Walden Bello on Robert Brenner

Lou Proyect lnp3 at panix.com
Wed Sep 18 13:08:51 MDT 2002

(Have no idea where this appeared originally, but Rakesh Bhandari posted it
on the OPE-List.)

Review of Robert Brenner, The Boom and the Bubble: the US in the World
Economy (London and New York: Verso, 2002). 303 pp. $23 US/$34 CAN.

By Walden Bello*

Paul Krugman and Joseph Stiglitz may be celebrity economists, but it is a
neo-Marxist economic historian whose earlier work focused on the origins of
capitalism in late feudal Europe that has turned out the most compelling
and comprehensive account of the crisis gripping contemporary global
capitalism. Brenner's World

UCLA Professor Robert Brenner's recent work is a solidly argued and
empirically impeccable restatement of the centrality of overproduction in
capitalism--a problem that has preoccupied thinkers as diverse as Marx,
Joseph Schumpeter, J0an Robinson, Ernest Mandel, Paul Baran, and Paul
Sweezy. Brenner's distinctive contribution is to draw out the specific
dynamics and consequences of overproduction or underconsumption in the era
of integrated, globalized production and markets. The picture he draws is
not one of corporations denationalized by economic integration and states
whose powers have been eroded, as in much current writing on globalization.
In Brenner's global economy, state elites battle to gain a competitive edge
for their corporate elites. But if national competition is central, so is
the common interest among the competing elites of the central economies to
expand the global economy. The trajectory of the US economy is largely
determined by this volatile relationship of competition with and dependence
on the other global capitalist centers of Europe, Japan, and-though to a
much lesser degree--East Asia.

The Argument

In Brenner's view, the post-World War II era is divided into a period of
dynamic global economic expansion from the late forties to the early
seventies and one marked by persistent crises and uneven growth since
then--a relatively dismal period broken only by the seven-year US boom in
the 1990's. Whereas in the first phase, the US, Europe, and Japan derived
mutual benefit from global expansion, from the early seventies on, economic
growth became largely a zero-sum game, where one center economy's advance
was purchased with stagnation or recession in its neighbors.

Since the seventies, the key problem for the center economies has been a
chronic tendency towards overcapacity and thus a steady decline in
profitability. Disposing of old capital stock, increasing productivity, and
regaining profitability has been an urgent need of each center economy, but
achieving it has run into opposition from established monopolies, organized
labor, and powerful rival center economies.

By delinking the dollar from the gold standard and effectively devaluing
it, the Nixon administration hoped to steal a march on its rivals. It was,
however, left to the Reagan administration to decisively restore the
American economy's edge, and this it did via three mechanisms: breaking
organized labor to hold down wages, maintaining high interest rates to
attract capital to the US, and engineering the infamous "Plaza Accord" in
1985, which drastically pushed up the value of the yen and set the stage
for the "relentless rise" of the mark to make the Japanese and German
manufacturing sectors bear the lion's share of adjustment. In a global
economy marked by overcapacity, the result was to eventually push both
Japan and Germany to recession and lay the ground for greater US
competitiveness and profitability in the late eighties and early nineties.

The effect was, however, two-edged, for even as US manufacturing regained
profitability, it was also threatened by the prolonged recession that
settled over Japan and Germany, which degraded the capacity of these
economies to absorb US exports, which had served as a key engine of the US
manufacturing recovery. In an increasingly integrated global economy,
Brenner points out, "the fact remains that while the US economic revival
took place largely at the expense of its leading rivals, that it had to do
so was ultimately at the cost of the US economy itself." Consequently,
Washington under the Clinton administration engineered the "reverse Plaza
Accord" in the mid-nineties, when the value of the dollar was allowed to
rise relative to the yen in an effort to help spark an export-led recovery
in Japan. Just as the Plaza Accord had essentially been a rescue operation
of US industry by Japan and Germany, so was the Clinton-Rubin reversal of
the rising dollar a US-engineered "bailout of Japan's crisis-bound
manufacturing sector."

This move, however, failed to spark sustained economic revival in Japan.
And a great part of the reason was that the global overcapacity problem had
become even more acute owing to the Japanese conglomerates' moving a great
many of their labor-intensive manufacturing operations to China and East
Asia, precisely to escape being rendered non-competitive by the rising yen.
But even as it failed to reactivate the Japanese economy, the reverse Plaza
Accord played a key role in undermining the competitiveness of the
Northeast Asian and Southeast Asian economies whose currencies were tied to
the rising dollar. When these economies, with their sizable markets,
collapsed during the Asian financial crisis in 1997-98, the global crisis
of overproduction intensified.

