The roots of crisis, stagnation, and financialization in the real economy

Hadas Thier

A decade after the Great Recession, almost half of US households still struggle to meet “a bare-bones household budget of housing, child care, food, transportation, and healthcare.”¹ Despite the boastful pronouncements of our pathological tweeter-in-chief, falling unemployment figures are not a good gauge of the state of the working class. “Discouraged” workers (those that have given up looking for work) and underemployed workers are not counted among the ranks of the unemployed, and labor participation rates are still 4 percentage points lower than their pre-recession levels. Low unemployment numbers have failed to lift workers’ abysmally low wages.

Perhaps it should have been predictable that what would follow a neoliberal boom, and a neoliberal recession, would be a neoliberal recovery. If Alan Greenspan got anything right during his tenure as Federal Reserve chief, it’s that decades of economic polarization have created a “traumatized” workforce. The jobs that have come back are largely poorly paid, low-skilled, temporary, and part-time work. American society has, in fact, hit new highs of polarization. As Bernie Sanders recently pointed out: “The three wealthiest people in America own more wealth than the bottom 50 percent—over 160 million people.”²

The facts of financialization

Though the stock market has bounced back to much fanfare, as have record-setting corporate profits, investment in new production has remained weak. The recovery has yielded anemic growth rates for the US economy as a whole. GDP growth has barely hovered above 2 percent a year (as compared to 3 or 4 percent for previous decades). The depth of the recession and the shallowness of the recovery have raised questions for the left to grapple with. Have we entered a new normal of “secular stagnation,” as former Treasury Secretary Lawrence Summers dubbed it? If so, what is causing it?

A common, seemingly plausible answer blames the state of the economy on the growing position of finance capital in today’s society. Undoubtedly, the deregulation and increasing autonomy of the financial sector since the 1970s have opened the way to an explosion of financial markets and a drive to “securitize” everything: that is, to transform debt (from state bonds to workers’ mortgages) into financial instruments, which can be publicly traded. Casino capitalism has certainly played a large role in exacerbating the speed and fury of the Great Recession, and will no doubt play a role in the next one.

Though the twisted role of finance was widely acknowledged in the years following the recession, today the same toxic cocktails are being served. “Subprime mortgages” have been replaced with “nonprime mortgages.” A market for mortgage-backed securities is growing again, but this time dwarfed by a market ($200 billion and growing) for student loan-backed securities. In case you thought Wall Street couldn’t get any nastier than profiting off working-class families’ housing nightmares, now investors are turning a sweet buck off millions of people who have been slammed under crushing debt loads and unforgiving bankruptcy laws. And now the inadequate regulations for financial institutions set during the Obama years are being completely removed by the Trump administration.

Profitable growth, not stagnation, produced financialization

It certainly seems an understandable proposition then, to point to an era of financialization as having ushered in a new phase of capitalism—as Monthly Review editor John Bellamy Foster has called it, “monopoly-finance.” Financialization, he argues, has become “a permanent structural necessity of the stagnation-prone economy.”³ Since capital is unable to generate enough profits through the traditional production of goods, it has become increasingly reliant on the easy, but ultimately faulty, profits of complex financial products. However, since finance capital cannot, in the end, expand indefinitely without a base in the productive economy, we are prone to both speculative bubbles and spectacular busts.

In fact, investment in financial cocktails was the outcome of an opposite trend. So much profitability had been restored through the neoliberal boom that capital needed additional outlets for investment. Since the 1970s tremendous material growth in production and output has taken place. This process accelerated in the early 2000s, with the rising oil boom. “Everyone was looking for a yield,” explained T. J. Lim, one of the early members of JP Morgan’s swaps team. “You could do almost anything you could dream of, and people would buy it. Every week, somebody would think of a new product.” Capital investment found an effective channel in the form of consumer debt, ushering in an “age of securitization.”⁴

As Marx argued, crises do not originate in the field of credit, but nevertheless first appear there. “In a system of production where . . . the reproduction process rests on credit,” he wrote, “a crisis must inevitably break out if credit is suddenly withdrawn . . . in the form of a violent scramble for means of payment. At first glance, therefore, the entire crisis presents itself as simply a credit and monetary crisis.”⁵ In other words, because the system depends on credit, and because the extension of credit both prolongs the expansion of production and then dries up when boom turns bust, it gives the impression that this is where the crisis begins.

