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Crisis of Capitalism?
Or the crisis of the U.S. wage and salaried worker?
P rogressive, radical, and even a few “Bearish” Wall Street pundits have been arguing for years about the coming collapse, decline, or demise of U.S. capitalism. While the left preaches “the crisis and end” of U.S. capitalism, most workers are complaining about the bigger take of their bosses, their intensified exploitation leading to rising productivity, and their extended work day and work year because of cuts in vacation, sick time, and holidays.
The Crisis of Capitalism (COC) has not taken place because business, banking, and the government have shifted the burden of adapting U.S. capitalism to the demands of the market onto the backs of the wage and salaried workers. What is called the crisis of capitalism is really the crisis of labor, by which I mean the relative and absolute decline in living standards—evident in:
(a) the elimination of corporate-funded pension plans and the increase in worker payments to pension plans
(b) the elimination or reduction in payments to health plans and the increased deductions from workers wages to pay for health; or the loss of any health coverage
(c) the double-digit growth in the costs for energy, health, education, and medicines, which are not calculated in the consumer price index, used as a marker to estimate wage, social security, and pension payments
(d) the rising tide of give backs by sclerotic, over-paid (six-digit) trade union executives, which decrease living standards and increase profits for corporations
Likewise, the deregulation of environmental, workplace, and consumer protection agencies has led to health problems and loss of income for wage workers, but greater profits for corporate beneficiaries.
Predictions of U.S. capital collapse are built on a specious set of arguments, which are easily turned on their head and which misdirect our attention from the real tasks of joining the struggle at the workplace, in the environment, and at the sites of consumption.
Myths About the End of Capitalism
S everal arguments have been circulating for over a decade pointing to the coming collapse of U.S. capitalism. They include:
- Budget deficit—annual and cumulative
- Balance of trade deficit
- Speculative nature of the U.S. economy
- Weakness of the U.S. dollar
- Energy crisis
- Unsustainability of the U.S. model
- Export of skilled jobs overseas
Combined and separately, the proponents of the coming collapse theory have cited one or more of these arguments. While not dismissing these problems out of hand, there is reason to believe they are not as serious as their proponents argue for a number of reasons. While the prophets of the COC were breathlessly pointing to the ballooning budget deficits leading to an economic implosion, the data for 2006 indicate a declining deficit from 3.2 percent of GDP predicted in February to 2.3 percent in July of this year, according to the U.S. Office of Management and Budget. The reason is that tax revenues are projected to rise by 11 percent over the year—largely from owners of capital and high earners whose profits, salaries, rents, and royalty payments extracted from labor are at record levels. Individual income tax revenue has increased by 15 percent largely due to the profits accruing to small business owners who file taxable profits under the individual code, even with the big tax cuts.
While the deficit may increase after 2006, the point is that its financing via intensifying labor exploitation is the key issue, not some self-induced collapse. In the meantime, the concentration and centralization of capital (and the robust fees of investment banks) proceed on their merry way: mergers and acquisitions in the first half of 2006 hit $1,930 billion dollars, a record number of billion-dollar deals. The driving force is the capacity of capitalists to cut labor costs, relocate to low wage areas, and high liquidity and low interest rates. Mergers and acquisitions also take place because there is no resistance by the trade unions to any of management’s plant closures and demands for increased productivity and higher profits.
No doubt in the next year or two there will be a sharp rise of bankruptcies resulting from over-indebted firms engaged in speculative acquisitions. This is likely to lead to another chorus about the imminent collapse of capitalism when in fact it will merely serve to enrich the bankruptcy billionaires who look to the process as an opportunity to invest in undervalued assets.
Budget deficits have traditionally been an argument raised by conservatives—especially bankers and the IMF—because of their alleged tendency to stimulate inflation and devaluate the currency. Keynesians and some leftists, on the other hand, have not opposed deficits, particularly if they finance employment and increase mass consumption. The real issue is not the deficit, but the way the deficit is structured—i.e., based on tax cuts for the rich and increased spending on high tech (but low employment) military programs.
The use of deficit spending to stimulate growth has its limits, as the late 1930s prior to wartime deficit spending, demonstrated. The question of the deficit is a political question in the first instance —what classes will finance the budget and what classes will benefit from state expenditures—and more generally, what social configuration will exercise control over the budgetary process, taxes, and expenditures.
Finally, as long as the working and salaried classes are willing to suffer cuts in state social expenditures, the privatization of pension and their health plans, and the extra expenditures of energy and time to increase capitalist productivity, profit, and growth, the deficit is manageable. The deficit will become a problem for capitalism when the class struggle from below reverses the distribution of taxes and distribution of expenditures and lowers the rate of exploitation (productivity).
