Capital’s Global Turbulence

Richard Walker

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Preface

ROBERT BRENNER’S THE Economics of Global Turbulence, a book-length study published as issue 229 of the Journal New Left Review, has attracted unusual attention for at least two reasons.  Not only is Brenner’s factual and theoretical argument formidable in its own terms, but its publication coincided fortuitously with the stock and financial market upheavals triggered by the Asian collapse.

Against the Current feels that the issues raised are sufficiently important that they should be both clearly presented, and debated.  We have organized a symposium, beginning with this introductory essay by Richard Walker to summarize and explain Brenner’s thesis for non-specialized readers.  Several responses by left economists are in preparation and will be published beginning in our next issue, along with a summation and rejoinder by Brenner.

Two notes: (1) Readers may also wish to consult Robert Brenner’s talk, “The Looming Crisis of World Capitalism,” published in our previous issue (ATC 77).  (2) In attempting to follow an inevitably complex debate, we should not forget that the “bottom line” of the crisis, especially in the countries of Asia, Africa and Latin America, is the terrifying increase of poverty and human misery that is built into the logic of capitalism.

—David Finkel, for the editors

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A JOYLESS IRONY of our time is that just as capitalism seemed all-triumphant and the sirens of neoliberalism had declared history to be at an end, the crisis rolling out of Asia has brought the self-regulating global market to its knees.  Add to this that at the same time as Marxism as political doctrine has been declared dead, Marxist economics has never been better argued and empirically defended than today.

Yet the received wisdom of the world is that Marx was misguided at best and a premature Stalinist at worst.  This view takes in much of the contemporary left, for whom economics is merely an ideological construct.  Thus disarmed from political economy, we go naked before our enemies, who have ruled the global roost virtually unopposed for a generation.  How badly we need good economics at this moment, when capital’s own dynamics are blowing the top off the analytic and political prisons constructed for the people of the world by neoliberal ideology.

Into this breach steps Bob Brenner with his recent book-length survey of world capitalism in the second half of the twentieth century, The Economics of Global Turbulence. As an overview of the global economy from World War II to the present it is unequalled, and for that alone Brenner deserves thanks.  It covers both the so-called Golden Age of postwar expansion and the subsequent Long Downturn after 1973.

Here is the historian at work, leaving few stones unturned.  No doubt the exhaustive treatment makes for daunting reading, due to its length, wall-to-wall facts, and storyline that winds back and forth over three continents.  In this sense it is a scholarly text.

Many readers will want to skip over the discussion of the 1950-75 period in Chapters 2 and 3, and cut to the chase.  For the flavor of the argument most would be advised to read only the Introduction, the beginning of Chapter 4, and the end of Chapter 5.  On the other hand, an exploration of the global economy over fifty years is not a stroll through the daisies, and the determined reader ought to come prepared for a long hike.

Brenner is more than a surveyor, however.  In the same grand sweep, he offers up a sophisticated theoretical treatment of the causes of economic growth and depression, taking on the main contending explanations for the long downturn, with its relatively stagnant and erratic growth punctuated by virulent recessions.  His main target is the wage-squeeze theory of falling profitability, but along the way he confronts the Keynesian account of insufficient overall demand, Monetarism’s orthodoxy of financial rectitude, and Schumpeterian notions of technological change as the engine of growth.

Brenner’s critiques are not based on logic alone, but on which explanation best fits the facts, with an historian’s close attention to the timing and sequence of events and a geographer’s eye for uneven and combined development.

In place of these popular theories of left and right, Brenner inserts a classical account of the falling rate of profit.  For him the flaw in the logic of capitalism is still the anarchy of competition and the relentless drive to accumulate.  These stimulate businesses not only to invest in profitable lines of activity, but to overinvest systematically in fixed capital (factories, machinery and infrastructure) as each tries to gain the upper hand through cutting costs.

This occurs regardless of the size of the market, the rate of saving/consumption, or the rate of technical change, and eventually weighs down accumulation as a whole.  At the same time, capitalists are unable to withdraw old fixed capital fast enough, with the result that prices are too low with respect to costs, capacity is underutilized, and profit rates fall.