Integration of productive and financial capital

There is no actual divide between the “real” economy of industrial capital, which engages in the production and selling of goods, but has little capital of its own from which to seed this activity, and finance capital, which plays a purely facilitating role in circulation. Quite the contrary: the last few decades have witnessed an increasing overlap and merging of productive and financial capital. Non-financial firms have had greater access and connectivity to financial markets.

To the extent that there is a separation between the two types of capital, they are still completely interdependent. Production has always relied on credit. Finance capital is simply that wing of the elite that extends, manages, and handsomely profits off of the extension of credit, even if that handsome profit has gotten more exaggerated and deranged. No matter how far unhinged financialization seems to become from production or how strong it has grown in influence, economics, like gravity, is based in material conditions.

In the case of the Great Recession, low interest rates set by the Federal Reserve allowed US debt to grow and grow, undergirding a global expansion of production and exacerbating a worldwide glut of goods. In real estate, an overproduction of houses, alongside of declining wages, meant that millions could not afford payments of outrageous interest rates. Defaulting mortgages, in turn, led the bottom to fall out from under financial derivatives, and trillions of dollars evaporated in the process. Rather than money creating more money in never-ending tech or housing loops, the real economy inevitably asserted itself. The “fictitious capital,” in Marx’s words, behind mortgage-backed securities was exposed as completely toxic.

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Tepid growth, social polarization, and openings to the left

David McNally

In the early stages of the Great Recession, two economists from outside the mainstream issued a prescient claim. “The global financial crisis of the late 2000s,” they wrote, “stands as the most serious global financial crisis since the Great Depression. The crisis has been a transformative moment in global economic history whose ultimate resolution will likely reshape politics and economics for at least a generation.”¹ This claim has since been powerfully vindicated.

Consider, first, the performance of the world’s dominant capitalist economy over that period. Since 2007, US gross domestic product (GDP) has grown at a rate of 1.4 percent per year. Over the previous three and a half decades (1970–2006), annual growth of GDP in the United States averaged 3.2 percent. In short, since the onset of the global slump, the American economy has grown at less than half its previous rate.

Continuing recession for wages

This slowdown contrasts markedly with the endless praise business pundits heap on the ostensibly “booming” economy in the United States. Yet, there has been no boom in the most crucial sense of the term—a sustained growth of business investment that, by renovating and retooling production and distribution, fuels a dynamic expansion.

Instead, growth since 2009 has been driven by two special factors. The first is the massive program of bank bailouts and financial stimulus implemented by central banks. This tremendously increased government debt, but it prevented a collapse of the financial system, kept interest rates artificially low, and allowed leaky businesses to borrow to stay afloat. The second crucial element—and the one that is decisively reshaping the terrain of politics—consists of the policies of austerity and wage compression that have boosted corporate profits and dramatically increased poverty and social inequality. While the profits recession ended in 2011, working-class living standards have been in continuous recession for a decade now. Let’s explore each of these trends.

Confronted in 2009 with a financial meltdown that was toppling financial institutions, central banks in the capitalist core did what they had failed to do in the 1930s—inject trillions of dollars directly into the financial system. The US Federal Reserve bought up about $2.5 trillion in private bank “assets,” much of it utterly toxic, as part of its bank bailout plan. Meanwhile, the Treasury handed out money and purchased assets as if on a drunken spending spree. The result is that government debt in the United States more than tripled—from about $5 trillion in 2007 to more than $15 trillion today. Neoliberal politicians may say that public investment in education, pharma care, and public housing is unaffordable. But there is no affordability constraint when it comes to saving private banks.