Balance Of Trade Deficit
F or over a decade the U.S. has had a balance of trade deficit with no visible ill-effects, despite yearly predictions that it’s coming. There are many reasons for the failure of the prophecies. For one, the U.S. dollar remains the principal currency of reserve, despite constant warnings of abandonment. As long as the U.S. remains and is seen by governments and overseas investors as the safest and most stable bastion of capitalist security, the dollar and U.S. treasury bonds will remain the currency of last resort. Secondly, the Asian countries with whom the U.S. has the greatest trade deficit are dependent on sales to the U.S. market and have demonstrated for over 15 years a willingness to buy and hold dollars in order to continue their dynamic export-based growth model. Despite the decline in the relative value of the U.S. dollar to the euro, none of the Asian countries, least of all China, has dumped its dollars. On the contrary, they increased their holdings by over $300 billion throughout a 3-year slide (2004-2006).
The rationale for this behavior can be understood if we look at the class dynamics of the Chinese growth model (CGM). The CGM is based on highly unequal control of the principal export sectors. Local Chinese billionaires, Western and Japanese multi-nationals, and overseas Chinese conglomerates have concentrated the vast proportion of their wealth, capital, and profits from the most savage exploitation and inequalities in the modern world. The result is that China’s growth via perpetuation and expansion of the ruling elites depends on securing export markets, since the domestic purchasing power of 800 million Chinese peasants, workers, and unemployed is desperately weak. To change the CGM would require a social revolution, which focuses on vast shifts in political and social power necessary to collect progressive taxation from the non-paying billionaires and millionaires, the wholesale arrest of most of the corrupt leading public and private officials for extortion and pillage of public property, and a redistribution of wealth, budget expenditures, and property. The Chinese elite prefer to stay with the export model and sit comfortably on an increasing pile of U.S. dollars.
The U.S. economy obviously has a strong and growing speculative sector that has produced substantial commodity and stock market volatility which could have and has had a negative (but not system-wide catastrophic) effect on U.S. workers, retail investors, and would-be pensioners. Speculation has spawned an entire class of high-end corporate kleptocrats from World Com, ENRON, and beyond. However, there are several problems with the “speculative roads to doomsday” theorists. First of all, the U.S. economy is not all speculative. The U.S. is still a major manufacturer and exporter of high tech products. It has led in productivity gains for the last six years among the advanced capitalist countries. It still leads in innovations measured by the number of patents incorporated each year. Moreover, there is not a hard and fast distinction between speculative and productive capital—they are intertwined, with capital moving between each sector depending on where the risk is lower and profits higher.
The real crisis is not speculator capital per se, but how the movement of capital affects workers’ social power and capacity to influence or control investments in order to lower the rates of exploitation and to secure job stability and security. Speculative activity has led to temporary crises in a number of instances over the past 20 years without causing the collapse of capitalism, in large part mainly prejudicing workers’ pension funds, harming retail investors, and leading to bankruptcies and layoffs. But the union CEOs (almost all top trade union officials receive over $200,000 salaries plus perks and other “benefits”) have played little or no role in cushioning the effects on workers.
Another variant of COC theorizing focuses on the weakness of the dollar, usually thrown in with the balance of trade deficit. The dollar over the past 20 years has weakened and strengthened in accord with the ups and downs of U.S. interest rates, political events, and the strengths and weaknesses of the U.S. economy. The weak dollar has traditionally favored U.S. exporters and produced trade surpluses or held down deficits. To call for a stronger dollar while criticizing the trade deficit is voodoo economics promoted by pot-shot critics. The weak dollar allows the U.S. to penetrate export markets without affecting its capacity to import a whole host of low-priced consumer imports (clothes, shoes, and electronics) from countries where U.S. multinationals super-exploit local labor. The weak dollar is a result of interest rates far below the historic levels, allowing U.S. consumers to purchase homes, furnishings, and other essential and non-essential goods on credit, which they otherwise could not afford. The weak dollar forces U.S. tourists overseas to pay more, it increases the cost of imports, but it also makes U.S. goods more competitive in the domestic market, especially in industries that do not depend on imported inputs. The real problem with the weak dollar is that local capitalists have not invested in large-scale, long-term export industries or upgraded local plants to increase the U.S. share of world markets. They have instead transferred capital returns to overseas investments to realize even higher profits while still lowering labor costs at home. In other words, the question is not the weak dollar per se, but how the virtues of a weak dollar are not taken advantage of and the absence of any leftist or progressive strategy which could envision an alternative.
