The Collapsing US Economy


It is surprising that for all the Marxist-Leninist parties and organizations in the country, not one that I'm aware of has offered the working class any guidance on what is happening to the economy. This is all the more surprising when one considers that political economy is a vital component of Marxism and that the US economy is virtually in a state of collapse.  

To be sure, these groups are addressing other major issues, e.g., state repression at home, military adventures in Afghanistan and Iraq , the government's attacks on social benefits programs, etc. Nevertheless, it is difficult to see how the masses can be educated effectively about these developments without showing how the economic crisis is driving them.

The following are a few observations on this issue in lieu of a fuller analysis that will be posted later.

Let's begin by defining the economic collapse in the present circumstances as a deepening economic crisis that causes the disintegration and breakdown of the economy to the point where it is losing its force and durability.

Such a definition distinguishes economic collapse from a revolutionary collapse , whereby (a) the capitalist system is experiencing deep political crisis (b) the class contradictions are exacerbated (c) the ruling class and oppressed classes react in extraordinary ways to the crisis with (d) the working class ultimately rising up in revolution to take down capitalism and establish Socialism.(1) What is happening is the culmination of a long process of quantitative changes that has profoundly altered the character of the economy. This process is ongoing and accelerating to the point where even more extreme qualitative changes are in store that will set the stage for just such a revolutionary collapse

Another thing to keep in mind is that all economic activity must be viewed within the context of the general crisis of capitalism . The general crisis emerged at capitalism's imperialist stage and results from the continual intensification of the fundamental contradiction of the capitalist system, that between the socialized means of production and private appropriation. The connection between the general crisis and the present economic collapse is a complex one that can not be covered in this brief essay.(2) Here we will only focus on the major economic dislocations that are hastening collapse.


In his seminal work, Imperialism the Highest Stage of Capitalism , Lenin effectively analyzed how monopoly capitalism leads to parasitism and decay, which in turn leads to the disintegration of the economy. Despite the bourgeoisie's incessant harangues that the economy is in a period of “recovery” and “growing,” we'll show how Lenin's analysis accurately describes developments in the US today.

Deindustrialization of the Economy

According to Lenin, one manifestation of imperialism's parasitism and decay is that “industry disappears,” and there is a “shifting of the burden of physical toil to the colonies with imperialism content with the role of  "rentier." (3)

Up until the end of World War II, the US economy was based largely on industry. Even as late as 1985, goods production figured as much as 45% of the GDP. Then, between 1985 and 2003, goods production dropped to only 29% of the GDP.   Since 2003 it dropped precipitously to 16%. It should also be pointed out in this regard that a sizable section of what's left of the industrial base is engaged in weapons production, that is, a non-productive militarized sector of the economy which adds little or nothing at all to the national wealth but does spur industrial decay.(4) All this translates into an extremely small number of Americans who are employed in productive labor compared to the total workforce: only about 12 out of 149 million or 8% of the working population.

This almost total trashing of the productive economy puts the US ahead of the pack of the other big capitalist powers which are also going through a process of deindustrialization but whose economies still have a higher manufacturing to total GDP ratio. For example, compared to the US 's (16%), goods production in Germany figures at 31% of its GDP, Japan 31%, and the UK 25%. Shockingly, the US ranks below scores of other countries labeled “third world” to inauspiciously place number 154 among 163 nations in this category!

Deindustrialization of the economic base is a direct consequence of a chief characteristic of imperialism – the export of capital. The export of capital, more specifically finance capital, takes any number of forms, including the investment in foreign stocks and bonds and the world credit markets, loans to neo-colonies, speculating in currency, etc. These are forms that reflect the nature of what Lenin called the “ rentier ” or usurer state and constitute “one of the most essential economic bases of imperialism.” The proclivity for “clipping coupons” with no connection to the productive process is typical of monopoly capitalism because the entire system is governed by the law of maximization of profits and because greater returns can be had by such investments. (5)  Lenin concludes his remarks on this topic by underscoring that monopoly capitalism is in “permanent and insoluble contradiction to commodity production” because much more income can be made from the export of capital than can be obtained from trade in commodities.         

