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The Systemic Causes of the Crisis

by Tomasz Konicz Friday, Mar. 16, 2012 at 6:51 AM
mbatko1@hotmail.com

The crisis is 30 years old, not 4 years old. The causes of the crisis can be found in the real goods-producing economy, not in the financial markets. The wildly proliferating financial markets did not drag the industry into crisis but kept alive the industry through credit-financed demand.

THE SYSTEMIC CAUSES OF THE CRISIS

By Tomasz Konicz

[This article published February 8, 2012 is translated from the German on the Internet, http://www.streifzuege.org/2012/die-systemischen-ursachen-der-krise/print/. Readers can see the 17 charts (on US industrial employment, US indebtedness, GDP-wage-productivity development and more) by clicking on the German link. Eleven pages on the euro-zone are not translated.]

In the following study, I will try to explain the systemic causes of the present capitalist system crisis so they can be generally understood. This crisis is now manifesting as a debt crisis. Several southern European states are threatened by bankruptcy while private indebtedness in the US and Great Britain becomes enormous. In my address, I will explain the origin of this gigantic debt tower under which the US and Europe threaten to collapse.

I will attempt to identify the causes of the crisis in the contradictions of the capitalist production method. My argumentation is fundamentally different from the usual crisis discourse in Germany. A personification of the causes of crisis occurs in the mass media. The actual dislocations are charged to the malicious or amoral drives of a group of persons, one time the lazy “southern countries” and another time greedy bankers are blamed for the crisis. This argumentation blames the victims for the crisis. Genetic defects are ascribed to the unemployed and marginalized foreigners. With this personification, the capitalist system as such remains outside consideration. This system changes into an eternal, quasi natural presupposition of human life together.

The terms, categories and processes of the system are ideologized into natural laws. In the personification of causes of the crisis, it seems the crisis broke out because certain groups of the population did not obey the “natural laws” of capitalism. The corresponding arguments are well-known: the bankers were too greedy, the Greeks were too lazy and the unemployed did not want to work. Therefore the system is in a crisis.

My explanations focus on the structure, categories and contradictions of capitalism, not on the search for scapegoats. Instead of feverishly searching for “culprits” for the debt crisis, the systemic causes of the indebtedness dynamic must be clarified. Allow me to present my central thesis on the debt crisis: Capitalism can only run on credit. These gigantic debt mountains arose in the past decades because they were necessary to keep the system functioning. Without contracting debts, the system breaks down. Private and/or state indebtedness increasingly represent a system prerequisite for capitalism to reproduce itself. In the following statements, I will try to substantiate this core thesis.

This study is divided in two sections. Firstly the crisis dynamic in the European Union will be illumined. The character of the worldwide economic crisis will be considered in its global framework. In this section, the development in the United States of America moves into the center of my explanations. In the course of my statements, I hope to widen perspectives on the crisis events: from the current European to the historical and global perspective.

I hope you will be open for an historical explanation. The current crisis tendencies should be set in an historical crisis context. The causes of the crisis can be traced back to the 1980s. It is important to ask historically when the indebtedness dynamic began under which many states and economies now threaten to collapse. The crashes in the euro zone are only the present focal point of a fundamental long-term crisis of the whole capitalist world system that comes up against its reproductive capacity.

EUROPE AND THE EURO CRISIS

First of all, let us return to the current crisis course. The first part of my report will illumine the crisis dynamic on the European plane. In Europe, there are crisis winners and crisis losers. While a second economic miracle is acclaimed in Germany’s press, much of the Euro zone is caught in stagnation or recession…

Graph 8: US Balance of Payments Deficit

Like the debt-financed boom in Europe’s economies, the American indebtedness dynamic animated the world economy. At the peak of its deficit economy, the United States posted a trade deficit of nearly 0 billion annually! Thus the US is like a black hole of the world economy that accepted a large part of the surplus production of the world and thus stabilized the entire capitalist world system. Compared to these dimensions, the economic imbalances between Germany and the indebted southern countries of the Euro zone fade.

In 2009 the American trade deficit crashed but rose steadily afterwards. This graph shows how the monthly trade deficit of the United States has grown again since 2010. Thus there can be no talk of a reduction of the “global imbalances”! A large part of this American deficit in its trade imbalance falls to China which has long been the greatest foreign creditor of the United States. A deficit cycle developed between both super-powers and also exists in the Euro zone between Germany and the southern periphery.