By flooding the financial system with cash, central banks drove interest rates to historic lows. This has had the contradictory effect of preventing a massive global depression, on the one hand, while also depressing rates of investment and accumulation, on the other. After all, one of the functions of a depression for capitalism is to bankrupt the least efficient and profitable sections of capital, clearing the way for the most productive firms to expand markets and initiate new waves of investment.

Artificially low interest rates have enabled thousands of “zombie companies” to survive by borrowing money, virtually for free. Rather than going under, marginal enterprises have stumbled on in living-dead fashion. And this has blocked profitable companies from gobbling up their markets and launching new investment projects. But it is the companion trend—austerity and wage compression—that is most directly reshaping political life in ways both dangerous and hopeful.

Growing inequality and poverty

In May of this year, the United Way found that 43 percent of the US population—or more than 51 million households—are unable to afford the necessities of life (housing, food, health care, transportation, and so on). At roughly the same time, the United Nations reported that 40 million people in the United States live in poverty while the country is also home to 2,208 billionaires.

This pauperization of large sections of society flows from the systematic upward transfer of wealth. In 1978, for instance, the bottom half of earners in the United States received 20 percent of all income. Today their share has plummeted to 12 percent. Not surprisingly, the share of the top 1 percent of income earners moved in the opposite direction: from 11 to 20 percent.²

The collapse in earnings for the majority fuels social regression across the board. In 2016, life expectancy in the United States fell for the first time in nearly a quarter century. And when it comes to security in old age, the figures are staggering: 100 corporate CEOs have as much in retirement savings as 116 million Americans.³ Similar tendencies are observed, even if not quite so starkly, in Canada and most European countries.

All of these trends also exhibit highly racialized and gendered patterns. And when examined on a global scale, they are even more appalling. According to Oxfam, the eight richest men in the world have as much wealth as half of humankind (3.6 billion people). And the top 1 percent has more wealth than the remaining 99 per cent of people on the planet.⁴

This is the context in which class anger has been percolating, often by way of punishing political elites who have presided over growing inequality.⁵ However, in a context of weak unions and social movements, the right has often capitalized on this anger, channeling it by means of racism, sexism, and attacking immigrants. Yet, as the US teachers’ strikes show, it is also possible for working-class frustration to fuel campaigns based on solidarity and collective resistance to neoliberal austerity.

And this is crucial. For the tepid recovery from the crisis of 2007–2009 will eventually give way to a new recession. When that happens, new crises will emerge and with them the prospect for heightened resistance. And once again the continuing global slump will put a premium on working-class organizing and mobilization by a dedicatedsocialist left.

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From stagnation to boom?

Lee Sustar

Ten years after the onset of the Great Recession the world economy is on the upswing, with a steady-but-slow US economy seemingly set to move into higher gear in 2018, partly as a result of global growth and partly from a boost from sweeping tax cuts and deficit spending. Such a worldwide growth spurt seemed highly unlikely as recently as 2015, when a slowdown in China caused a stock market wobble there as well as crises in several commodity exporters dependent on demand from that country. The International Monetary Fund (IMF) noted in April 2018 that “the global economic upswing that began around mid-2016 has become broader and stronger” even while signaling caution over the hangovers from the crisis—chiefly “higher debt levels worldwide” and political aftershocks leading to “nationalistic policies.”¹

The IMF, of course, was alluding to the tumultuous political changes in the historic core of the world economy: Brexit, Trump, and the crisis in established political parties and the rise of the far right in France, Germany, and Italy. This turn to economic nationalism is potentially destabilizing, with the opening guns of a trade war launched by the United States—not first against China, the villain of Trump’s economic campaign, but the European Union (EU) and NAFTA partners Canada and Mexico. This represents the sunset of the neoliberal period of capitalism—the United States-led international economic order based on free trade deals and the ascendency of global finance capital.

Roots of the recovery

Given these new and unstable conditions, economic predictions are of even more questionable value than usual. The focus here is on the key factors for the recovery and the contradictions—both economic and political—that are laying the basis for the next recession.