However, the export in capital does not preclude investing in commodity production in other countries. In fact, since the end of World War II, more and more US capital has been directly invested overseas in manufacturing and the extraction of raw materials. This “outsourcing” as it is now called, together with plant closures caused by over-capacity, has gutted the US industrial base. Predictably, the preferred destinations of outsourcing have been countries where labor is ultra-exploited. The latest numbers show that between 2003 and 2004 U.S. manufacturers nearly doubled direct investment overseas, from $141 billion to 252 billion, and that the increase was spread across many industries, including chemicals, pharmaceuticals and computer products.(6) Investors are thrilled with such news, especially when, as business journalists now report, China will soon be the primary overseas destination for U.S. direct investments in both manufacturing (38 percent) and engineering/R&D (26 percent).

Indeed, as the China Daily announced:

It has been a good year for American companies in China . Our survey of member firms shows that three out of four are profitable. Some are highly profitable. This data reveals another significant finding this year -- twice the number of companies plan to expand their business in China compared to last year. Many report they will increase operations in secondary cities and beyond.

And further:

New US investors and exporters continue to set up business operations in large numbers. In 2003, China became the world's principal destination for foreign investment.

The article hails the benefits to US firms as a result of their smart investing, claiming they “save hundreds of millions annually in costs, which keep prices down for American consumers.” But keeping prices down for American “consumers” doesn't really help those with little or no incomes.


The parasitism and decay of US imperialism manifested in the export of capital and outsourcing have caused a continuous increase in the numbers of unemployed although there are other major factors contributing to this social ill. Unemployment in the US is a far greater problem than the state propaganda would have us believe. Mass layoffs continue at full throttle. According to the most recent data from the Labor Department, 1.6 million workers were layed off in April - an increase of about 250,000 from last April and up 14% for the year. But we must look to the broader picture, not just those who have been temporarily laid off from their jobs, but of the huge pool of workers that are perpetually idle. The ranks of this permanent army of the unemployed have been ramped up tremendously both by the shift of production overseas and the chronic overproduction of goods and services in general. Consequently, 2.5 million of manufacturing jobs have been lost over the past five years, including a reduction of 100,000 or 10% of the chemical industry's workforce alone. Those permanently affected by such cuts, now dubbed " nonworkers" by the business press, have reached unprecedented highs. According to the Bureau of Labor Statistics in May 2005 the number of adult workers (over 20) not in the labor force and not looking for a job stood at over 71 million. This alone means that nearly one out of every two workers is chronically unemployed.(7) With the 7.6 million that are currently collecting unemployment insurance and actively seeking work, and about 5 million who are out of the labor force (not collecting unemployment insurance) but also looking for work the total jobless reaches 60% of all workers. Last but not least there are approximately 30 million part-time, temporary and other “contingent” workers, who would rather have steady, full-time employment but can't find it.

Joblessness and disappearing career opportunities are not just a problem for the unskilled or semi-skilled. The incredibly shrinking industrial base has also landed professionals in the ranks of the unemployed or in jobs outside of their fields. For example, the BLS reported that “the number of U.S. technical workers fell 221,000 in six major engineering and computer job classifications from 2000 to 2004.” This appears to be quite a conservative figure if we consider that in recent years unemployment levels among all college graduates have surpassed that of high school dropouts (nearly 1 in 5 college grads are unemployed), and in March 2005 alone 373,000 people with college degrees left the labor force. The depressed state of the manufacturing sector has had another ripple effect. Fewer and fewer college students are applying to university engineering programs, and relatively few graduate with a degree in the field. Europe graduates three times as many engineering students and Asia five times as many.


