david mcnally, from financial crisis to world slump (2009)

(37): feedback loops, of course: "So, if the first phase of the global crisis centred on the financial sector, with a stunning series of bank-collapses, the second phase is concentrated in manufacturing, with a wave of failures, bailouts and massive downsizing ofnon-financial corporations. But downsizing and restructuring will, in turn, trigger big drops in global demand (as laid-off workers cut back consumption and corporate demand retrenches), which, in turn, will hit firms in services (such as hotels and business assistance) and hammer the current-account balances and financial systems of scores of nation-states, sparking yet further banking crises."

(38): this fact will be important to the larger indictment, of course: "Meanwhile, East Asia, which was the heart of the neoliberal wave of expansion (1983–2007), to be discussed below, is now the centre of the overaccumulation storm."

(38-39): China: "The centre of the wave of accumulation of the past twenty-fi ve years,
as global production-chains ran through its manufacturing base, China is now at the nexus of the overaccumulation-crisis. While predictions that Chinese industry is running at only 50 per cent of capacity may be extreme, there can be little doubt that huge numbers of factories have closed, while many are operating at dramatically reduced levels... Trying to manage an economy that needs economic growth rates of eight per cent a year just to absorb the massive fl ows of rural migrants into industrial centres, Chinese offi cials now describe the still worsening employment situation as ‘grim’ and worry openly about social unrest."

(39): the spectre of deflation: "Overaccumulation, asset-defl ation and price-cutting now threaten a downward spiral in prices and profi ts that would spell a seriously prolonged global slump."

(40): the size of the bailout, globally (see FN 18): "And we are very far from the endpoint. Despite a stunning series of bailouts of the banking system in the Global North approaching $20 trillion, or 30 per cent of world GDP, the international fi nancial system continues to stagger."

(40): "More banks will fail, more countries will be forced to turn to the IMF in order to stay afl oat." [what to make of this? especially since it was widely agreed that the IMF's time had passed? is this empirically realistic?]

(41): KEY--"[unlike] the savings-and-loan meltdown of the early 1990s, the collapse of Long Term Capital Management (1998) or the bursting of the dot.com bubble (2000–1) – this one has moved from a fi nancial meltdown to a eneralised economic crisis. And, unlike crises that were regionally confi ned – East Asia (1997), Russia (1998), Argentina (2000–1) – this is a globalising crisis at the heart of the system. We confront, in other words, a generalised global crisis in the reproduction of capital and of the relations between capital and global labour that have characterised the neoliberal period. Th e neoliberal reorganisation of world-capitalism is now undergoing a systemic shock."

(41): this, clearly, he sees as his central contribution: "In what follows, I argue that we need a more dynamic, historical and nuanced account of what has happened to world-capitalism over the past quarter century than has been generally off ered. Too many radical analyses focus either on regulatory frameworks or the crisis of profi tability of the 1970s to explain what is happening today. In so doing, each approach ignores crucial features of the dramatic processes of restructuring and accumulation that ran across the neoliberal period – and that laid the basis for the current crisis. I further argue that this crisis should be analysed in terms of a breakdown in prevailing valueforms, including models of value-measurement, and that this breakdown opens up new spaces for value-struggles – struggles over the very forms for reproducing social relations – that could trace the outlines of a radical and systemic counter-project to that of capital."

(41-42): not, in other words, in these two camps: "On the Left, most analyses of the crisis have tended to fall into one of two camps. On the one hand, we fi nd a series of commentators who view the fi nancial meltdown as just the latest manifestation of a crisis of profi tability that began in the early 1970s, a crisis that has eff ectively persisted since that time. In another camp is a large number of commentators who see the crisis as essentially caused by an explosion of fi nancial transactions and speculation that followed from deregulation of fi nancial markets over the past quarter-century."