If overinvestment creates the profit undertow, failure to remove excess capital perpetuates low profit rates.  It is this combination of failure of exit and on going entry that characterizes the quarter century of low profitability and poor performance during the Long Downturn.

The Historic Record: Growth and Crisis

At the heart of a complex narrative lies an historic divide that is little in dispute by economists of any stripe.  The performance of global capitalism was much better during the “Golden Age” between 1950 and 1973 than it has been during “the Long Downturn” from 1973 to the present.

All the indicators show this in striking terms: Growth, productivity, wages, investment and profit are all cut roughly in half from one epoch to the next (in terms of annual rates of change).  The key to the dropoff in performance is the transition from high to low profits, unfolding dramatically in the years around 1970.

Meanwhile, global instability increases with sharp recessions in 1973-75, 1980-82, 1989-92 and 1996-present.  This is well summarized in Brenner’s introduction.  Later, he points out a significant progression by which the boom periods grow successively weaker while the busts get progressively bigger-with the biggest one at our doorstep today.

At the same time, the complexities of uneven development decade by decade are crucial to the case, as in the exact timing of profit decline and wage demands in the Sixties.  The bulk of Brenner’s essay is taken up with such details, which can be brought under some control by a short outline of the history and geography of global capitalist expansion and contraction.

Contours of the Global Economy

The Golden Age of postwar capitalism, which is the subject of Brenner’s Chapter 2, spanned the generation between 1950 and 1970.  During this era there was only a single, mild recession in the late 1950s and two strong upsurges before and after.  All indexes of growth were robust until the United States hit bumps in the road by the mid-1960s and the global economy landed with a thud in the early 1970s.

The United States was on top of the world during this time, and its share of global industrial production, trade and financial assets was overwhelming.  But international trade and capital flows were at a low ebb. Germany and Japan both came out of the Second World War in ruins, underwent dramatic restructurings, and rebuilt in the Fifties.  By the 1960s they were in full forward motion, with Germany ahead because of its stronger pre-war base and European location.  Both countries grew through a vast expansion of manufacturing, with high rates of reinvestment and high reliance on exports.

The Golden Age came down to earth between 1965 and 1973, as discussed in Brenner’s Chapter 3.  The United States was the first to have its profit rates stumble, especially in manufacturing as it began to feel the pinch of German and Japanese exports.  German and Japanese goods were eroding U.S. dominance in basic industries because their costs per unit output were falling rapidly with technical improvements and their wage levels had been much reduced by postwar conditions (labor gluts, repression of unions, and general poverty).

No one yet dreamed of the United States losing its leadership in such core industries as autos, steel or computers.  Nevertheless, the early warning signs were there in American industrial complacence, its lower rates of investment than its rivals, rapid technical borrowing and learning abroad, and the rapid penetration of imports into the domestic market.  Above all, under pressure from the lower-cost, lower-price goods of their overseas competitors, U.S. manufacturers saw their profitability fall by more than 40%.

The almighty dollar, Plymouth Rock of the new globalizing economy, got caught in the speeding wheels of commerce as well. As the competitive pinch threw U.S. trade and payments balances into the red, the dollar’s high fixed exchange rate under the Bretton Woods Agreement of 1944 suddenly become a threat to U.S. national interest (it made U.S. goods more expensive than competitors).

Meanwhile, the Eurodollar Market was creating new dollars by means of unregulated bank-credit and the U.S. government was overspending on Vietnam, also making for an oversupply of dollars (i.e.  inflation).

Speculators thus saw the dollar’s official price as increasingly out of line with the markets, as the yen and mark strengthened along with their national economies.  So between 1971 and 1973 Nixon cut the dollar loose and then abandoned fixed exchange rates altogether.  The dollar fell; the yen and mark rose.