Another sign of the decay of an imperialist economy is the continual impoverishment of labor. Over the past half-century, the capitalists have spared no effort to constantly drive down wages of the American workers. That's why today a worker receiving an average wage must put in 22 more weeks a year on the job than a worker in 1947 to earn an average income. And there is no let up. Real wages are continuing to fall at their fastest rate in 14 years. These stats do not reflect the full extent of the problem as they do not take into account the elimination of employee benefits over the years that is also a from of wage reduction. To a large extent, wage reduction is a consequent of the shift to a “new” 80% of the GDP “service” economy where the   preponderance of jobs offer pay and benefits far below the average for the manufacturing sector.

A digression is in order here. There has been no lack of analysis and commentary from the bourgeois standpoint on the US transition to a “service” economy. Some voices express concern over this transition and others outright oppose it precisely because it has brought about the degradation of labor. Nevertheless, the “official truth” portrays the U.S. as advancing past an earlier (primitive?) economy to a higher, more sophisticated means of producing wealth. Now, in this “post-industrial” society, knowledge, information, communication, etc. technologies are the catalysts and foundations for a New Economy.

It is pointless to delve into the debate between those who are for or against this “advance” because there are absolutely no prospects to re-industrialize the U.S. under capitalism. The New Economy is no more than the latest phase of parasitism and decay common to all capitalisms during their final stage.

To return to the topic. Because most workers are employed in lower paid service jobs, pressure is put on wages across the board. What the working class loses, the capitalists gain.             

That's, in part, why the bourgeoisie view the New Economy as truly wonderful.   But the New Economy and the intensified exploitation of labor have also brought about outcomes that actually undermine “fundamentals,” for example, the sharp curtailing of the masses' consuming power. And this in turn factors crucially in the acceleration of the collapse of the US economy. Besides working several jobs, overtime, etc., the capitalists have offered the exploited masses another alternative to compensate for their reduced wages and drop in consuming power – debt bondage, where in order to support themselves and provide for their basic needs they are shackled by a myriad of credit, loan, and mortgage payments. As a result, household debt has increased 30% since 2000 and now stands at over 9 trillion dollars.

Observers of the financial system are pointing to the dangerous and untenable situation that these credit schemes have created. According to one, Market Commentator , web site:

Credit market debt as a percentage of GDP is at an all time high of 304% today.  The average in the past 100 years is between 140% to 160% of GDP.  The last two major peaks were in 1929 before the infamous market crash and in the post depression period of 1933 when GDP declined by an astounding 46% thereby pushing the ratio up to 287%.

People who are unemployed, underemployed, overdrawn on credit and loans, or hit with wage cuts cannot purchase the same amount of goods and services as those who are earning a real living wage. Consequently, chronic unemployment, underemployment, debt bondage, and impoverishment ultimately lead to chronic overcapacity of industry, compelling the capitalists to continuously “restructure” their operations, scale back on production, shut down plants, etc.   Thus, there is a vicious downward spiral of economic activity.(8)

  Despite all the hype about the New Economy, the ugly truth is that the US economy now lacks the force and durability to employ even a slim majority of the workforce at steady jobs with livable incomes.

The Bankruptcy of US Society

While the New Economy has certainly benefited the capitalists, it ironically presents a big problem for their state. (9)The smaller the workforce, and the less people are paid, the bigger the drop in income-tax revenues. To compound this shortfall, the Bush-Cheney Junta, the perfect servant of the monopolists, has initiated enormous cuts in corporate and other taxes for the super-rich. As many bourgeois economists and politicians have pointed out, these cuts which deepen the shortfall in revenue come at the very inopportune time when the government has considerably increased its military and state security budgets to fight the “war on terror.” “Defense” spending has skyrocketed over the past several years and now accounts for 48% of the 2005 federal budget. The government debt stands at nearly 8 trillion dollars and is going nowhere but up, with Washington borrowing a minimum of two billion a day for its operating expenses.