(42): absolutely right--"Th ey [the latter approach] confuse policy reactions to the globalisation of production and fi nance with causes of the current crisis. It is, of course, true that fi nancial deregulation is a contributing factor in the current crisis. But, rather than driving the process of fi nancial liberalisation, deregulation followed and responded to structural transformations... proponents of the deregulation-thesis lack an explanation as to why this crisis has not been restricted to fi nancial markets; they are unable to probe its interconnection with problems of global overaccumulation. Secondly, because these commentators are prone to describe the problem in terms of neoliberal policychanges, rather than capitalism, they advocate a return to some sort of Keynesian re-regulation of fi nancial markets."

(42-43): important--i accept this, but we still have to be able to explain generalized stagnation: "Those analyses that eff ectively read the current crisis in terms of a decline in the rate of profi tability from the mid-1960s to early 1970s have the merit of focusing on deeper problems at the level of capitalist accumulation, and, for this reason, I will engage them at considerably more length. For the most part, however, these approaches tend to be amazingly static, ignoring the specifi c dynamics of capitalist restructuring and accumulation in the neoliberal period. Th ere is a particularly unhelpful tendency in many of these analyses to treat the entire thirty-fi ve year period since 1973 as a ‘crisis’, a ‘long downturn’, or even a ‘depression’. Yet, such assessments downplay the dramatic social, technical and spatial restructuring of capitalist production that occurred across the neoliberal period, all of which signifi cantly raised rates of surplus-value and profi tability, and led to a volatile – indeed ‘turbulent’ – but nonetheless real process of sustained capitalist expansion, centred on East Asia."

(43-45): three methodological protocols:

1. "I insist, first, that we need to treat the world-economy as a totality that is more than the sum of its parts... Much discussion of the neoliberal period has focused on a number of capitalistically developed nations – most frequently the US, Germany and Japan – and treated the world-economy as largely an aggregate of these parts."
   
2. "Secondly, it is vital to recognise that an assessment of world-capitalism cannot make its focus the performance of national economies per se. Capital does not invest in order to boost Gross Domestic Product (GDP), national income, or aggregate national employment. It invests in order to expand itself via the capture of shares of global surplus-value (although what individual capitalists attend to are rates of return on total investment)."
3. "Th ird, the unique quarter-century long postwar-boom (1949–73) ought not to be the benchmark against which everything else is deemed a ‘crisis’. Th at great boom was the product of an exceptional set of social-historical circumstances that triggered an unprecedented wave of expansion. But, prolonged expansion with rising levels of output, wages and employment in the core-economies is not the capitalist norm; and the absence of all of these is not invariably a ‘crisis’. It is utterly misleading to imagine that capital is in crisis every time rates of increase in world or national GDP fall below fi ve or six per cent per annum. Indeed, where wage-compression characterises a phase of capitalist expansion, this may be favourable to profi tability while suboptimal in terms of the growth of consumer-demand and annual rates of national economic growth. Yes, capitalist expansion under such conditions throws up limits to itself. But this is what we should expect of all capitalist ‘régimes of accumulation’. Th e capitalist mode of production is inherently contradictory at multiple levels; every pattern of capital-accumulation involves self-generated limits."

(45): My analysis will build upon three main theses:

1. "Following the recessions of 1974–5 and 1980–2 and the ruling-class off ensive against unions and the Global South that took off in this period, severe capitalist restructuring did generate a new wave of capitalist growth, albeit a much more uneven and volatile one than occurred during the great boom of 1949–73... [E. Asia is important to this story, again--see actual text for details...]"
2. "Alongside and interacting with these changes, a wholesale reorganisation of capitalist fi nance occurred, stimulated by a metamorphosis in forms of world-money (analysed in Section 4 below)"
3. [so this crisis has its origins in 1997, rather than in a long, thirty-year downturn] "Th e upward trend in profi t-rates from the early 1980s sustained a wave of capitalist expansion that began to falter in 1997, with the crisis in East Asia. The East-Asian crisis signalled the onset of new problems of overaccumulation that shape the contours of the present crisis."