This helped the United States bounce back in international trade by cheapening its exports and making those of its rivals more expensive.  It also shifted the brunt of the profit rate fall onto Germany and Japan.  The latter was particularly hard hit, and suffered the double-whammy of being the worst exposed to rising world oil prices after the OPEC embargo.

The world economy fell into deep recession from late 1973 to 1975.  The Long Downturn had begun.  It fills the last three decades, each beginning with a recession followed by a recovery.  Brenner’s Chapter 4 details the travails of the Seventies, Eighties and Nineties (too much for one chapter to bear, I might add).

In the cyclical recovery of 1975-79, the United States, benefiting from the low dollar, appeared to be back atop the heap, but had merely put off the day of reckoning.  Profits were pushed up in nominal terms by price hikes as inflation took flight, while real wages sagged.

Nevertheless, American business failed to undertake the hard work of reconstruction of its production methods and capital base. Meanwhile Japan and Germany restructured and retooled, coming back stronger than before.  By the end of the decade, the U.S. economy felt the squeeze again.

As Japanese and German goods again flooded the United States, and its industrial core hollowed out, Americans discovered the new reality of “globalization” with a vengeance.  On one side, the new Japanese colossus stood astride the Pacific basin, on the other the Germans had quietly grabbed the top spot among international exporters.

The Carter Presidency foundered in the middle, although it should be made clear that throughout the capitalist world, including Germany and Japan, profit rates continued to languish, perpetuating stagnation.

Enter Margaret Thatcher, Paul Volcker [the tight-money chairman of the U.S. Federal Reserve-ed.], Ronald Reagan, and the full political-economic assault of the capitalist class on the workers of Britain and America—and eventually those around the world.

Starting in 1979, the United States and the United Kingdom instituted austerity packages of tightening credit and interest rates, slashing social spending, and cleaning out inefficiency through the trauma of enforced depression.  The cyclical downturn of 1979-83 delivered on their promise to rid the industrial base of excess capacity, drive out the weakest corporations, and discipline the working class.

Bankruptcies and plant closures sliced through the heartland of American industry.  As unemployment reached levels not seen since the 1930s, industrial unions were decimated and worker protections gutted; wages suffered further erosion.  All of this helped the Reagan recovery of the mid-1980s, along with unprecedented government deficit spending and financial deregulation.

But Reagan and Volcker’s policies, by combining tight credit and massive government borrowing, drove up interest rates and thus the dollar.  With the dollar completely out of line with the declining American competitive position, exports fell and imports rose, leaving mammoth trade deficits and widespread devastation of U.S. manufactures.

Something had to give, so the tripartite powers quietly negotiated the Plaza Accord of 1985, letting American manufacturers come up for air. This devalued the dollar against the yen and the mark, and stanched the bleeding U.S. foreign trade accounts.

Both Japan and Germany had gotten through the recession of 1980-82 with only a few bruises; the damage was mostly exported to the United States.  Japan became alternatively the Great Satan of Subsidy or the Heroic Land of Lean Production.  But the Plaza Accord turned the odds against them, as had the devaluations of 1970-73: It restored U.S. competitiveness and ultimately proved devastating for Japan, while setting Germany back on its heels.

With its export machine running down under the impact of the fast-rising yen and its asset values ballooning against those of the rest of the world, Japan entered a period of speculative excess in the late 1980s that has eerie parallels to the United States of the 1920s.  Business looked abroad for new outlets for massive surpluses of capital, whether to purchase U.S. treasury bills, or invest in factories in Southeast Asia.

The Crisis Goes Global

Japan’s gigantic financial and real estate bubble finally collapsed in 1991, and the country has been digging out from under the rubble ever since.  A weak recovery in the mid-Nineties was brought to a shuddering halt by the financial crisis that struck East Asia in 1997, leaving Japan with roughly $1 trillion in bad bank loans (about 25% of GNP, or five times the relative size of the American Savings & Loan debacle of 1985-86).

