume in order to maintain his existence in accordance with a given cultural level. It is bought at further and further below its value. On the other hand, because of monopolization, prices are fixed and run further and further above their values. As a result, the fundamentals of commodity production in the US are disintegrating. Capitalist relations of production are decomposing. We are now seeing in full force, what Lenin observed 85 years ago when analyzing imperialism:
…the development of capitalism has arrived at a stage when, although commodity production still “reigns” and continues to be regarded as the basis of economic life, it has in reality been undermined (My emphasis – JR) and the bulk of the profits go to the “geniuses” of financial manipulation.
What can the American working class and people expect under the circumstances now that the “geniuses of financial manipulation” are not only “undermining” the economy but also wrecking it?
The events we are witnessing both nationally and internationally show that economic crises under capitalism are not only inevitable, but in the era of advanced imperialist decay they have become perpetual. We can expect whole sectors of the economy and those working in them to be savaged by the bourgeoisie. The capitalists, driven like hapless slaves by the law of maximum profits will resort to more extreme measures of exploitation and plunder as the crisis deepens. Consequently, whole sectors of the economy will become dysfunctional, as they have in Russia. And because the bourgeoisie cannot reverse the decay, because capitalism cannot rejuvenate itself, none of neo-fascism’s policies will be successful in ridding the economy and the country from crisis and ruin.
That is the job of the proletariat and social revolution.