Higher world economic growth since 2015 was achieved by three methods:

1. Continued ultra-low interest rates in the advanced countries, plus quantitative easing (the modern equivalent of printing money) continued, albeit slowly, to boost employment and effective demand from consumers. In particular, the European Central Bank moves in March 2016 went back to crisis-level intervention, cutting interest for refinancing in the Eurosystem to 0 percent.²
2. Another round of spending from China in 2016–18 that was greater than that of the stimulus of 2009, this time as part of an effort to export capital and groom markets in the developing world (Central and South Asia, Africa, and partly, Latin America). The Bank for International Settlements (BIS) estimated that by mid-2017, China’s debt-toGDP ratio reached 256 percent compared to the 190 percent average for emerging countries and 250 percent in the United States.³
3. A vast expansion of debt on a global scale, both in the private and government sectors, both as the result of public assumption of the bank debt of the 2008 financial crash and the expansion of credit in recent years globally. By late 2017, global debt hit $237 trillion, a 42 percent increase from the onset of the financial crisis a decade earlier.⁴

These elements became mutually reinforcing, as impact of prolonged monetary stimulus and the relaxation of credit in the United States and Europe boosted consumption and overall demand, reaching through to China, with a 12.9 percent surge in April 2018 compared to a year earlier.⁵

Trade wars threaten the neoliberal order

However, the recovery remains historically weak in the United States, with about 2.2 percent annual average growth since the end of the recession in 2009.⁶ The post-World War II average annual growth for the United States is about 3 percent; but the rate was 2.3 in 2017, albeit with faster pace at year’s end.⁷ It has taken nearly an entire decade for US GDP to recover to its pre-recession trend line. In short, the United States remains in “secular stagnation,” a phrase first used during the Great Depression and revived in recent years by former Treasury Secretary Lawrence Summers.

Moreover, the Trump stimulus threatened to aggravate trade tensions, as China’s exports to the United States directly benefit from US economic growth.⁸ The rise of China is the main threat in the view of Trump and various factions grouped around manufacturing-oriented economic nationalism, tech and aerospace firms seeking to defend intellectual property, Wall Street financiers who want greater market access in China, and the hardline elements in the Pentagon and the national security apparatus. Their aims often diverge. But they share a common perspective that China’s rise must be checked.⁹

If the EU, Mexico, and Canada became collateral damage in the first shots of a trade war over steel and aluminum, it was in part because of real market competition but also because the United States has leverage to extract concessions from those players and model a program of bilateral trade deals that favor the United States, World Trade Organization (WTO) be damned.¹⁰ Once seen in Washington as a means to consolidate the US role at the top of the world economic hierarchy and contain China, the WTO is now seen as a fetter by increasingly influential sections of the capitalist class. It should be noted that Trump’s US trade representative is Robert Lighthizer, who spearheaded the US negotiations in the 1980s that squeezed Japan to contain the US trade deficit.¹¹

Inter-imperial rivalry

The reason for this shift in policy goes well beyond Trump. China is no longer what it was in the 1990s—a cheap production platform for US and European manufacturers to compete against Japan (which has long since been stagnant). Today, Chinese economic policies are targeting high-profit, sophisticated industries that were historically the preserve of the United States and other advanced countries (e.g., aerospace, robotics, microchip design and production).

This is the backdrop to the Trump administration’s trade pressure on China. If Trump’s polices are halting and seemingly incoherent—steel and aluminum tariffs, pressure on China to cut the trade deficit by $200 billion, a reconsideration of the Trans-Pacific Partnership trade agreement, a deal to prop up Chinese phone maker ZTE—it reflects the contradictions of US economic relations to a rising China, which combine both integration and competition, as well as Trump’s erratic rhetorical flourishes and policy shifts. But the main trend is towards confrontation and economic, military, and political rivalry on multiple fronts as China methodically turns scattered rocks off the coast of Japan into stationary aircraft carriers to bolster its perimeter defenses while the United States tries to maneuver negotiations with North Korea to China’s detriment.¹² But the US effort to wield imperial and economic weapons together goes beyond China. The US withdrawal from the deal to contain Iran’s nuclear program carries with it a threat to impose sanctions on European companies doing business with Iran.¹³ The result of all this is a redrawing of the map of the global political economy, with profound implications for inter-imperialist relations (the rise of China) as well as the domestic political arrangements in the advanced countries.