Meanwhile, Germany avoided the financial excesses of America and Japan by a firm austerity policy of high interest rates and government budget balancing, which it imposed on the whole of Europe.  This left slow-growing Europe trailing stodgily in the wake of its international rivals throughout the 1990s.  The Kohl government indulged in a brief burst of spending to seal German reunification after 1989, but quickly pulled back to squat on the 1992 Maastricht Agreement for a single European currency-which required generalized austerity budgets and high unemployment.

Reagan left his successor Bush presiding over another bad recession, 1989-92, and further waves of bankruptcies and job losses.  That got a Democrat elected, but President Clinton quickly moved to the economic Right, applying the Kohl formula for balancing the budget, the Volcker method of cranking down on credit, and the Reagan approach to disciplining the working class (whose wages had enjoyed a slight uplift in the late Eighties).

This, the third round of the “employers’ offensive,” insured that the recovery of the Nineties would generate jobs without wage gains, inflation or social spending.  Austerity further meant that the United States would no longer serve its past role as consumer of last resort for the export-bound nations of East Asia and Europe, leaving them to fight among themselves for shares of a reduced global market.

All this aided the recuperation of American corporate profits, which climbed back to levels close to those before the long downturn.  Brenner’s history ends on a question in Chapter 5: Does the rise in U.S. profit rates signal a new phase of expansion, the new Golden Age predicted by many bourgeois optimists?  Or will the economic typhoon blowing out of East Asia force the shaky structure of the global economy to its knees again?

The latter seems most likely, given three conditions: depression in East Asia cutting U.S. export growth, devalued Asian currencies making their goods cheaper, and the renewed effort of all countries to export to the same glutted world markets.

Geographic Dimensions

In one sense, as Brenner shows, the global economy is a single unit that moves in synchrony.  The world economy has become more unified over the course of the last half century, as international trade and investment rebuilt the edifice of global capitalism.  As it did, competition through trade diminished profit margins throughout the advanced countries.  And behind competitiveness lies the widening and deepening edifice of global production, which simultaneously knocked the United States off its industrial pedestal and glutted the world with factories and goods.

In another sense, the global economy remains unevenly developed, with new centers of accumulation rushing forward at a faster rate than the old. The story unfolds in sequence, with Japan and Germany outpacing the rest during the first wave of postwar growth and catching up (or even overtaking) the United States as industrial powers by the middle of the Long Downturn.

The second wave consists of the rapid catch-up of other large states of Europe (France and Italy) and the smaller (even mini) states of East Asia (the Four Tigers: Korea, Taiwan, Hong Kong and Singapore), which hit stride by the 1970s.  The third wave includes China and Southeast Asia, along with a revived Mexico and Brazil, which came on like gangbusters in the 1990s.

Ironically, Japan and Germany, leaders of the first wave, began to feel the backwash of the continuing expansion of the global economy by the 1980s-much of it propelled by their own outward investment.  Southeast Asian exports, in particular, were denominated in post- Plaza dollars and cut into Japan’s share of the American market.  They also felt renewed pressure from the reduced unit costs enjoyed by American exporters.  For all their vaunted ability to generate capital, target investments, innovate and raise wages (above U.S. levels), Japan and Germany have not been able to shake a dependency on exports.

Brenner adopts a clear strategy to simplify an immensely complex history.  He lets three countries, the United States, Germany and Japan, stand for the whole most of the time. He is on strong grounds statistically because those three so dominate worldwide production and trade and are the principal players of the tricontinental economy of the North.

With this simplification it is easier to show the workings of uneven development, as the different parts of the global economy bump and grind against each other.  As a result, Brenner gives the newly-industrialized countries (not to menton Italy or France) a less thorough treatment than the Big Three, and blends their stories into the narrative sections on the trilateral nations.

This approach has led some readers to think that Brenner gives short shrift to the East Asian “miracle,” in particular.  But he provides a quite extensive treatment of East and Southeast Asian growth in the 1980s and `90s in several places in Chapters 4 and 5.

This is crucial to the story of the Long Downturn in two respects: Southeast Asia is about the only place growing rapidly over the last fifteen years, and this entry of new capital and competitors has made it that much harder to solve the overaccumulation problem of the Northern tier.