THESIS ONE

(47): CRITICAL: "Central to my argument is the claim that intense processes of capitalist restructuring throughout the neoliberal period created a new social-spatial reconfi guration of capital and a new, uneven and volatile wave of capitalist expansion (and drove key processes of the phenomenon known as ‘globalisation’). Th rough a dialectic of global restructuring that has reconfi gured labour and capital both within and outside the core, the world-capitalist economy has been decisively remade. I will take diff erent sides of this dialectical process in turn. While some commentary often seems to suggest that very little restructuring of capital has occurred at the core of the system since the crises of 1973–82, it is clear that major re-organisations of work-process and technology have in fact taken place."

(48): "Th e cumulative eff ects of these processes were profound. In the fi rst instance,
they involved a sustained and signifi cant rise in the rate of exploitation... [Secondly,] Th is increase in the rate of surplus-value in the US went hand in hand with major improvements in the productivity of new capital-investment. As both Mohun and Edward Wolff further show, the tendential rise in the organic composition of capital35 that characterised the period 1947–82 was abruptly reversed during the period of vigorous neoliberal expansion (1982–97) and the productivity of new investment rose."

(49): seems important--"In the absence of such powerful class-resistance, crises will serve as moments of reorganisation that create conditions for increases in labour-productivity and rates of profi t – which, in turn, make renewed expansion possible." [in other words, capitalism cannot self-destruct]

(49): tracking the profit-rate (see graph; not from article): "And it is decidedly clear in this regard that, after falling consistently from 1964–82, profi t-rates experienced a signifi cant recovery after 1982, as detailed studies for both the US and Europe have shown. True, profi tability did not return to the levels of the mid-1960s. But sustained recovery at lower levels is still that – sustained recovery that makes possible ongoing accumulation."

(49-50): "Th e mid-1980s are a decisive turning point in this regard, as capital based in Japan and Germany... turned outward in dramatic fashion... " [globalized production chains in E. Asia, etc.]

(51): CRITICAL--"Across the quarter century 1980–2005, the world’s ‘export-weighted’ global labour-force quadrupled. Most of this growth occurred after 1990 and about half of it took place in East Asia, where the working class increased nine-fold – from about 100 million to 900 million workers. South Asia, too, saw significant growth in both industry and the number of industrial workers.45 While the accuracy of these calculations can be debated, more conservative estimates still suggest that the world working class doubled in size over the past two decades."

(52): fair enough, this is one of his interventions (and it's fair, especially because it addresses the lacuna identified by Arrighi, without becoming Arrighi's narrative)--"Th e fact that, by 2002, there were twice as many manufacturing workers in China than in the G-7, where the number has been in a pretty steady decline for decades, is indicative of major structural transformations that have taken place in the global economy throughout the neoliberal period. Without accounting centrally for thesedevelopments – that is, by setting them at the heart of an account of the neoliberal period – we fail to grasp key dynamics of the system in recent decades."

(53): important--"It will not do to say that, for twenty-fi ve years, crisis was ‘postponed’ because credit was pumped into the system... sustained asset-infl ation – the ‘bubble economy’ – takes off from about 1996 on, not from 1982."

(55): "So, while the entire period after 1982 cannot be explained in terms of credit-creation, the postponement of a general crisis after 1997 can. But as the accompanying credit-bubble burst, beginning in the summer of 2007, it generated a major fi nancial crisis. And, because of underlying problems of overaccumulation, this fi nancial crisis necessarily triggered a profound global economic slowdown."

THESIS TWO

(56): "However, in many respects, the term fi nancialisation can be, and has been, highly misleading. To the degree to which it suggests that fi nance-capitalists and their interests dominate contemporary capitalism, it is especially so. And, where it has been taken to imply that late capitalism rests on the circulation rather than the production of goods – as if we could have one without the other – it has contributed to absurd depictions of the world-economy today. Moreover, the lines between industrial and fi nancial capital are, in practice, often quite blurred, with giant fi rms engaging in both forms of appropriating profit."

(56): "What the term ‘fi nancialisation’ should capture, in my view, is that set of transformations through which relations between capitals and between capital and wage-labour have been increasingly fi nancialised – that is, increasingly embedded in interest-paying fi nancial transactions. Understanding this enables us to grasp how it is that fi nancial institutions have appropriated ever larger shares of surplus-value."