A good part of both the government and consumer debt is owed to foreign investors, raising alarms from more sober-minded economists that the U.S. “current account deficit” is totally off-kilter and causing serious “imbalances” in the world economy. Actually the imbalances in the world economy are very much a result of imbalances in the U.S. economy. The Marxist Hoxha , in updating Lenin's analysis of imperialism, pointed out that in the advanced capitalist countries there is “the disproportional development between branches of the national economy as a whole.”(10)This is certainly true for the U.S. where the service sector is totally overdeveloped. Services provide very little that is tradable thereby contributing a negligible amount to offset the account deficit. In fact, it is projected that the US service sector will itself be in deficit due to the competition from other countries, such as India , which are expanding various service facilities. Furthermore, as already noted, because service sector jobs are low paying, they exert a downward pressure on the wages of all workers, forcing them to borrow from financial institutions bankrolled by foreign investors.    

The “current account deficit” is a rather fuzzy term of bourgeois economics which generally means the trade deficit caused by a country importing more goods and capital than it exports.   According to one business web site, Investopedia,   “a current account deficit implies that a country's economy is functioning on borrowed means. In other words, other countries are essentially financing the economy, and hence sustaining the deficit.”   Hence, the US is a debtor nation, and with a rotting industrial base, there is little chance of it getting out from under.

In May, the current account deficit hit nearly 900 billion or 6.7% of the US gross domestic product.   Economists and some business newspapers and periodicals have been criticizing the “Bush administration” and its policies for quite sometime, decrying the US trade “imbalance” as “worrisome.” However, these days they are speaking of it as a risk to both the US and world economies because the current account deficit of the US has spiked to where it is now a larger share of the GDP than recorded by Indonesia and Argentina before these countries fell into financial crisis.  

Defenders of the New Economy protest that the U.S. cannot be compared to these “third world” countries. Well, but more enlightened economists are   comparing it more and more to such countries, and not only because of the imbalance of trade. If we only cite economic issues: the US has a tiny industrial base relative to the size of its economy. Additionally, its workforce suffers extremely high unemployment and poverty rates (both short term and chronic).   As a result, tens of millions live in over-crowded housing, are homeless, or experience hunger.   Wages are the lowest among the advanced industrialized countries, so that practically all who earn a median income or lower are forced to live in debt bondage to keep life and limb together.

Lenin cited how during the early part of the last century, Britain, at the very beginning of its imperialist stage, was transforming itself from an industrialized state into a creditor state, features that he argued were indicative of a parasitic and decaying capitalism. The U.S. as it existed during the greater part of this century could also be placed in this category. However, it has now transformed itself into a deindustrialized debtor state.   In this respect it does resemble the more backward countries in the world; however, these countries are backward because their industrial sectors are undeveloped not “de-developed”! Would Lenin have evaluated the U.S. today as going beyond the last stage of capitalism? Has it now regressed into a sub-form or lower phase of imperialism in decay?   In any case, what practical meaning does this analysis have for the American working class and people?

The evidence just presented appears to point to a disintegration and collapse of a capitalist economy that is unique. Other capitalist economies, including the U.S. , have collapsed before but never from this configuration of factors. (11) Lenin probably would have analyzed the collapse as the logical development of a particular imperialist system in decay that has had no internal forces to counteract its degenerating tendencies. This also partially explains why other advanced capitalist countries have not yet reached this low point. In Western Europe, for instance, stronger organized labor movements have been able to somewhat hold in check the more extreme tendencies of the monopoly capitalists' drive to maximize profits.

Of what practical value is this analysis to the workers? For one thing, as stated in the introduction, it is important for them to understand how the economic collapse is affecting the country's politics. Now we have a frame of reference to connect some of the dots, but we'll limit our discussion to explaining three major developments: the repression, war, and the continual cuts in social services. All these sharply illustrate the parasitism and decay of the US imperialist economy.