Political polarization

This is the context for the rise of the far right and the reemergence of a new left. But this left is still grappling with the challenges of how to mount a fundamental challenge to the system: nearly all the “pink tide” governments that arose in Latin America in the 2000s have either moved to the right, or have been replaced by rightist forces, with their redistributionist policies scrapped. Syriza, the radical left party that took office in Greece, capitulated to austerity policies. Podemos, a similar development in Spain, faces similar challenges, as does the resurgent left in the British Labor Party.

While the social democratic left fails to put forward a radical program to confront capital, right-wing populism is attempting to fill the void. And with neoliberal economic policies no longer able to securely anchor the middle classes within mainstream politics, conservative parties are adapting to, or even allying with, the far right. Leading political figures—Trump, Orban in Hungary, Kaczynski in Poland, Salvini in Italy, pro-Brexit UK politicians— are in various ways attempting to use harsh anti-immigrant policies, racism, and law-and-order rhetoric to reconcile the middle classes and the conservative sections of the working classes with a capitalist program based on economic nationalism. The rise of extreme right parties like the French National Front and the Alliance for Germany, along with openly fascist organizations, is the inevitable byproduct of these developments.

Economic, political, and international crises ahead

This political flux and polarization will increase when the current weak recovery gives way to recession. Where, when, and how the next crisis emerges is unpredictable, but several points of vulnerability are identifiable today: a debt crisis in China due to its highly-leveraged domestic economy and its overseas New Silk Road project; losses based on the expansion of consumer debt in the United States; a sharp contraction from the record high stock markets that hits the real economy; a premature raising of interest rates and selloff of assets by the Fed and advanced country central banks that are attempting to “reload” their stimulus policy capacity in the event of a recession. These are just some of the shocks that could trigger a new recession.

Whatever the duration of the current boom, it is already possible to identify the outlines of a post-neoliberal world economy characterized by economic nationalism, neo-mercantilism and shifting trade blocs. The task of building socialist organizations to lead an international working class and oppressed people out of this morass is now more urgent than ever.

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Sub-Saharan Africa and the crisis

Lee Wengraf

The economies of the Global South have been wracked by sharp contradictions in the neoliberal era. Unevenly integrated into the world economy—and disproportionately resting on the export of primary commodities—these economies have been profoundly vulnerable to systemic crises of overproduction and overcapacity. Much of the Global South in the weak global recovery—what David McNally has characterized as a “period of prolonged global slump”—has heavily relied on stimulus from the Chinese economy to sustain rising growth rates. But in sub-Saharan Africa, as elsewhere, these new found heights have only exacerbated the region’s underlying problems: reversed industrialization, sharper class polarization, and political instability.

Extractive development

Around the turn of the millennium, a narrative of “Rising Africa” took hold in the business press. Fuel and mineral exports had soared by hundreds of billions of dollars. High commodity prices underpinned this new boom—from oil and mining to massive land grabs— producing unprecedented levels of economic growth and investment, and vast profits for African ruling classes and international capital. But this boom has been accompanied by rising poverty.

Not unlike the colonial era, extraction of natural resources has dominated African economies. In the first decade of the new millennium, trade between Africa and the rest of the world increased by 200 percent. Africa has attracted huge investments to meet rising global demand, driven especially by China’s massive industrial growth. China uses approximately one-third of the world’s steel, 40 percent of its cement, and 40 percent of the entire world supply of copper; and is expected to be the world’s largest oil importer by 2020. Trade between China and Africa surpassed that between the United States and Africa in 2009, making China Africa’s single largest trading partner.