Graph 9: US-China Trade Imbalance

China’s absurdly high trade surplus in relation to the US is highlighted here. To a great extent, China’s growth still depends on exports to the United States. The United States still plays a central role as an economic base or support of the capitalist world system.

The outlines of the global trade stru7cture that characterized and characterize the deficit cycles may now be drawn. Export-oriented economies export their production surpluses to targeted indebted countries. These deficit cycles increase in intensity up to the outbreak of crisis – in the US, southern Europe, Great Britain and eastern Europe. In the case of the US, this is a long-term process over decades.

Graph 10: US Indebtedness and GDP

When did this indebtedness begin? This graph shows the long-term development of the total indebtedness of the US in relation to the gross domestic product between 1920 and 2008. The present debt level is far higher than in the world-wide economic crisis of the 1930s. This is a historically unique debt level of the US. We should keep in the back of our minds that this debt explosion started in the 1980s, at the same time as the triumph of neoliberalism. Once again, this unparalleled deficit economy in the United States acted as the central global economic locomotive of the past years.

My initial thesis that the current debt mountains represent a system necessity may have gained plausibility. Capitalism only seems to still function on credit. Whether the state or private parties contract debts makes no difference.

Graph 11: Dow Jones Index

The process of debt explosion began simultaneous with the epoch of financial market-driven capitalism. As already briefly explained, the debt dynamic in the US started in the 1980s. The long-term development of the American Dow Jones stock index is one example for many of this financial explosion since the 1980s.

The index rose higher and higher from the eighties. This stock exchange boom decreased from the nineties. The collapses were also clear in the course of the burst speculation bubbles with high tech stocks in 2000 and the new ascent in the course of real estate speculation. This bubble broke in 2008. In the meantime, new bubble formations were promoted by the low interest policy of the central banks. This is described as a liquidity bubble encouraged by a surplus of “cheap money.” For three decades, we have been in a financial bubble economy. The costs of stabilizing the world economic system always swell after the bursting of a financial bubble. Since historically, this is an absolutely unique event or process in the 500-year history of the capitalist world system. The parallel rise of the debt mountains and the financial markets is logical since the financial markets financed these heavy debts. Credit is the most important “product” of the financial branch.

The prize question is: why cannot the late capitalist economic system reproduce itself without indebtedness? As soon as the – private or state – debt-generated demand collapses, a self-strengthening downward spiral begins and leads to mass dismissals in over-production which lowers demand again and triggers more waves of dismissals. The recession now starting in Europe occurs because the indebtedness dynamic cannot be maintained any longer in the Euro zone. On pressure from Berlin, austerity packages and debt-brakes have been introduced all over Europe and now lead to economic contraction. However in the US the system is stabilized again by printing money and contracting more debts.

My thesis is that the neoliberal financial market-driven capitalism could only prevail globally because it seemed to offer an apparent way out of the fundamental economic crisis in the 1970s. This crisis period in the 1970s is termed “stagflation” since it occurred along with inflation, increasing unemployment and stagnating economic growth.

This crisis of the 1970s had its causes in the exhaustion of the growth potential of the dominant economic structure at that time. This structure was based on the highly efficient use of mass labor power in industry (Taylor system) and automobile manufacturing as the key economic sector. This accumulation regime – that gave relative stability to capitalism from the 1950s to the 1970s is commonly described as “Fordism.” The auto-manufacturer Henry Ford was the first to apply this system.

What happened from the 1970s so that Fordism fell into crisis? Firstly, the markets at that time – that largely first arose after the Second World War – experienced a certain satiation so competition between individual entrepreneurs intensified. Secondly, constantly increasing automation in production occurred. The new production branches could not absorb the workers made redundant by rationalization.

The crisis of the capitalist work society began on a large scale. From the 1980s, the mass unemployment that was previously nearly forgotten returned to the core capitalist countries.

Graph 12: US Profit Rates

I will now try to undergird this argumentation with empirical material. The development of the profit rate in US industry obviously experienced a steep collapse in the 1970s. This material relies on the calculations of the American economist Robert Brenner which confirm a crisis of profitability in the capitalist world system of the early 1970s. According to Brenner, this can be referred back to “over-capacities” in goods production that went along with the increasing competition.