The energy crisis is generally seen in partial terms. The high prices charged by Big Oil, the lack of government investment in public transport and alternative non-fossil fuels, the influence of the automobile industry, the greed of Arab sheiks, and so on. The balance of trade deficit is in part attributed to energy imports, when the finger is not pointed at the exploitation of cheap labor in Asia. Obviously energy prices have adversely affected household budgets and a depletion of fossil fuel reserves in the coming decades is quite likely. But to predict the collapse of capitalism from energy cost increases is a real stretch. First, over half of petrol earnings in the Middle East, Africa, and most of Latin America are recycled to U.S. or European banks, leading to greater liquidity (for local lending) and greater profits. Secondly, most petrol and gas foreign exchange reserves are held in U.S. dollars or euros in U.S. or European banks. Most of the marketing and retail sales of the oil is through European or U.S. companies.
The balance of trade deficit, then, is countered by the positive balances (or inflows) of recycled profits to the U.S. and EU. The real problem is, how are the prices determined and profits from oil production distributed? Supply and demand is only part of the story—as is a potential for administered prices based on government priorities, oil company investment policies, and oil-producing state power configurations. In Venezuela oil prices are a fraction of world market prices, while profits of overseas sales are re-invested in social programs for the poor. Prices of overseas sales are adjusted to buyer country and poor peoples’ needs. In Iran the government is investing in alternative sources of energy (nuclear). If we see the oil crisis as a political/class issue instead of a precipitant to a collapse of capitalism, we can begin to pursue strategies to lower the costs of energy to consumers and to invest in alternative sources of energy.
U.S. Capitalism in Crisis?
T he “un-sustainability of U.S. capitalism” adds up all of the above arguments in favor of collapsist theorizing. Apart from underplaying the potentialities of new technologies, and the possibility of social-political action in sustaining capitalism for the near to middle future, all the elements cited as undermining “sustainability” are premised on one factor: that the current configuration of socio-political power is forever sustainable. This implies that the current capitalist ruling class can sustain and/or expand the current budgetary injustices, that U.S. capital can successfully count on the Asian export elites (who recycle U.S. dollars) to rule unhindered by super-exploitation, and that the Middle East ruling rentiers will not be affected by the popular resistance to Western wars and Israeli ethnocide.
Capitalism, especially U.S. capitalism, will not simply collapse because it causes harm to the majority of Americans. In fact stock valuations rise with massive lay-offs and salary and benefit reductions. Nor will it decline by academic fiat deduced from general theory; nor will it inevitably decline because knowledgeable historians point to previous empires. Capitalism or any other mode of production can survive numerous crises unless a new class is able to overthrow it and replace it with another, presumably socialist system. In the meantime, in the present period, neither the internal mechanisms of capitalism are in disrepair, nor are the supporting cast of workers, consumers, and taxpayers showing any signs of rebellion, let alone organization.
“Currently U.S. companies remain on track to achieve the longest ever stretch of double digit profit growth” reads the Financial Times (July 5, 2006). For 12 consecutive quarters, profits at U.S. companies have grown by at least 10 percent. The projection is for this profit rate to continue through 2007. Profits are what sustain, not collapse, capital. Double-digit profits over several years are not indicators of declining capitalism. What they do strongly suggest is that the corporate slash and burn policies toward worker pay and benefits turn up record profit runs. It also means that impotent and ineffectual trade union bureaucrats facilitating give backs have established a pattern of exploitation that consolidates high returns for capital.
Between 2004 and 2005, the number of millionaires (including billionaires) in Africa increased by nearly 12 percent, in the Middle East and Latin America by nearly 10 percent, and Asia-Pacific by 7 percent ( FT ). There are now 8.7 million millionaires in the capitalist system, an increase of 6.5 percent since 2004. The super rich are becoming richer with their total assets rising 8.5 percent in 2005 to an estimated $33 trillion ( FT ). Over 80 percent of these million-billionaires are from North America, Europe, and Asia. Their rising wealth is the result of capitalist growth—based on rising rates of exploitation of labor, raw materials, and the environment.
