Explaining how the recent U.S. economic crisis, which quickly spread around the world, marked a turning point in the history of capitalism, this book contends that the system will not bounce back and will not return to the normal capitalist boom-and-bust cycle. Using youth unemployment as a key measure of stagnation of a system in decline, as well as Marxist analytical tools, it shows how global capitalism has reached a tipping point. Other featured examples demonstrate how capitalism is not only wrecking the environment, but has outgrown the planet and threatens its very existence, nearing a resurgence of global class struggle at levels not seen since the 1930s.
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About the Author
Fred Goldstein is a contributing editor for Workers World and the author of Low Wage Capitalism. He lives in New York City.
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Capitalism at a Dead End
Job Destruction, Overproduction and Crisis in the High-Tech Era
By Fred Goldstein
World View ForumCopyright © 2012 Fred Goldstein
All rights reserved.
A crisis of the system
"American business is about maximizing shareholder value. You basically don't want workers. You hire less, and you try to find capital equipment to replace them."
- Allen Sinai,chief global economist at the U.S. research firm Decision Economics
The above quote, from a prestigious and often-cited capitalist economic analyst, brutally describes an underlying process of capitalism in general — not just in the U.S. but capitalism as an economic system. This process of replacing workers with machines (now computers and software) has been operating since the capitalist system began some 500 years ago.
The prominent bourgeois economic consultant to Wall Street and former Lehman Bank executive is well known for his sharp characterizations of the economic crisis. He is the originator of the phrase "the mother of all jobless recoveries," referring to the 2009-2010 so-called "recovery."
If Sinai had followed to the end the thinking that flows from his remark, he would have had to conclude that capitalism has no future. The continuous process of replacing workers with machines, software, computers, and so on means that mass unemployment will continue to grow beyond crisis proportion, leading to social explosions and the ultimate demise of capitalism. Of course, that is an unthinkable thought for a capitalist expert, no matter how discerning he may be.
The process of shedding labor that Sinai remarked on has been true throughout the history of capitalism, since bosses began hiring workers with the sole aim of making profits. At the present moment, however, the process described above has reached the point where it may bring capitalism to a dead end, which is the subject of this work.
Capitalism at a dead end
What is meant by capitalism coming to a dead end? To begin the discussion, it must be stated that this work is written from the standpoint of Marxism, with a view to understanding the condition of the working class and the oppressed people. How has this crisis affected their present condition and what does it tell us about the future? Above all, how does the analysis lead to revolutionary struggle?
Let's preface our discussion with a fact that has profound implication for the workers and for the capitalist system. It has been noted here and there by various economists that at the present time, four years after the crisis of 2007-2009 began, U.S. capitalism has reached the same level of output that it had just before the crisis began.
However, this return to the level of pre-crisis production has been accomplished with 6 million fewer workers! So the missing jobs for 6 million workers need to be replaced, but this can only happen through an enormous and rapid growth of U.S. capitalism. In addition, over these four years more than 4.5 million new workers have come into the work force. Therefore, additional growth is required to further absorb them. However, this comes at a time when the growth of U.S. capitalism (and world capitalism) is slowing down sharply.
If the economic policy makers and experts of U.S. capitalism were to confront this issue, they would truly grasp the scope of the long-term crisis of the system which these simple statistics reveal.
This development is not a mystery to Marxists. It is explained by the laws of capitalist development, which are elaborated on later in this book.
The history of capitalism has been characterized for several centuries by boom and bust, or what the economists call the business cycle. Stable growth is not possible under capitalism. Because the profit motive drives the system, it either expands or contracts — there is no standing still. When profits are pouring in, it expands and bosses hire more workers. When profits begin to fall, it contracts and bosses lay off workers. Of course, this means permanent and increasing instability in the lives of the working class.
In a typical boom and bust cycle, once the contraction is over and business begins to expand, the bosses rehire workers to get production and profits going again, at a higher level than before.
This hiring and firing does not occur according to a plan. Each capitalist corporation or group hires in reaction to its own market conditions and fires according to its individual profit interests at the moment.
This means that in any given week, some bosses are laying off workers while others are hiring, and some bosses do both. This process, which the capitalist economists call "churning," laying off and hiring, goes on without stop.
At this point it is important to introduce the concept of the productivity of labor and its effect on the workers and capitalism in general.
The productivity of labor and the growth of capitalism have gone together historically. In general capitalism has raised the productivity of labor as capitalism itself has grown. At certain points in history, such as just prior to the Great Depression of the 1930s, these two tendencies no longer grow side by side. Instead, the two processes diverge. The productivity of labor grows to such an extent that it actually begins to interfere with the upward growth of capitalism. Crisis sets in and unemployment rises. This and related subjects will be more fully explained throughout the rest of this book.