For capital, this represented the super-maximum credible accident. As everybody knows, the highest possible “compound interest” of invested capital is the ultimate goal of the capitalist economic method, not the satisfaction of needs. As long as gaining profits remained at a high level, the system reproduced itself in a stable way even with increasing impoverishment or increasing mass unemployment. With this graph, we also see that the profit rate rose somewhat from the 1980s. This can be ascribed to neoliberalism and the financial expansion. On account of falling US profit rates, neoliberalism could prevail from the 1980s because it solved the problem simply by a stagnation of the wage level.

Graph 13: Wage Development and Productivity in the US

Since the 1970s, real wages in the US have stagnated which contributed significantly to the increase of the profit rates from the eighties. In the above graph, it is obvious how the wage level (red) uncoupled from the rapid development of productivity (blue) in the 1980s. This usually means an over-production crisis would be triggered. Workers were more productive but no longer have money to consume the ever-greater quantity of goods they produce themselves. This did not happen despite stagnating wages, higher productivity and rising profit rates. The puzzle’s solution is found in the financial markets and the debt-financed deficit economy that they fueled.

Graph 14: US Indebtedness and GDP

Here we see again the development of the total American indebtedness (red) and the gross domestic product (blue) in trillions of dollars. An uncoupling of the debt level from economic growth in the US obviously occurred simultaneous with the uncoupling of productivity from the wage level. The potential over-production crisis that had to erupt because of the rising productivity and stagnating wages was simply delayed by a degenerate indebtedness – until 2008. After this long incubation period, the crisis process over decades has now fallen has now fallen into a manifest stage for three years.

In the end, capitalism simply became too productive for itself. This system strikes an inner limit of its development. The rationalization and automation spreading ever-faster lead to producing more and more goods in ever-shorter time by fewer and fewer workers. New industrial branches like micro-electronics and information technology accelerated this tendency. These new technologies created far fewer jobs than were rationalized away through their macro-economic application. The effects of the rationalization waves of the third industrial revolution can be seen in the job cuts in American industry.

Graph 15: US Employment in Manufacturing

This development reflects a fundamental contradiction of the capitalist production method. Paid labor is the substance of capital but capital strives to repress paid labor from the production process by rationalization measures. Marx introduced the genial term “processing contradiction” for this self-destructive process. This contradiction of capitalist goods production in which capital with paid labor minimizes its own substance through rationalization can only be maintained in “processing,” in continuous expansion and further development of new exploitation fields of goods production. The same scientific-technical progress that leads to the melting away of masses of expended paid labor in established branches of industry also encourages the genesis of new industrial branches and manufacturing methods.

The formation of a gigantic financial sector and the corresponding gigantic debt mountains on a global scale cannot be interpreted any more as a system re3action to a successful structural change in industrial countries. That structural change is no longer successful. From the illustrated “processing contradiction” of goods production, an industrial structural change results in which old industries disappear and new ones are added opening up fields for capital exploitation and paid labor. For a certain time period, certain industrial sectors and manufacturing methods were key sectors before they were replaced by other new industrial branches. Thus we have experienced a structural change since the beginning of industri8alization in the 18th century in which the textile branch, heavy industry, the chemical branch, the electronic industry, automobile manufacturing and so on served as key sectors that exploited masses of paid labor. This does not function any more since paid labor disappears on account of rationalization waves of the micro-electronic revolution within goods production.

Graph 16: Spain’s Value Creation and Gross Domestic Product

The long-term melting of the gross value creation share of Spanish industry in the GDP is clear in this graph.

Capitalist economies developed in two different directions to counter this systemic over-production crisis. They either became indebted to develop the deficit economy like Greece, Spain, Ireland and the US or try to “export” the contradictions of the late capitalist production method as Germany, China, South Korea and Japan do. The aggressive German export policy is a reactionary reaction to this objective crisis process. It is very important to understand this. Once again, this objective crisis process of capitalist goods production intensifies the class oppositions in industrial capitalist states and escalates the inter-state conflicts in the Euro zone. The neoliberal offensive against the social achievements of wage-earners – which peaked in Germany’s Hartz legislation – resulted from this crisis process. Intensified exploitation of the “commodity labor” and exporting the contradictions of capitalist goods production were the answers of German capital to the crisis.

