CRISIS REGULATION IN GLOBAL CAPITALISM
From Gold Standard to G20
By Samuel Decker and Thomas Sablowski
[This excerpt from the May 2017 study is translated from the German on the Internet, www.rosallux.de.]
The development of the G20, the G7 and international organizations like the IMF, the World Bank and the WTO can only be understood in connection with the internationalization of capital… The nation-state is the most important authority in the regulation of capitalism. However, an international regulation is also necessary with the increasing internationalization of capital. Informal conversations between governments are an expression of the standardizing tendency inherent in the expansion of capital. On the other hand, the accumulation of capital brings a spatial fragmentation and hierarchization that marks international relations…
The international regulation of capitalism is not linear but subject to the crisis-laden course of accumulation on a world scale and the unequal and combined economic and political development in individual countries. Multilateral cooperation is certainly more desirable than imperialist war. However, multilateral cooperation as in the G7 or the G20 mainly serves the interests of the ruling classes more than the realization of a fictional common good of humanity.
The history of capitalism and its different ways of development must be analyzed more closely to understand the international regulation of capitalism in general and the G20 in particular. Following the regulation theory, we describe modes of capitalist development more or less stable over several decades that include a certain accumulation regime and a certain regulatory mode of contradictory social relations. The regulation of international relations is part of this way of development (Brand 2010; Lipietz 1985; Mistral 1986). In the following, we will briefly sketch with theses the capitalist development and the changes in the regulations in capitalism.
2.1 From the British to the US-American Empire
In the last third of the 18th century, the capitalist production method was carried out in England. The transition process to the dominance of the capitalist production method continued to the middle of the 19th century in France, Germany and the US. Great Britain could practice its worldwide hegemony supported on its superior labor productivity of its local clothing industry and its naval or sea power. The informal empire of the United Kingdom extended far beyond the British colonial empire in the narrow sense. The British government could determine the international regulations and norms of finance, production and exchange” (Brand 2010).
The gold standard and the pound sterling were important pillars of the growing international economic linkage (ibid). A liberal-capitalist way of development was characterized by the following features. Wages, prices and production quantities were regulated by competition and subject to intense fluctuations in the course of the cyclical crises characteristic for capitalism. The exploitation of workers was first characterized by absolute surplus value production, that is by the extension of working hours. In many areas, there was more a formal than a real subsumption of workers under capital…
A longer phase of the instability of capitalism began with the First World War. The war itself led to putting in question the capitalist order in a revolutionary way by the workers movement. In most countries, the rebellions were crushed. Nevertheless, the 1917 revolution in Russia led to a socialist government that sought to break with capitalism and for years prevailed in a civil war. Restoring the liberal order did not succeed on the international plane in the inter-war period.
Different than in the 19th century, Great Britain no longer had the capacity to enforce such an order and the US that already outstripped Great Britain economically was not ready for political hegemony. The governments long held to the political model of the past that did not function any longer under the new social conditions. For example, the state lacked a political-economic instrument to react effectively to the rotation of inflation and deflation and to stabilize capital accumulation. Instead of cooperation, the states relied on protectionism in the worldwide economic crisis from 1929 so the world market was divided into different monetary blocs and world trade ultimately came to a standstill (Brand 2010; Ziebura 1984).
New structures developed on the plane of production that no longer matched the existing regulatory mode of capitalism. The Taylorist labor organization and the increasing mechanization of the production process that developed by leaps and bounds in the first decades of the 20th century made possible enormous growth in production. However, this growth could first flow in a new accumulation regime when the political conditions were created for completely reorganizing the lifestyle of wage-earners through mass consumption of capitalist produced goods.
This required the development of industrial unions and their recognition by the capitalists, regular wage negotiations where real wage increases could be carried out that corresponded to the productivity increases and finally the social state that safeguarded the purchasing power of wage-earners in unemployment, sickness and old age. These conditions were first created in the US in the 1930s and after the Second World War in Western Europe and Japan. There, the Fordist way of development was implemented that was based on the combined development of standardized mass production and mass consumption, that is on an intensive accumulation regime while the production of consumer goods was closely interlocked with the production of the means of production and the relative surplus value production could be fully unfolded . The leadership role of the US in implementing the Fordist way of development was also the basis for the US hegemony on the international plane. As the victorious power of the Second World War and in the context of the developing Cold War, the US rose to the absolute leading power of the West to guarantee the preservation of the global capitalist order.