For now, suffice it to say that capitalism constantly seeks to increase the productivity of labor through the use of technology as a means to increase its profits. The productivity of labor profoundly affects the rate of hiring and the rate of firing. The more productive labor power is, the less each boss needs labor. While some capitalists are hiring, others are shedding workers and replacing them with robots, software and other forms of technology.
So the growth in the productivity of labor affects not just the individual capitalists and their workers, it affects the rate of growth of capitalism itself. As the bosses force the workers to become more and more productive through the introduction of labor-saving technology, the harder and harder it is for the bosses to sell all the products and services created by labor. Capitalism gets over this permanent tendency to crisis so long as it continues to grow.
But in the long run, over time, at some point the accumulation of advances in productivity mounts up and slows down the overall growth of capitalism. We are not talking here about the periodic boom and bust, when capitalism crashes because of a cycle of overproduction. We are talking about a slow-down in the long-term, historic rate of growth.
As long as capitalism exists workers must depend upon selling their labor power to capitalists in order to live. They get wages or salaries in return. If the growth of capital slows, the hiring of workers slows. Even without a downturn, workers get thrown onto the unemployment lines. Downturns only make things worse.
What happens is that at some tipping point, capital forces labor to be so productive, through the introduction of technology and speed up, that the rate at which hiring goes on cannot keep up with the rate at which firing goes on, even during business and profit recoveries.
Once capitalism reaches this point, mass unemployment, underemployment, poverty, and hardship begin to accumulate without end, even during so-called capitalist recoveries. The tendency of the system to crash is accelerated. And the crisis of the working class grows wider and deeper without relief.
It is no coincidence that the worst crisis of unemployment and underemployment since the Great Depression has come after 30 years of relentless introduction of high technology into the economy.
There can still be capitalist recoveries, but they will be weak and unable to absorb the unemployed and underemployed. But most of all, recoveries can no longer eliminate the growth of long-term unemployment, or what Marxists call the reserve army of unemployed.
To reiterate, capitalism is moving towards a dead end when the rate of hiring workers is outstripped by the rate of firing on a permanent basis. This stage also implies the lowering of wages, benefits, the worsening of working conditions and the deterioration of life for the masses. The present "recovery," with millions still unemployed and the prospects for reemployment vastly reduced, shows that capitalism has moved sharply in this direction. The undeniable fact is that the drastic downturn that began in December 2007 has brought about a sudden, qualitative and rapid deterioration in the conditions of the workers on a scale not seen since the Great Depression.
More than 7 million jobs were lost in two years, exceeding the four previous downturns combined. In the past four years long-term mass unemployment has been at record levels. Poverty and child poverty have jumped to record levels. Foreclosures and evictions are at record levels.
Long-term employment is a thing of the past. Part-time and temporary work levels have risen rapidly. Public services and public education are being slashed in states and cities across the country with a meat ax.
Most importantly, millions of youth aged 18 to 24 have not been able to get jobs or are being channeled into dead-end, low-wage jobs. College students and graduates are in debt at record levels and unable to find jobs. A generation of youth is being shut out of the job market, with African-American and Latina/o youth suffering astronomical levels of unemployment and incarceration.
Indeed, the conditions for the working class have been gradually declining in the U.S. since the 1970s. But with this crisis, these conditions took a sharp lurch downward on all fronts. Every social and economic indicator has deteriorated sharply in the last four years, from health to infant mortality to homelessness.
Such sudden leaps in economic conditions do not just come out of the blue. Qualitative declines are the result of smaller, gradual, less dramatic and less visible changes taking place over time beneath the surface. These gradual changes keep adding up until finally there is a transformation of the situation, a shift from a stable condition of gradual change to an unstable condition of rapid and sometimes violent change.
What is most important is that this deteriorating condition of the working class has been conditioned by changes made by the capitalist class — by the transformation of capitalism and the accumulation of its own inner contradictions.
These changes in capitalism have been driven primarily by the steady introduction of job-killing, wage-lowering technology. The long-term effect of these changes will be discussed at length. But the broad outline, as indicated above, shows that a gradual increase in the productivity of labor brought about by this technology has increased the rate at which workers are expelled from employment. It has had the further effects of rendering workers' skills useless through computerization and driving a world-wide wage competition for the benefit of the bosses.
These changes in capitalist production have brought about jobless recoveries — where businesses recover but workers don't get rehired. The last three capitalist downturns, beginning in 1991, have been followed by "jobless recoveries," each worse than the other. This latest jobless recovery, beginning in 2009, is by far the worst of the three.
Strictly speaking, reaching a dead end means you reach a point where you can no longer go forward in a straight line. You must turn around and find another course.
That is why the question of characterizing the present crisis is of such importance.
Marxism has no crystal ball and no ability to prophecy. It can only rely on the scientific theory of historical materialism, understanding the laws of capitalism and observing events as carefully as possible. This is the way to uncover developments in order to more effectively intervene in those events on behalf of the working class and the oppressed.
That is the spirit in which we characterize the present crisis as the profit system coming to a dead end.