As the apparent crisis winner, Germany is affected by the exhaustion of the Fordist accumulation regime. The following graph showing t5he development of economic growth in Germany since the 1950s illustrates this tendency to stagnation.

Graph 17: Stagnation in Germany

In summary, the crisis is 30 years old, not 4 years old. The causes of the crisis can be found in the real goods-producing economy, not in the financial markets. The wildly proliferating financial markets did not drag the goods-producing industry to the abyss. Rather these financial markets kept this industry alive through credit-financed demand until the collapse of the speculative bubble – as states do after nationalization of this deficit economy. The dynamic of constantly revolutionizing its own production and undermining its own economic foundation are innate to the capitalist system. Formulated according to Marx, the productive forces break the chains of the production relations. In the end, the present crisis is a crisis of capitalist paid labor on which capitalism depends. Only the enormous indebtedness dynamic of the last decades prevented the outbreak of a veritable over-production crisis. This is a global phenomenon.

But this also means the full eruption of the crisis dynamic is still ahead of us. As soon as states are no longer able to keep capitalism alive by printing money and economic programs, a depression threatens on the global plane as it led Greece to the brink of social collapse. Politics can only delay this crisis breakthrough through further economic measures which in the end can flow into state bankruptcy. Consequently crisis policy is in an insoluble self-contradiction in which decision-makers can only choose between two different ways into crisis. The political class can only choose in a system-immanent way between more indebtedness up to state bankruptcy and hyper-inflation or harsh austerity programs that lead to deflation spirals in recession. All Europe – led by Berlin – takes this disastrous path.

Germany is not the trigger of the debt crisis (or southern Europeans). This must be emphasized. Thanks to the export-fixation of Germany industry, Berlin now successfully converts economic superiority into political dominance.

LINKS

[1] Bild: http://www.konicz.info/wp-content/uploads/2012/02/01-Industrieproduktion-Eurozone.jpg

[2] Bild: http://www.konicz.info/wp-content/uploads/2012/02/02-Exportueberschuesse-BRD-Eurozone.jpg

[3] Bild: http://www.konicz.info/wp-content/uploads/2012/02/03-leitsungsbilanz-brd-suedlaender.gif

[4] Bild: http://www.konicz.info/wp-content/uploads/2012/02/04-Handelsbilanz-BRD-Eurozone.jpg

[5] Bild: http://www.konicz.info/wp-content/uploads/2012/02/05-Lohnstueckkosten.jpg

[6] Bild: http://www.konicz.info/wp-content/uploads/2012/02/06-konjunkturpakete.gif

[7] Bild: http://www.konicz.info/wp-content/uploads/2012/02/07-Leistungsbilanz-welt.jpg

[8] Bild: http://www.konicz.info/wp-content/uploads/2012/02/08-Handelsdefizit-USA.jpg

[9] Bild: http://www.konicz.info/wp-content/uploads/2012/02/09-Handelsbilnaz-USA-China.jpg

[10] Bild: http://www.konicz.info/wp-content/uploads/2012/02/10-usa-verschuldung-bip.jpg

[11] Bild: http://www.konicz.info/wp-content/uploads/2012/02/11-Dow-langfristchart.jpg

[12] Bild: http://www.konicz.info/wp-content/uploads/2012/02/12-graph_profitrate.jpg

[13] Bild: http://www.konicz.info/wp-content/uploads/2012/02/13-Lohnentwicklung-Produktivität-USA.jpg

[14] Bild: http://www.konicz.info/wp-content/uploads/2012/02/14-GesamtverschuldungBIP-USA.jpg

[15] Bild: http://www.konicz.info/wp-content/uploads/2012/02/15-Beschaefigte-US-Industrie.jpg

[16] Bild: http://www.konicz.info/wp-content/uploads/2012/02/16-Bruttowertschöpfung-Spanien.jpg

[17] Bild: http://www.konicz.info/wp-content/uploads/2012/02/17-stagnation-brd.gif



RELATED LINKS

Konicz, Tomasz, “The Crisis Explained,” December 2011

http://portland.indymedia.org/en/2012/01/413591.shtml

Reuter,Norbert, “Stagnation as a Trend-Life with Satiated Markets and Stagnating Economies,” 2009

http://nyc.indymedia.org/en/2011/09/116251.shtml











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