The implementation of the Fordist production method and lifestyle was framed by the monetary order of Bretton Woods negotiated in 1944 under the leadership of the US…
2.2 The Crisis of Fordism and the Neoliberal Epoch
The Fordist way of development fell into crisis at the end of the 1960s. The production increases achieved on the basis of Taylorist labor organization were abrogated (Glyn 1990). Workers began rebelling against the increasing intensification of work; strikes, absenteeism and sabotage rose. A growing organic composition of capital that accompanied the mechanization of production could no longer be compensated by greater exploitation rates so the profit rates fell. (Following Marx, we understand organic composition of capital as the relation between the capital advanced to purchase the means of production and the capital used to purchase labor power.) Overcapacities formed through the catch-up development in Western Europe and Japan. The markets for durable consumer goods in the capitalist centers were nearly satiated after the high growth rates in the 1950s and 1960s.
Moreover, the US hegemony fell into a crisis. US corporations invested massively in Western Europe in the 1960s while European and Japanese producers increasingly exported their goods to the US. Western Europe and Japan caught up which ultimately led to a balance of payments deficit in the US while dollar assets accumulated abroad on the so-called Euro-dollar markets…
The crisis of the 1970s proved to be the third great crisis of capitalism, that is it could not be overcome in the framework of the Fordist way of development. This crisis had completely new characteristics like the simultaneity of economic stagnation and higher inflation (“stagflation”). The governments first reacted to this crisis with Keynesian measures. However, these measures were not successful since they could not do justice to the causes of the crisis that were not only insufficient demand. A way out could only exist in the (socialist) radicalization of (left-) Keynesian concepts toward an economic democracy and a socialization of investments. However, a reversal of power relations that moved a progressive solution to a far distance occurred through the crisis…
Wage-rates fell in the capitalist centers since the middle of the 1970s. Social inequality is also growing in countries like China. The share in the gross domestic product shrivels. The development of real wages remains far behind the development of labor productivity. The profitability crisis of the 1970s was solved in this way. Nevertheless, tendencies of overproduction are now intensifying…
Financialization describes the strategies of businesses, the state and international economic relations. The over-accumulation of capital means that relatively little capital can be productively invested in the industrial capital cycle while more and more fallow money-capital flows in purchasing securities, that is transformed into fictional capital. The gulf between real functioning capital and fictional capital is increasingly expanded.
Institutional investors as shareholders press for short-term profit maximization… Industrial businesses cannot be indifferent to the development of their stock prices since a price drop heightens the danger of a hostile takeover. Forcing up the price is attempted with techniques of financial engineering. Stock buybacks help in this along with changes of the capital structure. Profits are poured out to shareholders and the investment rates fall correspondingly…
The state also becomes more strongly indebted because, as a national competition state, it tries to attract businesses by lowering business- and profit-taxes and taxes on high incomes and wealth. This is counter-financed by shifting taxes more strongly to wage-earners, cutting state spending and increasing state indebtedness.
Ever-greater balance of payments imbalances develop since all states are not equally successful in the international location competition. Some countries realize high balance of payments surpluses while many countries have to struggle with balance of payments deficits. The unequal trade relations are bound with a growing international indebtedness. Thus, the development of all components of effective demand is connected with an ever-higher indebtedness and the demand of wage-earners, the investments of businesses, state spending and foreign trade. This would not have been possible without the expansion of the financial markets that was based on their deregulation, liberalization and globalization. Therefore, we speak of a finance-dominated accumulation regime (Demirovic/ Sablowski 2013; cf. also Guttmann 2016).