(56): refers to three phenomena, in fact:

1. (57-59) the mutation in the form of world-money that occurred in the early
   1970s: "value-forms have been extended at the same time as value-measures (and predictions) have become more volatile. Th is has given neoliberal globalisation a number of distinct characteristics and a propensity to enormous credit-bubbles and fi nancial meltdowns of the sort we are witnessing at the moment...
   
2. (59-62) the financial effects of neoliberal wage-compression over the past thirty
   years: "Five dynamics fi gure especially prominently here: i) the geographic relocation of production, with signifi cant expansion of manufacturing industries in dramatically lower-wage areas of East Asia and, to a lesser degree, India, Mexico, Eastern Europe, and so on; ii) the downward pressure on wages triggered by a huge expansion in the reserve army of global labour resulting from massive dispossession of peasants and agricultural
   labourers, particularly in China and India; iii) the increase in relative surplusvalue brought about by the boosts to labour-productivity (output per worker per hour) resulting from the combined eff ects of lean-production techniques and new technologies; iv) increases in absolute surplus-value triggered by an increase in work-hours, particularly in the United States; v) sharp cuts to real wages brought about by union-busting, two-tiered wage systems, and cuts to the ‘social wage’ in the form of a reduction in non-wage social benefi ts,
   such as health-care, food- and fuel-subsidies, pensions and social-assistance programmes... Just as the wealthiest households demanded a plethora of fi nancial instruments in which to invest, large numbers of working-class people turned to credit-markets – particularly in the context of dramatically lowered interestrates after 2001 – in order to sustain living standards."
   
3. (62-66): the enormous global imbalances (revolving around the US currentaccount defi cit) that have flooded the world-economy with US dollars: "two interconnected phenomena become crucial to postponing a general slump: monumental growth of debt-loads; and the US current-account defi cit (its shortfall in trade in goods and services and interest-payments with the rest of the world), which combined to allow the American economy to operate as the ‘Keynesian engine’ of the global economy over the past decade. And, here too, as we shall see, the new form of world-money played a central role... Having driven down costs through the course of the crisis, East-Asian fi rms were soon exporting their way back to growth, developing huge trade-surpluses and soaring international reserves (mainly dollars). But this export-led growth was sustained overwhelmingly by the growing trade- and current-account defi cits in the US. As commentators have noted, the American economy eff ectively became ‘the consumer of last resort’. By 2000, for instance, US imports accounted for almost one-fi fth of worldexports, and four per cent of world gross domestic product. But this level of consumption of foreign goods could only be sustained by 2006 at the cost of an $857 billion US current-account defi cit... Th e recovery after 1997, in other words, was built on the pillars of exceptio nally low US interestrates, particularly from 2001; steady growth in consumer-indebtedness; and a swelling US current-account defi cit."
   

(60): "Whereas, in 1991, the wealthiest one per cent of Americans owned 38.7 per cent of corporate wealth, by 2003 their share had soared to 57.5 per cent."

(61): wow: "All of these trends led to a quadrupling of private and public debt in US, from slightly more than $10 trillion to $43 trillion, during the period of Alan Greenspan’s tenure as President of the Federal Reserve (1987–2005)"

(62): important to the larger argument: "The investment-boom in East Asia created enormous excess-capacity in computer-chips, autos, semi-conductors, chemicals, steel, and fi bre-optics. ‘A persistent trend to overcapacity’, observed the World Bank at the time, had induced ‘price wars and intense competition’. One key indicator of these problems of overcapacity and price-wars is the consumption defl ator, which measures prices in consumer-goods. Th at index shows that US prices for consumer-durables – electronics, appliances, cars and more – began to decline in the autumn of 1995. Th is signal of rising productivity and overproduction off ers an important clue as to the structural underpinnings of the crisis that broke out in East Asia (the centre of themanufacturing boom of the neoliberal era)."