Tied to an increasingly integrated but keenly competitive global production
system and market, the US manufacturing sector saw its profits stop growing
after 1997. By the end of the decade, practically all key industrial
sectors were suffering tremendous overcapacity, with the worst situation
existing in the telecommunications sector, where only 2.5 per cent of the
infrastructure layed down was being utilized. By 2002, the gap between
capacity and output was, according to the Economist, the largest since the
Great Depression.

With manufacturing and the rest of the "real economy" ceasing to absorb
investment profitably, capital migrated to the speculative sector, where a
period of hyperactive growth in high technology stocks was carefully nursed
by the low-interest-rate policy and "New Economy" talk of Fed Chairman Alan
Greenspan. Grounded in the illusion of future profitability of high-tech
firms, the dot.com phenomenon extended the by about two years. "Never
before in US history," Brenner contends, "had the stock market played such
a direct, and decisive, role in financing non-financial corporations, and
thereby powering the growth of capital expenditures and in this way the
real economy. Never before had a US economic expansion become so dependent
upon the stock market's ascent."

But with the profitability of the financial sector being dependent on the
underlying, actual profitability of the manufacturing sector, the
finance-driven growth ultimately had to run out of steam. The dizzying rise
in market capitalization of non-financial corporations from $4.8 billion in
1994 to $15.6 trillion in the first quarter of 2000 represented what
Brenner characterizes as an "absurd disconnection between the rise of paper
wealth and the growth of actual output, and particularly of profits, in the
underlying economy." The loss of $7 trillion dollars in paper wealth in the
stock market collapse that began in March 2000 represented the rude
reassertion of the reality of a global economy crippled by overcapacity,
overproduction, and lack of profitability. With the mechanism of
"stock-market Keynesianism" having been exhausted, the capacity of the US
economy to avoid a serious and prolonged downturn has been greatly eroded,
though Brenner is cautious about writing it off. Missing: Kondratieff and China

The Brenner canvas of post-war expansion and decline has a remarkable
affinity to the theory of the early Soviet-era economist Nikolai
Kondratieff that capitalism moves forward in 50-60-year-long "waves" that
ascend, crest, and descend into a deep trough. Yet, surprisingly, The Boom
and the Bubble does not contain a single reference to Kondratieff.

This is intriguing.

Perhaps Brenner is trying to distance himself from deterministic
interpretations of Kondratieff, which have either posited the exploitation
and exhaustion of new technologies as the central driver of long-wave
activity or proclaimed the inevitability of a massive Great-Depression-like

If this is the case, Brenner is right to be wary of sounding apocalyptic,
given the resiliency which has enabled US-dominated global capitalism to
surmount crises in the past five decades. He fails, however, to discuss the
factor that should serve as the greatest reason for caution: China. China's
potential role of serving as an exit strategy for the current crisis of
overcapacity is underlined by the fact that it has absorbed an average of
$45 billion in foreign capital since the late 1990's, making it by far the
biggest recipient of foreign investment in the South. China is, however,
still focused on export-oriented production, making it a critical
contributor to global overcapacity. Should China turn towards a strategy of
hitching capitalist growth principally to the expansion of domestic
purchasing power, it could turn into the engine that would ward off,
perhaps for a few decades, the specter of global stagnation. Already China
is the world's largest market for cellular phones, and troubled Ericsson's
move to establish a manufacturing base there indicates that key players in
the crisis-ridden telecoms sector see their salvation in China. Missing:
The Crisis of Reproduction

But barring a sharp turn by China's leaders, the likelihood for a
Kondratieff-like deflationary-if not depressive--phase is really great at
this point. One is not likely, however, to draw this grim conclusion from
an analysis that hews narrowly, as Brenner's does, to developments at the
level of production, to the dynamics of overproduction. Focused at that
level, the farthest Brenner can go is to state that "it is not easy to see
what forces exist to push the economy forward."

However, what is unique about the current conjuncture is the coming
together of a crisis of production and a crisis of reproduction of the
system, the latter referring to the recreation of the political and
cultural context necessary for global capitalism to survive and thrive.
Global politics, the dynamics of cultural hegemony, and the interplay of
key institutional actors are what is missing in Brenner's broad canvas, and
these are the elements whose interaction will determine whether or not the
consequences of the crisis of overcapacity can be contained.

Despite capitalism's famed resiliency, containment of the crisis at the
level of production is increasingly less an option owing to the current
intersection of the crisis of overproduction with three related
"superstructural" crises--a conjunction that either did not occur earlier
in the post-World War II period or was marked by much less intensity.