State Repression - Essentially, the installation of the ultra-reactionary Bush-Cheney Junta is indicative of the financial oligarchy's effort to consolidate and expand the state's suppression of the working class and people's struggles on all fronts. On the economic front this suppression is geared toward preventing these struggles from counteracting the capitalists' lunatic principle and policy -“anything goes for maximizing profits.” Of course, the bourgeoisie has had a free field in exploiting the workers for many years, e.g., NAFTA, CAFTA, etc. That, as we have already seen, is why the U.S. is on the cutting edge of economic disintegration. However, the bourgeoisie's “intelligence” knows that the continual brutal exploitation of the workers is aggravating class antagonisms and will eventually lead to mass upsurge reminiscent of the 60s. So, the Junta has been charged with preempting such an upsurge and preparing for one if preemption fails, hence, the attacks on a broad range of even formal democratic rights (Patriot Act, etc); the build up of the state's internal security apparatus (new “crowd control” strategies and forces, FEMA's concentration camps, etc).   The point is that the economic crisis has been a decisive cause of “regime change” in the U.S.

War - In Imperialism , Lenin also points out that monopoly capitalism is irreconcilably in contradiction with economic competition, and it engages in ruthless activities up to and including aggression and war to eliminate it.(12) That the present U.S. military adventures in Afghanistan and Iraq are driven by the rapacious aim of unrestricted access to energy and oil is almost universally accepted. However, most are not aware that the wars are the result of inter-imperialist contradictions between the Anglo-American bloc and other big imperialist powers, and that they stem from a conflict over who is going to be eliminated from the competition and who is to gain hegemony in the energy rich and strategically key regions.(13)

Furthermore, although imperialist powers are constantly striving to muscle each other out in the struggle over world markets, natural resources, etc., the U.S. has a special interest in gaining hegemony in oil-rich countries, and this is directly connected to another feature of imperialist decay noted by Lenin: the deliberate retardation of technological progress . In this particular case, energy efficient transportation technology was retarded. For while the technique to produce electric or hybrid cars has been available for some time, the big US automakers deliberately cast this possibility aside with flimsy excuses and instead built the least energy efficient family automobile imaginable – the SUV. Here once again, the law of maximum profits was the driving force. Developing new technologies and retooling production lines for a totally different type of car is “cost-prohibitive.”   Rearranging the sheet-metal on old truck chassis and charging twice as much for the product is profitable. Also profitable is all the extra gas that will be sold to people to run their gas-guzzling vehicles. And, last but not least, maximum profits can also be made by going to war to seize other countries' oil fields that provide the extra gas that will necessarily be consumed. It's a win-win-win situation for a deranged class of parasites and their decaying system.

Cuts in Social Services – There is a lot of smoke and mirrors that camouflage the operations of the U.S. government. However, Leninists are clear that it is in the hands of the financial oligarchy and serves the interests of monopoly capitalism to the detriment of the working class and people.   An abundance of evidence exists to support this fact, such as the numerous “corporate welfare” schemes that have been launched over the years to bail the corporations out of financial difficulty.   So the latest moves by the Junta attacking social benefits for the masses are not new; the only difference is that now the last and most meaningful social program for the people is targeted – social security. Nothing more remains of the various departments of the government's treasury left to plunder. To be sure, stealing millions of pensioners' only source of income is an extreme example of parasitic monopoly capitalism in decay.   More importantly, it is a telling example of just how far along the system is to collapse.

All of the above illustrate the major changes occurring in the U.S. economy and how these are conditioning political changes as well. However, this is only a brief overview of some economic developments and their political corollaries. What is really needed is an economic history. Such a task is, for now, beyond our ability. Engels emphasized years ago that “the economic history of a given period can never be obtained contemporaneously, but only subsequently, after the material has been collected and sifted.” He also pointed out that "statistics lag behind", and it is only possible to base analysis on the "patently manifest."(14) These only indirectly figure as obstacles today. Government and private sources make all kinds of economic and financial information and statistics readily available, but they are highly dubious because they are doctored to serve the bourgeoisie's propaganda machine. Furthermore, much economic reporting in the business press is inconsistent, contradictory, and confusing. Therefore, information and statistics not only have to be "collected and sifted;" they must be scrutinized and carefully evaluated. Predicting future developments is even more difficult. Engels observes it is not just collecting facts, etc. that pose problems in this regard; the most important economic factors "generally operate a long time in realms unknown before they suddenly make themselves forcefully felt on the surface." (15) Certainly, the neo-fascist state media and information outlets are using every manner and means to keep accurate and comprehensive data on the economy in these "realms unknown" for as long as possible.