(64): facts of overcapacity in China: "According to the Chinese government’s National Development and Reform Commission, China’s steel industry had developed an annual capacity of 470 million metric tons at a time when actual output equalled only 350 million metric tons. Th is excess-capacity of 120 million metric tons was greater than the total real output (112.5 million metric tons) of the world’s second-largest steel-producing country, Japan. Even worse, problems of overaccumulation haunted the ironalloy industry, where capacity-utilisation had slumped to a mere 40 per cent by 2005. And significant overcapacity plagued the auto-, aluminium-, cementand coke-industries. Detailed studies suggested, for example, that by 2005 China’s home-appliance market had overcapacity-rates of 30 per cent in washing machines, 40 per cent in refrigerators, 45 per cent in microwave ovens and a mind-blowing 87 per cent in televisions."

(65-66): problem of re-starting, given the problems that set in with American indebtedness and slowdown: "But private capital had spoken. Belief in the US ‘boom’ was evaporating. Th e real-estate bubble began to defl ate, mortgage-backed securities entered their free fall, hedge-funds (fi rst at Bear Stearns) collapsed, followed by investment-banks. Th e rout was on – and it is far from over. In the process, the capacity of whopping US current-account defi cits, underpinned by debtfuelled consumer-spending, to buoy the world-economy appears to be exhausted. Yet, to rebalance the global economy, to eliminate huge US defi cits and enormous East-Asian surpluses, means to destroy the source of demand that enabled growth in a period of overaccumulation – and it would also mean much larger falls in the US dollar. For this reason, short of a long slump that destroys huge amounts of capital, it will be extremely diffi cult for the world-economy to find a new source of demand suffi cient to restart sustained growth..."

(67): "Th is is what it means when Marx says a crisis involves a destruction of capital. Th e ‘values’ of fi ctitious capitals – stocks, bills and all kinds of paperassets – which were previously treated as if they were real assets (and against which fi nancial institutions borrowed), enter a freefall."

(68): explaining credit default swaps: "But, whereas death-rates are relatively constant (at least for those whose lives can actually be insured), in the midst of a fi nancial crisis defauly-rates are not. To make matters worse, any investor can buy a Credit Default Swap, even if they do not own a single share of the company in question. Th is encourages speculators to literally bet on the failure of a particular company. If you think GM will default on its debt, for instance, buying a CDS on GM debt is a great way to get a payout many times higher than what the CDS costs. As a result, as speculative bets build up, the insuring party (the seller of CDSs) is on the hook for a growing number of claims in the event of default. In crisis conditions, however, the insurer can quickly go under, unable to pay out to every claimant. But, in that event, nobody is protected any longer against default of the toxic waste they might be holding. And that means complete and total fi nancial-market panic."

(69-70): the usefulness of derivatives in a floating-exchange rate regime: "After all, the profi ts made by foreign branches of a corporation – say in Korean won or Turkish lira – can be completely wiped out when repatriated to the home offi ce, as a result of drops in the values of those currencies. Derivatives, by allowing corporations to contract to buy a currency at a particular exchange-rate some time in the future – or to purchase the right to borrow at a certain rate of interest in a given currency – have played a crucial role in helping capitalist enterprises manage these risks."

(71): this is another of McNally's specific claims, which he sees as his contribution: "Yet, by deploying reifi ed, mathematical concepts of space and time, the models which guided derived pricing have eff ectively imploded. As a result, a classic crisis of capitalist measurement is manifesting itself, in part in the form of a breakdown in risk-measurement and derivatives-pricing. During every crisis, value-measurement is radically disrupted and destabilised. Pressures of overaccumulation and declining profi tability induce a destruction of values that re-organise the foundations of capitalist production. In the process, existing capitals are de-valued, until a new and relatively stable valuation is found. In fact, for Marx, an essential feature of crises is that they destroy the old value-relations that persisted through a period of boom, overaccumulation and declining profi tability in order to lay the basis – through destruction and devaluation of capital and labour-power – for a new set of value-norms. Today, as we have seen, derivatives off er an indirect way of trying to measure value by way of measuring risk. But, in the midst of this crisis, the risk-measurement models that have guided derivatives-markets have completely and utterly failed."