The economic crisis that began in August 2007 with the collapse of the housing bubble in the U.S. — and quickly spread around the world — marked a turning point in the history of capitalism.
A different crisis
It is a turning point that carries great danger for the workers and the oppressed of the world and for life on the planet itself. But at the same time this inevitable crisis carries great future potential for those with a revolutionary perspective.
Why? Because this is not just a severe capitalist crisis. This crisis does not have within it the seeds of a robust recovery which would keep capitalism going on an upward course.
All the previous downturns since the Great Depression of the 1930s — 10 of them since World War II — were followed by significant capitalist recoveries. The system was able to climb out of each one and push further upward in production and employment. It has used all sorts of artificial means to overcome these crises — militarism and war, imperialist expansion, state financial intervention, technological restructuring, union busting, lowering of wages, and so forth.
This crisis is different. A world historic social system, the system of capitalist wage slavery, shows many signs that it has reached the point at which it cannot rebound and continue on an upward course. All the traditional methods by which the system has been revived are being used but no longer work.
Central bankers have poured trillions of dollars into the system. The U.S. Government Accountability Office (GAO) issued an audit of the Federal Reserve Bank in July 2011. It found that secret loans of $16 trillion were given out, mainly to U.S. banks, but also to many European banks.
This is in addition to the publicly known bank bailout by the George W. Bush administration of $700 billion in 2008 and the $750 billion stimulus package by President Barack Obama in 2009.
If you include Europe and Japan, the total amount of money poured into the world capitalist financial system was probably at least $20 trillion. The entire world Gross Domestic Product, that is, the annual dollar value of all the goods and services produced on the planet, was $58 trillion as of mid-2011, according to the World Bank. So central bankers have put in amounts equal to approximately one third of the annual global GDP. As of this writing (February 2012), central bankers in Europe and the International Monetary Fund are planning to pour in hundreds of billions of dollars more to bail out banks in order to avert another global financial meltdown, this time Europe-led.
The IMF has called for donors to contribute $500 billion to a bailout fund for Europe, which would raise the fund to $1 trillion. It is also calling on the European Central Bank to bring its bailout fund up to $500 billion. This is an urgent call to back the governments of Greece, Portugal, Spain, Italy and others to make good on their commitments to pay bondholders.
In the background are the fears of a new global economic slowdown as the economies of Europe move toward a continental recession.
New stage of the crisis ahead
What has been the result? In the first two years, from August 2007 to June 2009, the bailouts and stimulus packages were able at best to avoid a complete collapse of the system. For the next two and a half years, from June 2009 up to February 2012, the system has managed to remain at a stage of impasse. While a crash has been temporarily avoided and the system stabilized, unemployment remains at crisis levels and business in the U.S. is growing at a snail's pace. At the same time, Europe and Japan are on the brink of a decline.
Present signs indicate that the impasse phase is coming to an end and the system is headed toward a renewed capitalist downturn. Wild stock market swings over the financial fate of Europe get the headlines. But the fundamental issue of decline in growth is widely underreported.
The IMF has dramatically reduced its projections for global growth in 2012 from its previous projections, made in September 2011. An expected 4 percent growth of the global economy has been lowered to 3.3 percent. Actual growth last year was 3.8 percent, according to the IMF.
The chief economist of the IMF, Olivier Blanchard, was quoted thus: "The world recovery, which was weak in the first place, is in danger of stalling. But there is an even greater danger, namely that the European crisis intensifies. In this case the world could be plunged into another recession."
Whether or not the European ruling classes can subordinate their differences and find a way to ease the government debt crisis is the biggest question facing the financiers right now. The IMF has projected 0.5 percent growth, without a financial crisis, for the 17 euro zone countries. These countries provide 16 percent of global output, or $12.45 trillion in GDP.
As it is, Italian capitalism is projected to decline by 2.2 percent, Spain by 1.7 percent. Greece and Portugal are already in recession.
Every country and region surveyed by the IMF has had its growth projections marked down for 2012 compared to the September 2011 estimate.
Excerpted from Capitalism at a Dead End by Fred Goldstein. Copyright © 2012 Fred Goldstein. Excerpted by permission of World View Forum.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Table of Contents
Introduction: Three crises of the capitalist system: 1873, 1929 and 2007 ix
Chapter 1 A crisis of the system 1
Chapter 2 Low-wage capitalism and the jobless recovery 19
Chapter 3 The crash of 2008, advancing technology, and mass unemployment 29
Chapter 4 Productivity is strangling production 39
Chapter 5 Bankers loot the treasury, call for austerity 53
Chapter 6 Capitalism has outgrown the planet 61
Chapter 7 Capitalism threatens life on the planet 71
Chapter 8 Historical materialism: robots and revolution 79
Chapter 9 New stage of imperialism and prospects for struggle 89
Addendum: Capitalism and the roots of inequality 97
About the author 117