Nevertheless, even our crude analysis shows an economy in a state of collapse driving the oligarchy towards political extremism. But this political extremism - meant to shore up the capitalist system in the face of economic disintegration - in turn is shattering class relations that have been in place since the end of World War II. This is quite visible in the degradation of several strata of the middle class and the ruination of a large section of the working class through impoverishment. Debt bondage of all working people is seriously aggravating these tendencies. And these combined with more draconian measures of political repression are conditioning alienation of these classes from the established order. More, and more intense economic dislocations are in store for the US in the near future. All in all, these are and will be profound socio-economic changes that signal the decomposition of capitalist relations, and in some ways resemble the crumbling of feudal relations in Western Europe during the 16th and 17th centuries, viz., during the prelude to a new revolutionary epoch. (16)



John Redshield 6/05



(1) That a revolutionary situation does not exist in the US does not mean we are not living in a revolutionary epoch.

(2)For a discussion of the connection see article Capitalism's General Crisis soon to come in this folder.

(3)It's interesting to note that Lenin didn't believe that this would actually happen because these tendencies would be “counteracted” by the proletariat. Obviously, he was not in a position to know how fascism in the imperialist countries like the US would brutally suppress any such attempts by the working class to stop de-industrialization.

(4)The biggest manufacturing plants serve the government's weapons “procurement”, which is allocated a full 1/3 of the defense budget or 123 billion dollars. In addition to the several million industrial workers employed at these plants, more than 1/3 of the country's engineers and scientists work for the war machine. No other sector of industrial production comes close to this in terms of capital and labor.

(5)“Clipping coupons,” that is, “working” to gain maximum profits through investment and speculation completely separated from the concerns of production, drives the whole culture of Wall Street, whereby investors are transfixed on the value of stocks and oblivious to how that value is created.

(6)Note the parallel between the huge increases in direct investments during the same period that the percentage of GDP in manufacturing dropped precipitously!

(7)Of course, not all of these can be counted as “discouraged” workers who have tried but given up looking for jobs.   The BLS has no accurate methodology for separating these from say the stay-at-home “soccer moms,” early retirees, etc. who don't want work because they are supported by other means. However, even if this figure of 71 million were cut in half, would this brighten the picture?  

(8)Although bourgeois economists concede that mass consumption accounts for 2/3 of economic activity in the country, and that strong consuming power on the part of the masses is necessary for a healthy economy, most are totally indifferent if not hostile toward wage increases for the workers and cheer cuts in their pay and benefits as “anti-inflationary.”   For them, “consumer confidence,” or attitude, not real wages, drives the economy. With these theorticians at the helm, small wonder the economy is disintegrating.  

(9)Ironic in the sense that the state facilitates the exploitation on behalf of the monopolists by, among other things, keeping the minimum wage at poverty level, crushing strikes, and busting unions.

(10)Hoxha ,Enver. Imperialism and the Revolution, 1979. While this was a valid assessment at the time, today, over twenty-five years later, for the U.S. anyway, "disproportional development" is an understated assessment to say the least. More accurate is chaotic decay.

(11)The only other country that comes close is the Soviet Union , whose collapse can also be traced in part to disproportionate development of the different branches of its national economy, especially its over-militarized sector.

(12)More specifically, Lenin's thesis is that imperialism can eliminate competition in certain markets for certain periods of time, but competition can never be completely eliminated.

(13)This is only part of a much larger inter-imperialist conflict to re-divide the world which has been going on since the end of the “bi-polar” (two super-power) world, viz., with the break-up of the Soviet bloc.

(14) Engels. Introduction to Class Struggles in France 1848-1850 , by Karl Marx.

(15) Ibid.

(16)How more specifically the decomposition of capitalist relations is taking place in the U.S., and how the economic disintegration of the U.S. will impact on the world economy are topics for articles to follow.