A striking deviation from the normal treatment of globalization is the secondary role Brenner has assigned to transnational corporations, which have been the object of so much attention by the left of the last generation.  For Brenner the key units of the capitalist economy remain nation-states, even though their borders are increasingly transgressed by trade, competition, investment and production networks.

Brenner’s choice of geographical scales puts him close to classical international trade theory, but it makes a lot of sense, especially in the case of the United States-which remains so largely a self-contained economic system despite globalization.  Indeed, the ratio of overseas to domestic investment by American corporations peaks in 1973 and then declines-not the usual perception of massive “offshoring” in recent years.

Working with national units allows Brenner to tell the story of global competition in terms, first, of manufactured goods (which move easily and therefore come into the most direct international competition) and manufacturing profits; in this he takes an orthodox stand against the transition to the so-called service economy.

Second, a world of national boundaries foregrounds the critical place of currencies and their fluctuations.  This runs against the common tendency on both left and right to treat money as a secondary phenomenon which can be neglected until the “real” economic picture has been drawn.

Third, it allows him to discuss the role of Keynesian and Monetarist policy moves by national governments, and to show how they have both fallen afoul of the basic turmoil in the global economy created by the falling rate of profit.

The Falling Rate of Profit

Brenner began his inquiry into the modern global economy as a theoretical and political argument over the causes of American economic decline and its effects on the working class.  The immense task of assembling a fifty-year, worldwide history followed from that debate.  Chapter 2 of The Economics of Global Turbulence lays out the contending positions, though the discussion extends through all subsequent chapters.

The great virtue of Brenner’s essay is that it offers a clear, sustained and well-documented analysis of the Long Downturn based on Marx’s theory of the falling rate of profit.  It is not exactly Marx’s view of the matter (in which the organic composition of capital and the diminishing total quantity of labor play the key role), but it is close to the spirit of Marx’s critique: That is, the primary force for the periodic crises of capitalism is its own dynamism.

As we know from Brenner’s work on the transition from feudalism to capitalism, the historic achievement of capitalism is its drive for relative surplus value, or revolutionizing of the forces of production.  Behind that lies the capitalist ownership of the means of production and the extraction of surplus value from wage-labor, i.e. property and class relations on the one side and competition, market exchange, and the thirst for riches (the “anarchy of capitals”) on the other.

Accumulation takes the driver’s seat, in two senses.  The opening of the circuit of industrial capital is investment in new means of production (Marx never used the term “investment” but it has become standard usage since).  The closing of the circuit is the return of capital with profit accrued, hence the “self-expansion” of capital, or accumulation.

Investment fuels growth by enlarging capacity and bringing new technologies on board.  Profit rewards the capitalist, and provides the key signal for further investment.  If profit rates fall, new capital is withheld from production and growth slows down. This may be the case for either sharp slumps of the business cycle or the extended stagnation of the Long Downturn.

Why would profit rates fall?  The argument is simple: The numerator in the profit equation, surplus value, is outrun by the denominator, capital stock (both measured in annual terms).  In Brenner’s account, the denominator is the culprit, unlike the wage-squeeze theory in which the numerator shrinks because rising wages cut into net business income.  Thus, excess capital stock builds up in factories and equipment around the world, pitting companies against each other in an ever-fiercer competitive brawl for markets.

This holds prices down, leads commodity output to outrun demand at prevailing prices, and/or lowers capacity utilization rates-thus lowering profit margins, leaving goods unsold, and running equipment at less efficient levels.  Old stocks of fixed capital, if not junked fast enough to make way for new, more technically advanced equipment, drag down the rate of profit.

Why then doesn’t the market reduce the quantity of capital and restore profits?  The kicker is a collective “failure of adjustment.” Capitalists who see their profits decline do not act quickly enough to close factories and junk old machinery.  Indeed, subpar companies have an incentive to remain in business too long because their obsolete fixed capital represents sunk costs (not current costs), and because they embody “proprietary assets” of technology, customer base and supplier networks.