The inequalities in pay between the U.S. capitalist ruling class and workers increased four-fold between 1990 and 2004. In 1990 the average CEO pay at 367 large corporations was 100 times that of a worker; by 2004 the ratio was approximately 430 times. If speculation is leading to the eventual collapse of the U.S. economy, it is difficult to understand the enormous and sustained number of record-setting transactions mainly consummated and funded by U.S. investment banks. Between May 2005 to May 2006, all five of the top financial advisers engaged in mergers and acquisitions were U.S.-based (Goldman Sachs, JP Morgan, Citigroup, Morgan Stanley, and Merill Lynch), the same investment banks that predominated in 2004-2005. A similar pattern of increasing U.S. financial dominance is evident from examining the top ten investment banks in relation to global debt capital markets and global equity markets. While some refer to this type of economic activity as casino capitalism, they forget that the House never or rarely loses, it’s the players, not the banks, that lose. What this means is that as the world’s banker, U.S. finance capital is in a position to skim off lucrative fees throughout the world, highly parasitical in one sense, but hardly indicative of a coming collapse.
The dynamic expansion of the U.S. financial sector is not a sign of decline, but of a highly effective form of direct and indirect exploitation. For example, multi-national corporations frequently consult the banks on strategies for acquisitions, mergers, and sell-offs. The banks advise cuts in labor costs to make the firm more profitable and raise stock valuations. Then the banks arrange loans to finance the transaction, leading to indebtedness and further cuts in wages and benefits. The banks collect hundreds of millions of dollars in fees up front for their advice and deal making, putting constant pressure on the corporations to squeeze labor to pay the dealmakers.
Luxury goods industries are booming as profits of the ruling classes of five continents are expanding. In the U.S. alone, sales of luxury goods enjoy a compound annual growth of 12 percent. In contrast, the numbers of workers covered by company-financed health plans and pensions decline by the same percentage or greater every year.
Rising profits are clearly a sign that capitalism is expanding and that consolidation is the defining reality. The conservative financial press has it right. “The rise and rise of U.S. corporate profits” reads a FT editorial (June 10, 2006) in an “historically unprecedented share of profits as a proportion of U.S. gross domestic product…from 7 percent of GDP…in mid 2001 to 12.2 percent at the start of this year” (January 2006). In direct contrast and a direct cause of rising profits, “the median U.S. household income is 3 percent lower in 2006 than in 2000, according to the U.S. census bureau.”
T he real issues are the declining living standards of U.S. wage and salaried workers, the collapse of the welfare state, the extended working hours, job speed ups, the frequent firing and hiring of workers, the tension and insecurity of working families that accompany the unprecedented rates of corporate revenue growth. While 91 percent of U.S. private sector workers are unorganized and subject to the commands of their employers, while 9 percent of U.S. private sector workers are organized into trade unions led by 6digit salaried bureaucrats who specialize in giving back workers’ rights to employers and who remain captives of the pro-business Democratic Party, there is little reason to expect any serious challenge to the status quo.
Only if new social and political movements, leaders, and activists start engaging in a deeper and more profound analysis of the “dirty secret” (Marx) and the source of Wealth of All Nations (Adam Smith), can a beginning be made toward denotating the foundations of capitalism and bringing about its real collapse and replacement.
James Petras is a retired Bartle professor (emeritus) of sociology at SUNY Binghamton. He is an activist and writer who has worked with the landless workers’ movement in Brazil and the unemployed workers’ movement in Argentina. He is a member of the editorial collective of Canadian Dimension . Petras is also the author of numerous books and articles.
Z Magazine Archive
HUMAN RIGHTS - The U.S. Human Rights Network will celebrate its 10th anniversary with the Advancing Human Rights 2013 Conference, December 6-8, in Atlanta, GA.
Contact: 250 Georgia Avenue SE, Suite 330, Atlanta, GA 30312; email@example.com; http:// www.ushrnetwork.org/.
AFRICAN/SOCIALIST - The Sixth Congress of the African People’s Socialist Party USA will be held December 7-11, in St. Petersburg, FL.
Contact: 1245 18th Avenue South, St. Petersburg, FL 33705; 727- 821-6620; info@aps puhuru.org; http://asiuhuru.org/.
SCHOOLS - The Dignity in Schools Campaign (DSC) will host a workshop on the DSC “Model Code on Education and Dignity: Presenting A Human Rights Framework for Schools” at the Mid-Hudson Region NY State Leadership Summit on School Justice Partnerships, December 11 in White Plains, NY.
Contact: http://www.dignityin schools.org/.
ANARCHIST/BOOKFAIR - The Humboldt Anarchist Book Fair will be held December 14, in Eureka, CA.
Contact: humboldtgrassroots @riseup.net; http://humbold tanarchist bookfair.wordpress. com/.
CLIMATE - The World Symposium on Sustainable Development at Universities is hosting a follow-up event to the 2012 Rio de Janeiro symposium. The gathering will be held in Qatar on January 28-30, 2014.