(72): and labor? -- "crises are also moments in which the subordination of labour to capital must be re-organised, and in which new spaces of resistance can be pried open. Th ey are also moments in which capital violates its own free-market nostrums and uses public resources to bail out the system, thus opening up space for debates about alternative uses of public powers. Systemic crises are, therefore, moments of great danger and opportunity for the world’s workers."

(72): "Debt, of course, is one of the oldest class relations; repayment of loans has been a great mechanism for transferring wealth from direct producers to landlords and moneyed capitalists. In the neoliberal context, debt has become a powerful weapon for disciplining the working class in the Global North."

(73): this needs to be made much more specific, but is still interesting as a general formulation: "As prices plummet for food and raw materials (copper, oil, coff ee, cocoa, timber, rubber and more) dozens of poorer countries will encounter big drops in their export-earnings. Th is will inhibit their capacities to import food, medicine and other essentials, as well as to service existing debts. Moreover, as private-capital fl ows into ‘emerging market economies’ plummet by about two-thirds in 2009, rates of investment and job-creation will turn down sharply. Trade and currency-crises may ensue, driving poor nations into the dreaded hands of the IMF. Already, Iceland, Hungary, the Ukraine, Latvia and Pakistan have had to turn to the IMF. And more will follow. Once again, the IMF will join with governments and banks in the North to set loan-conditions that open countries in the South to plunder of their assets. Th e only alternative
will be to repudiate debts, as Ecuador rightly plans to do, and to mobilise against the imperial order embodied in the domination"

(74): this is interesting, even if it may not dramatically change anything: "However much they can be derailed or diverted, all such struggles implicitly challenge the domination of society by the capitalist value-form. Th ey assert the priority of life-values – for land, water, food, housing, income – over the value-abstraction and the violent economic and social crises it entails. And one
of the tasks of the Left is to highlight this confl ict – between life-values and capitalist imperatives – that comes to the fore dramatically during times of crisis, in order to pose a socialist alternative that speaks directly and eloquently to the most vital needs of the oppressed."

(74): "It is, as we have seen, the logic of the value-abstraction to express utter indiff erence to use-values, notably to the needs of the concrete, sensuous beings who are bearers of labour-power. What matters for capital is not the capacity of a given commodity to satisfy specifi c human needs;"

(75-76): "While that was a paltry sum, even more paltry is the amount that was actually delivered – merely one tenth of what was pledged, or $2.2 billion, according to the UN Food and Agriculture Organisation. Yet, somehow, governments in the Global North have in short order come up with about $20 trillion to bail out financial institutions – nearly 10,000 times as much as they have anted up to feed the world’s poor. Compressed in that simple fact is the most basic case for socialism."

(76-): a few things, he's arguing, are emerging as clear consequences of this crisis:

1. First, the crisis will induce an enormous centralisation of capital... [many examples given in the article, itself]
2. Second, this crisis will also pose again the question of the balance of global
   economic power and the role of the dollar...
3. Third, centralisation of capital and competition between blocs will also be
   played out by way of attempts to spatially re-organise capital, so that economies
   in the Global North can displace the eff ects of crisis onto ‘emerging market
   economies’ and nations in the Global South... Those economies may then encounter their own version of the Asian crisis. And, if the IMF is called in, Western governments will press
   to buy up assets on the cheap, as was done to South Korea in particular in 1997, after IMF loan-conditions facilitated perhaps ‘the biggest peacetime transfer of assets from domestic to foreign owners in the past fi fty years anywhere in the world’.
   
4. Fourth, just as nations at the top of the imperial order will try to infl ict greater hardship on the South, so we can anticipate moves toward even more draconian restrictions on the movement of migrant-labour...
5. Finally, this crisis also puts a premium on left responses that are clearly socialist in character. Th e notion of calling for a ‘leashed capitalism’ in the face of such a colossal failure of the capitalist market-system represents an equally colossal failure of socialist imagination...