Brenner’s case for the Long Downturn pivots on the failure of uncompetitive, low-profit operations to disappear fast enough to accommodate all the new capacity coming on board (whether in Germany in the 1960s or Southeast Asia in the 1990s).

The are three main ways in which the rate of profit can recover.  One is to reduce capital stocks, usually through depressions that bankrupt firms and shutter factories (and lay off workers).  Another is to cut wages with the help of high unemployment, offensives against unions, and political attacks on workers’ rights.  A third is to raise the rate of surplus value by means of technical innovation and/or work intensification.

All three have played a part in the recovery of profits in the United States.  The depressions of the early Eighties and Nineties reduced capital stock.  Massive job loss and labor surpluses, coupled with diminished union strength and weaker government supports, drove down the wage rate. And U.S. industry learned the lessons of “lean production” from the Japanese, while continuing to introduce the latest innovations of the computer age.

After initial failure to respond to international competition, American manufacturing came roaring back into the fray (helped considerably by the post-Plaza devaluation of the dollar).  But that has not solved the global problem of overaccumulation that still ensnares Japan and its Asian offshoots, Europe, and ultimately the United States.

Beyond the Wage-Land

Brenner’s principal target for criticism is the wage-squeeze theory of falling profits, as argued by various schools on the left (including Bowles, Gordon and Weisskopf’s Beyond the Wasteland).  The version of wage-squeeze Brenner foregrounds is something he calls “the contradictions of Keynesianism,” which readers may recognize as “Fordism,” a term coined by the French Regulation School, for whom the balance wheel of postwar growth was the mass working-class consumption that allowed capitalists to sell what they produced.

This consumption was made possible by high wages that tracked advances in labor productivity (the so-called productivity wage), backed up by strong unions and the Welfare State.  But as the wage-squeeze theory has it, the balance wheels came off as tight labor markets and political mobilization in the Sixties generated wage demands that cut into corporate profits.  The historic “class accord” that propped up the Golden Age fell apart.

Alas, as Brenner shows at length in Chapters 2 and 3, this picture doesn’t fit the facts of postwar growth and crisis.  First, the Golden Age of the class accord lasted only about a decade in the United States before U.S. corporations began attacking the gains of the working class, and can hardly be granted to German and Japanese workers, who had suffered historic defeats in the 1930s and early `50s.

Second, falling profit rates set in around 1965, well before the Hot Autumns of the late Sixties, and the latter were more an effect of the employers’ offensive against workers than the other way around.  Third, the rate of profit fell across the board and stayed low throughout the advanced capitalist world for the next twenty-five years, while the differences among countries in labor’s strength and capital’s victories have been marked.

Fourth, wages eroded everywhere after 1970 but recovery from the Long Downturn did not take place as it should have if wage-squeeze had been paramount.  Something else appears to have been dragging on the system as a whole, and that something is excess fixed capital.  The case against wage-squeeze and for overaccumulation is summarized at the outset of Chapter 4.

We Were All Keynesians Then

Brenner next turns his guns on the financial and fiscal developments unleashed by the onset of the Long Downturn, also in Chapter 4.  By the end of the 1960s, most states started running budget deficits at the same time as trade imbalances were growing, Eurodollar credits ballooning, and currency tensions exploding.

In 1970 President Nixon declared that “We are all Keynesians now” (meaning deficit spenders) even as he tore apart the remaining piece of Keynes’ legacy in international finance, the Bretton Woods Accord.  The freeing of exchange rates and the subsequent recession released the tensions for the time being, but after 1975 the same problems reemerged.

To jump-start the recovery, all the advanced capitalist countries let government deficits widen and eased up on credit controls.  It worked for a time, but soon inflation got out of hand and profits refused to budge.  Keynesian stimulation failed because the underlying conditions were wrong: It was not a situation of needing to mobilize unemployed resources but of too many workers and capitals employed in too many places, all pressing down on profitability.