Contact: http://environment.tufts. edu/.
LABOR - The United Association for Labor Education (UALE) will host Organizing for Power: A New Labor Movement for the New Working Class in Los Angeles, March 26-29. Proposals are due December 15.
Contact: LAWCHA, 226 Carr Building (East Campus), Box 90719, Duke University, Durham, NC 27708-0719;lawcha @duke. edu; http://lawcha.org/.
MEDIA FELLOWSHIP - The Media Mobilizing Project is seeking applicants for the first annual Movement Media Fellowship Program. The Fellow will work with MMP to produce the spring season of Media Mobilizing Project TV. MMPTV is a news and talk show that tells the stories of local communities organizing to win human rights and build a movement to end poverty.
Contact: 4233 Chestnut St., Philadelphia, PA 19104; 215-821- 9632; milena@media mobilizing.org; http://www.media mobilizing.org/.
RACE - The 7th Facing Race: A National Conference will be held in Dallas, TX November 13-15, 2014. Organizers, educators, artists, funders and everyone interested in racial equity is invited to exchange best practices and learn about innovative models and successful organizing initiatives. Proposals must be submitted by January 24, 2014.
Contact: Race Forward, 32 Broadway, Suite 1801, New York, NY 10004; 212-513-7925; media @raceforward.org; http://race forward.org/.
VETERANS - They Were Soldiers: How the Wounded Return from America’s Wars - The Untold Story, by Ann Jones, is about the journey of veterans from the moment of being wounded in rural Afghanistan to their return home.
Contact: Haymarket Books, PO Box 180165, Chicago, IL 60618; 773-583-7884; http://www.haymarketbooks.org/.
LIBYA - Destroying Libya and World Order: The Three-Decade U.S. Campaign to Terminate the Qaddafi Revolution, by Francis A. Boyle, is a history and critique of American foreign policy from Reagan to Obama.
Contact: Clarity Press, Inc., Ste. 469, 3277 Roswell Rd. NE, Atlanta, GE 30305; 404-647-6501; firstname.lastname@example.org; http://www. claritypress.com/.
CHILDREN - Fannie and Freddie by Becky Z. Dernbach is about two bumbling villains who gamble away the savings of the people of Homeville.
Contact: fannieandfreddiebook @gmail.com; http://fannieand freddie.org/.
PROTEST/COMIC - Fight the Power!: A Visual History of Protest Among English Speaking Peoples, by Sean Michael Wilson and Benjamin Dickson is a graphic narrative that explains how people have fought against oppression.
Contact: Seven Stories Press, 140 Watts Street, New York, NY 10013; 212-226-8760; info@ sevenstories.com; http://www. sevenstories.com.
CHILDREN - Brave Girl by Michelle Markel and illustrated by Melissa Sweet is the true story of Clara Lemlich, a young Ukrainian immigrant who led the largest strike of women workers in U.S. history.
Contact: http://www.harpercollins childrens.com/Kids/.
FESTIVAL - The 2014 Queer Women of Color Film Festival will be held June 13-15 in San Francisco. The festival is currently accepting submissions until December 31.
Contact: QWOCMAP, 59 Cook Street, San Francisco, CA 94118-3310; 415-752-0868; email@example.com; http://www.qwocmap.org/.
IRAQ/REFUGEES - Ten years after the U.S.-led war in Iraq, thousands of displaced Iraqi refugees are still facing a crisis in the United States. The Lost Dream follows Nazar and Salam who had to flee Iraq in order to avoid threats by Al- Qaeda-affiliated groups and Iraqi insurgents that consider them “traitors” for supporting U.S. forces in Operation Iraqi Freedom.
Contact: Typecast Films, 888- 591-3456; info@type castfilms. com; http://type castfilms.com/.
HUMAN RIGHTS - Lyrical Revolt! III will be held December 4 in Syracuse, NY. The event will feature hip-hop musician Anhel whose album Young, Gifted, and Brown was just released. The event is sponsored by ANSWER Syracuse, Liberation News, and SyracuseHip Hop.com. Performers and artists are encouraged to send submissions.
Contact: firstname.lastname@example.org; http://www.answercoalition.org/syracuse/.
FOLK - Musician Painless Parker has released his album Music for miscreants, malcontents and misanthropes featuring “Fuck Yeah, the Working Class.”
Contact: email@example.com; http://painlessparkermusic.com/.
COMEDY - Political comedian Lee Camp’s new album Pepper Spray the Tears Away has been released.