The United States could assert its hegemony de facto in the neoliberal era. In the 1970s and 1980s, debates about the decline of the US made the rounds. The US state protected the reproduction of global capitalism economically, politically and militarily and so was a “global state” (cf. Panitch/ Gindin 2004 and 2012; Panitch/ Konings 2008)… The globalization euphoria already waned with the outbreak of the Asian crisis in 1997. This made clear again the inner contradictions of the capitalist world hegemony…
The Asian crisis did not immediately seize the capitalist centers. This was because the capital streaming into the centers from threshold countries could be invested in the newly arising Internet economy. At that time, the New Economy promised gigantic profits and a new age of high growth in which all economic laws were no longer in effect for the new industries. The speculation bubble burst and the crisis now spread in the capitalist centers from 2000 when it was first clear that many of the new dot-com businesses would never post profits and that massive over-investments occurred in the information- and technical communication sector.
Since this time, the neoliberal globalization was again put in question politically even in the capitalist centers. (The policy of the IMF and the World Bank already met with massive criticism and public protests in the countries of the global South in the 1980s.) The summit meetings of the heads of government were important stages for protests against neoliberal globalization. The protests against the 1999 WTO summit in Seattle are regarded as the beginning o9f the new anti-globalization movement. A quarter-million people joined in the great demonstration against the G8 summit in Genoa in 2001. 100,000 people protested against the dominant policy at the 2007 G8 summit in Heiligendamm.
2.3 The G20 at the Limits of Globalization
…Financial measures are not sufficient to surmount the crisis. The governments in the US and the EU needed hundreds of billions of dollars or euros to bailout bankrupt banks and draw up economic packages to preserve the economy from a continuing depression. From 2008, the heads of state and government began to coordinate their crisis policy at annual summit meetings.
The state bank bailout changed private debts on a large scale into public debts. The state budget deficits grew intensely through the rise of mass unemployment, social spending and the sharp drop in state revenues. State indebtedness exploded. After the low point of the recession was overcome, many governments passed over to a policy of budget consolidation.
Capital suffocates in its success. The continuous redistribution of social wealth from wage-earners to owners of capital expressed in falling wage rates has enormously intensified the tendencies of overproduction.
The limits of globalization are now clear alongside the limits of financialization. Opening up China as the factory of the world has led to over-capacities to a tremendous degree… Even in China, the growth rates are falling and the transition from an export-oriented to a domestic-oriented model of development planned by the government is running into problems. The demand on the side of wage-earners remains very restricted and the dependence of the country on the export sector remains great since there are no free unions. The workers’ movement is relatively weak and wage development depends essentially on the state minimum wage regulations.
Externalizing inner-macro-economic problems succeeds for a few countries with high balance of payments surpluses like Germany, China and Japan but cannot be continued for ever because the countries with balance of payments deficits on the other side must bear the costs. For a long time, the US through its high solvent demand stabilized the world economy and consumed more than it produced. The US helped make possible the growing export surplus in some countries of East Asia and Germany by playing the role of “consumer of last resort.” The US could afford high budget- and balance of payments deficits because it could become indebted in its own currency. However, the election of Trump and his protectionist rhetoric shows that this beneficence strikes its limit. The crisis of the European monetary union and the European Union indicates that the balance of payment imbalances and the international indebtedness cannot be extended at will.
The crisis of neoliberal globalization has a geo-political dimension. With the limits of neoliberal globalization, the limits of international regulation appear above all for the EU and the US. This is manifest in the failure of the Doha trade round of the WTO and the rise of the BRICS states. While the old capitalist centers in the 1990s tried to integrate countries like Russia and China in the neoliberal world order, the relation to the up-and-coming developing countries is now becoming confrontational. The ruling classes of the old capitalist centers appreciate the developing- and threshold countries as raw material suppliers, sales markets and cheap production sites but obviously have no interest in rivals arising or that the ruling classes of those countries follow independent national development projects. Conflicts with countries like China, Russia or Iran occur increasingly because these countries are not satisfied with subordinate positions in the international division of labor and pursue their own interests internationally.
The fourth great crisis of capitalism is a political crisis, a crisis of the relations between representatives in a series of countries and is more than an economic crisis. In referring to other aspects like the crisis of social relations to nature, one can speak of a multiple crisis of capitalism (cf. Demirovic 2011; Prokla editorial 2016). What policy is chosen in the crisis – whether its causes or its symptoms are fought – is crucial for the further course of the crisis.