By 1979 the capitalist leadership, led by Paul Volcker, Chair of the U.S. Federal Reserve Board, realized their dilemma and introduced forced deflation and contraction.  The world economy plunged into depression.  The last gasp of Keynesian stimulation took place in the 1980s in a peculiar form, as the United States restarted growth through the Reagan military buildup-“Cold War Keynesianism”-and again loosened up on credit.  A boom ensued, and helped pull the rest of the world along as the United States absorbed a growing share of global exports.  But deficits in both the U.S. government budget and international commodity trade reached record levels, the latter made worse by the radically stronger dollar of the early Reagan years.

The dollar devaluation of the Plaza Accord saved the United States but hit hard at Japan’s export industries, so the Liberal Democratic government turned to loose credit as a means of stepping up domestic investment.  The result was not the expected restructuring along the lines of the early Seventies, but a plague of speculation, corruption and bad loans.

A Spectre Haunting the Globe

After 1980, then, Keynesianism, the panacea of the liberals and social democrats, gave way to Monetarism, the panacea of the bankers and the right-wingers.  Liberalism morphed into Neoliberalism, the spectre that has stalked the globe for the last twenty years.  It began in Britain and the United States, but was quickly adopted by Germany and Japan, and enforced on France, Mexico and a whole series of southern countries thereafter.

Ironically, the United States had to abandon strict Monetarism in 1982 to avoid a general implosion of the financial system and to salvage dying industrial companies, such as Chrysler.  Reagan’s deficit spending and financial deregulation set loose a paroxysm of borrowing and lending, however, which ended in the Savings & Loan debacle of 1985-86 and the United States becoming the world’s largest debtor nation.

It took the election of the Clinton Republicrats and the appointment of Volcker-disciple Alan Greenspan to the Fed to restore Monetarist rectitude through balanced federal budgets and stringent interest rates-high enough to maintain robust unemployment and low inflation.  Paradoxically, the regime of austerity went hand in hand with the rule of bankers and financiers, and henceforth money was crowned King of Capitalism and set loose to conquer and ravage the earth.

The gradual expansion of world trade and investment that marked the steady return to globalism was overwhelmed by new torrents of finance capital in search of quick returns with minimal effort.  Global turbulence became all the more visible as money rushed hither and yon, laying waste to one country after another: Mexico, Britain, Poland, Thailand, Korea, etc.

Behind the froth of finance, however, the wheels of overinvestment kept grinding down the rate of profit on manufacturing, and Monetarism didn’t solve the problem.  Yes, it washed out a great deal of excess capital, many low-profit companies, and quite a few second-rate national economies in a global tsunami of austerity, but the profit rate did not bounce back as hoped.

Whenever the financial structure threatened to crumble, Monetarist stringency had to be softened.  But finance-led reflations became a cropper, as well. The world economy ended up in 1990 pretty much back where it had been a decade before, and Japan and Europe barely crawled forward after that. The United States regained its feet, but the only part of the world running in the Nineties was Southeast Asia-until falling flat on its face.

The White Frost of Technology

Former Labor Party leader Harold Wilson has been ridiculed for his slogan “the white heat of technology,” yet the whole of bourgeois opinion is today in the thrall of High Technology, seeing in it the answer to the problem of global growth.

The computer revolution, however, has not delivered on the promise of general prosperity.  Indeed, a central fact of the Long Downturn is its low average rates of increase in productivity, particularly the sharp drop of the 1970s and the general stagnation of productivity in the service sectors during the whole period.

The United States has never before suffered such a long drought of productivity increases.  This has led many economists, left and right, to argue that the cause of the Long Downturn is the lower “secular trend” in productivity growth.  Many view the productivity slowdown as the exhaustion of technical potential following a long period of global catch-up to the Fordist standard set by the United States at mid-century.

The difficulty with this explanation, says Brenner, is that there’s no evidence for a secular slowdown in manufacturing productivity, which has been advancing at a smart pace since the mid-1980s (with the United States performing better than many of its rivals).  Rather, it is non-manufacturing activities that have performed horribly.  A fall-back theory, that services are inherently difficult to mechanize, cannot account for why manufacturing and services ran neck-and-neck in productivity gains throughout the Golden Age.

