Drop Till We Shop?
Paul Krugman and Joseph Stiglitz may be celebrity economists, but it is an economic historian whose earlier work focused on the origins of capitalism in late feudal Europe who has turned out the most compelling and comprehensive account of the crisis gripping contemporary global capitalism.
UCLA Professor Robert Brenner's recent work is a solidly argued and empirically impeccable restatement of the centrality of overproduction in capitalism--a problem that has preoccupied thinkers as diverse as Marx, Joseph Schumpeter, Joan Robinson, Ernest Mandel, Paul Baran and Paul Sweezy. Brenner's distinctive contribution is to sketch out the specific dynamics and consequences of overproduction or underconsumption in the era of integrated, globalized production and markets. The picture he draws is not one of corporations denationalized by economic integration and states whose powers have been eroded, as in much current writing on globalization. In Brenner's global economy, state elites battle to gain a competitive edge for their corporate elites. But if national competition is central, so is the common interest among the competing elites of the central economies to expand the global economy. The trajectory of the US economy is largely determined by this volatile relationship of competition with and dependence on the other global capitalist centers of Europe, Japan and--though to a much lesser degree--East Asia.
In Brenner's view, the post-World War II era is divided into a period of dynamic global economic expansion from the late 1940s to the early 1970s and one marked by persistent crises and uneven growth since then--a relatively dismal period broken only by the seven-year US boom in the 1990s. Whereas in the first phase, the United States, Europe and Japan derived mutual benefit from global expansion, from the early 1970s on, economic growth became largely a zero-sum game, in which one center economy's advance was purchased with stagnation or recession in its neighbors.
Since the 1970s, the key problem for the center economies has been a chronic tendency toward overcapacity and thus a steady decline in profitability. Disposing of old capital stock, increasing productivity and regaining profitability has been an urgent need of each center economy, but achieving it has run into opposition from established monopolies, organized labor and powerful rival center economies.
By delinking the dollar from the gold standard and effectively devaluing it, the Nixon Administration hoped to steal a march on its rivals. It was, however, left to the Reagan Administration to decisively restore the American economy's edge, and this it did via three mechanisms: breaking organized labor to hold down wages; maintaining high interest rates to attract capital to the United States; and engineering the infamous "Plaza Accord" in 1985, which drastically pushed up the value of the yen and set the stage for the "relentless rise" of the mark to make the Japanese and German manufacturing sectors bear the lion's share of adjustment. In a global economy marked by overcapacity, the result was eventually to push both Japan and Germany into recession and lay the ground for greater US competitiveness and profitability in the late 1980s and early 1990s.
The effect was, however, two-edged, for even as US manufacturing regained profitability, it was also threatened by the prolonged recession that settled over Japan and Germany, which degraded the capacity of these economies to absorb US exports, which had served as a key engine of the US manufacturing recovery. In an increasingly integrated global economy, Brenner points out, "the fact remains that while the US economic revival took place largely at the expense of its leading rivals, that it had to do so was ultimately at the cost of the US economy itself." Consequently, Washington under the Clinton Administration engineered the "reverse Plaza Accord" in the mid-1990s, when the value of the dollar was allowed to rise relative to the yen in an effort to help spark an export-led recovery in Japan. Just as the Plaza Accord had essentially been a rescue operation of US industry by Japan and Germany, so was the Clinton-Rubin reversal of the rising dollar a US-engineered bailout of Japan's crisis-bound manufacturing sector.
This move, however, failed to spark sustained economic revival in Japan. And a great part of the reason was that the global overcapacity problem had become even more acute owing to the Japanese conglomerates' moving a great many of their labor-intensive manufacturing operations to China and East Asia, precisely to escape being rendered noncompetitive by the rising yen. But even as it failed to reactivate the Japanese economy, the reverse Plaza Accord played a key role in undermining the competitiveness of the Northeast Asian and Southeast Asian economies whose currencies were tied to the rising dollar. When these economies, with their sizable markets, collapsed during the East Asian financial crisis in 1997-98, the global crisis of overproduction intensified.
Tied to an increasingly integrated but keenly competitive global production system and market, the US manufacturing sector saw its profits stop growing after 1997. By the end of the decade, the gap between capacity and output was, according to The Economist, the largest since the Great Depression. By April 2001, practically all key industrial sectors were suffering tremendous overcapacity, with the worst situation existing in the telecommunications sector, where only 2.5 percent of the infrastructure laid down was being utilized.
With manufacturing and the rest of the "real economy" ceasing to absorb investment profitably, capital migrated to the speculative sector, where a period of hyperactive growth in high-technology stocks was carefully nursed by the low-interest-rate policy and "New Economy" talk of Federal Reserve Chairman Alan Greenspan. Grounded in the illusion of future profitability of high-tech firms, the dot-com phenomenon extended the run by about two years. "Never before in US history," Brenner contends, "had the stock market played such a direct, and decisive, role in financing non-financial corporations, and thereby powering the growth of capital expenditures and in this way the real economy. Never before had a US economic expansion become so dependent upon the stock market's ascent."
But with the profitability of the financial sector being dependent on the underlying, actual profitability of the manufacturing sector, the finance-driven growth ultimately had to run out of steam. The dizzying rise in market capitalization of nonfinancial corporations from $4.8 billion in 1994 to $15.6 trillion in the first quarter of 2000 represented what Brenner characterizes as an "absurd disconnection between the rise of paper wealth and the growth of actual output, and particularly of profits, in the underlying economy." The loss of $7 trillion in paper wealth in the stock market collapse that began in March 2000 represented the rude reassertion of the reality of a global economy crippled by overcapacity, overproduction and lack of profitability. With the mechanism of "stock-market Keynesianism" having been exhausted, the capacity of the US economy to avoid a serious and prolonged downturn has been greatly eroded, though Brenner is cautious about writing it off.