The "crisis of legitimacy" refers to the increasing inability of the
neoliberal ideology that underpins today's global capitalism to persuade
people of its viability as a system of production, exchange, and
distribution. The disaster wrought by structural adjustment in Africa and
Latin America; the chain reaction of financial crises in Mexico, Asia,
Brazil, Russia, Argentina, and Wall Street; and the massive combination of
massive fraud and spectacular wiping out of investors' wealth have all
eaten away at the credibility of the system. The legitimacy of the
transnational corporation-the engine of the system-is at its lowest in
years, with over 70 per cent of Americans claiming even before Enron
erupted that the corporation had too much power over their lives. Also
plunged into a crisis of credibility are those institutions that serve as
capitalism's system of global economic governance--the International
Monetary Fund, the World Bank, and the World Trade organization-making them
the weak link in the system.

Paralleling this crisis is mounting disaffection with Washington or
Westminster-type liberal democracies that have served as a central
stabilization mechanism for global capitalism in the South-a site that
hardly makes an appearance in Brenner's stage yet has constantly been a
critical point of vulnerability in the stable reproduction of the system
globally. In places like the Philippines, Pakistan, Brazil, and Venezuela,
popular disillusionment with socially riven, economically stagnant
electoral democracies oiled by money politics is rife among the lower
classes and even the middle class, being in the case of Pakistan one of the
factors that allowed General Musharraf to seize political power.

But the crisis of legitimacy of liberal democracy is not limited to the
South. It is also shaking up the US, Japan, and Europe. Beneath the
post-September 11 poll popularity of George Bush continues to stir the
widespread pre-September 11 feeling in the US electorate that owing to
massive corporate influence, plutocracy is now the US system of government,
not democracy. Despite Washington's current posturing about punishing
corporate fraud, the spectacular developments in Wall Street are perceived
as a moral collapse in which both economic and political elites are implicated.

In Japan, ineptitude is the key characteristic associated by citizens with
the an interest-group ridden conservative democracy that has presided over
a decade of stagnation and decline.

While there is also much concern about corporate control of the political
party finances in Europe, an even greater subverter of democratic
legitimacy is the widespread anger over the non-transparent process that
technocratic elites allied to corporate elites have, in the name of
European integration, technocratic rationality, and market rationality,
eroded the principle of subsidiarity by funneling effective political and
economic decision-making upwards to techno-corporate structures, at the
apex of which stands the European Commission, that are largely
unaccountable to electorates on the ground. Electoral revolts like those
associated with Jean-Marie Le Pen in France and the assassinated Pim
Fortuyn in the Netherlands are manifestations of deep alienation with
technocratic democracy.

Finally, there is the strategic crisis brought about by politico-military
"overextension." While there may be factions in Washington that are
"military Keynesianism" as a way out of the current economic impasse, in
fact the military equation at this juncture might be more of a potentially
unravelling factor. The recent expansion of US military influence into
Afghanistan, the Philippines, South Asia, and Central Asia may communicate
strength. Yet, despite all this movement, the US has not been able to
consolidate victory anywhere, certainly not in Afghanistan where ere
anarchy, and not a stable pro-US regime reigns. Indeed, it is arguable that
because of the massive disaffection they have created throughout the Muslim
world, the US's political-military moves, including its pro-Israel
policies, have worsened rather than improved the US's strategic situation
in the Middle East. This sense of being strapped in the rollercoaster of
overextension is probably what accounts for the reluctance of some factions
in the Pentagon to follow the Cheney-Rumsfeld-Wolfowitz lobby's push to
invade Iraq. Meanwhile, even as Washington is obsessed with terrorism in
the Middle East, political rebellions against neoliberalism are shaking up
its Latin American backyard.

Kondratieff's portrait of crisis was hardly deterministic. In his schema,
it was the volatile interaction of production, political, and ideological
crises that facilitated the descent of the long waves from crest to trough
in the 1880's and again in the 1930's. The situation today, over 50 years
after the beginning of the post-World War II economic ascent, is analogous.
Robert Brenner provides us with an insightful guide to the roots and
dynamics of the crisis of the system of production, one that is more
reliable than most of the treatises turned out by the hotshot deserters
from the collapsing neoclassical paradigm. But his superb analysis of the
crisis of production needs to be supplemented with an exploration of the
parallel crisis of the system of reproduction to bring home both the depth
of capitalism's contemporary crisis and the volatility of the conjuncture.

*Walden Bello is executive director of Focus on the Global South and
professor of sociology and public administration at the University of the
Philippines. His latest book is Deglobalization (London: Zed Press, 2002).

Louis Proyect

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