What accounts for the actual pattern of productivity?  The pattern of accumulation, Brenner responds.  A sharp drop in profit rates in the late 1960s and early 1970s triggered an equivalent slump in investment in plant and equipment, hence a fall in productivity gains.  There was a recovery in manufacturing profits and investment thereafter, and hence productivity, but at a lower average rate than in the Golden Age and over a reduced industrial base. The United States fell farther, then recovered; Germany raised productivity without expanding capital stock; and Japan did better than its major rivals on both counts.

The U.S. economy generated jobs once again, but not in manufacturing and with little new machinery.  (Brenner attributes this to an oversupply of labor, thanks to the release of so many workers from manufacturing and a rapid increase in the labor force).  German unemployment stayed near 10% and Japan remain mired in recession during the Nineties, while both countries exported huge amounts of manufacturing investments.

Brenner gives technology a secondary place in his overall scheme.  It only gets a direct theoretical treatment near the end, in Chapter 5.

The Contradictions of Robert Brenner

Some on the left will not like this account of the contradictions of capitalism.  It goes against deeply-held views as to what Marxism and radical politics should emphasize, as well as stepping on the positional toes of several popular theories.  For one, it seems to displace class struggle from the center of history, putting capital-capital relations there instead.

Brenner is correct that it’s a nice bit of victim-blaming to make workers shoulder responsibility for the falling rate of profit (and for their own subsequent immiseration as capitalists slashed real wages), and lets capital off scot-free.  Still, as he well knows, the defeat of American labor and the weakness of Asian labor helped propel growth in the 1980s and ’90s, even if at a slower rate than in the Golden Age.

Similarly, discounting the power of Keynesian stimulation seems to play into the austere hands of the bankers and free marketeers, and to argue against good wages as the fount of strong consumer demand for industry’s output.  Yes, the governments that tried Keynesian stimulation in the face of low rates of profit hit a wall of inflation.  But wouldn’t rising wages help alleviate the problem of overaccumulation by providing larger markets for redundant goods and reducing the pressure to export because of inadequate domestic absorption in places like Japan and Malaysia?

Technical innovation is the new darling of economics, even among certain radicals.  Surely Brenner is right that it matters not how good the motor under the hood is, if the car hasn’t enough investment fuel or if too many drivers jam up traffic on the capitalist highway.

Nonetheless, in Brenner’s account investment is the real mover and shaker of technology, not science, competition or learning.  This foregrounds capital as money but backgrounds the classic forces of production argument of Marx (and Brenner).  His explanation of low innovation in services due to labor glut is a strictly neo- classical price-induced theory of technical change, which leaves much to be desired.

Another query to put to Brenner is how the system expands geographically.  How much is due to outflow of surplus capital (David Harvey) and how much to internal saving and investment (Robert Wade)?  Are transnational corporations or capital markets the principal organizational form for globalization, or rather the imperial might of the United States holding together the international state system?  And what, exactly, are the class conditions for rapid accumulation in the Newly Industrializing Countries today (the question Brenner posed to Dependency theorists twenty years ago)?

Finally, money plays a big role as currency and exchange rates, but the financial sphere gets pretty short shrift.  Where is the global development of finance in Brenner’s detailed history?  Key markers such as Eurodollars of the 1960s, global bank lending in the 1970s, securitization in the 1980s, and the stock market runup of the 1990s get only passing mention.

Brenner’s is still an orthodox account, in a sense, by its preference for “real” variables and causes over monetary ones, and fails to explain why the present global crisis began, as all great crises do, in the financial sphere.

But these queries must wait for Volume II, if there be a second tome in this large history of the present.  I surely hope there will, because there are few commentators of the depth and breadth of Robert Brenner to pull it off.

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Richard Walker is Professor of Geography at the University of California, Berkeley.

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