Africa’s surge in growth rests not only on the rise of China, but also on the devastating neoliberal prying open of African economies of the prior era. Respectable growth rates in Africa of 4-6 percent in the 1960s turned, as a result of the sharp collapse of worldwide commodity prices in the mid-1970s, to recession and a continent-wide debt crisis. The International Monetary Fund (IMF) and the World Bank stepped in to impose “structural adjustment”—loans with conditions that required privatization, the elimination of tariffs and trade subsidies, and deregulation, along with the disinvestment from social programs, disbanding of unions, and the elimination of subsidies for basic necessities like food and fuel. This process laid the basis for the “investor-friendly” African economies of the twenty-first century.

Significantly, the “conditionalities” built into loans required countries to orient their economies on exporting primary commodities, typically in the extractive sector, rather than building a broad technological and industrial base with the potential for wider economic development and job growth. These “export-led” economies were also compelled to import finished goods from the West, an overall strategy embraced by global capital and the international financial institutions to restore profitability in the wake of the recession of the 1970s. By the close of the twentieth century, African exports had become heavily dominated by primary commodities, a full 80 percent of all exports, as compared to only 16 percent in the “advanced” economies.¹

Underdevelopment redux

As a result, sub-Saharan economies are now less industrialized than they were in the immediate post-independence period. Economist Dani Rodrik has termed this process “premature deindustrialization.”² From 1980, over the next thirty-five years, manufacturing’s share of gross national product (GDP) fell from 16.5 percent to 10 percent. Oil-rich nations such as Angola, Nigeria, and Equatorial Guinea now rely on those exports for over 90 percent of their export revenue, a far higher proportion than elsewhere in the world. South Sudan is the most oil-reliant nation on the globe, with almost 100 percent of its export earnings based on oil.³

Thus, while investment and trade with sub-Saharan Africa has surged, the legacies of colonial and neoliberal economic policy have integrated African economies into the global capitalist system in a highly uneven and lopsided fashion that is vulnerable to swings in commodity prices. So, when oil prices tripled, and commodity prices jumped by 380 percent from 200211,⁴ the continent experienced stronger-than-average growth rates in the 5-6 percent range. Yet a glut in oil and raw materials and a decline in the strength of the Chinese economy produced a new crisis of overproduction by the mid-2010s. By 2014-15, global commodity prices had crashed, generating major budget crises for oil-producing nations worldwide.

The crisis of overcapacity that plagues the world system today hit the Global South, including African economies, particularly hard. In 2016, the average growth in GDP was a mere 1.3 percent for sub-Saharan Africa and rose only to 2.4 percent the following year. The World Bank boosted projections to 3.2 percent for 2018 and 3.5 percent for 2019, yet cautioned against its uneven character pointing out that growth has been driven by the continent’s largest economies: Nigeria, South Africa, and Angola. The rest of the continent has been plagued with slow growth rates. The sluggish nature of this recovery has driven a new round of crises and bailouts, with the looming danger of a return to World Bank and IMF-led austerity, as well as the calling-in of Chinese infrastructure loans—taken at the height of the commodities boom—and default in the event of another downturn.

The new scramble for Africa

Driven by international financial institutions, neoliberal policy unwittingly opened up investment opportunities not only for Western imperialists but also for their rising competitors, especially China. Beijing’s growing economic involvement on the African continent raises the stakes for China strategically, and their ability to reap the benefits of neoliberalism has only intensified imperial rivalries. In this environment, the African bourgeoisies have played the role of enthusiastic “partners” of global capital, seeking to drive accumulation on their own terms. A component of this “partnership” has increasingly included facilitating the militarization of the continent, from the African Horn to the Sahel and beyond.

Confirming Lenin and other classical Marxists’ accounts of imperialism, heightened economic competition over markets and access to resources has produced a new era of inter-imperial rivalry, especially between the United States and China. Both imperialist powers have used justifications like the so-called “War on Terror” and political instability to deploy forces and establish bases in Africa. The Obama administration expanded US military intervention in the continent, building upon George W. Bush’s launch of Africa Command (AFRICOM) in 2007. A vast network of military bases, covert operations, and troops now covers Africa.

Meanwhile, China is increasingly backing up its vast One Belt and Road Initiative (BRI) investments in East Africa with its own military presence in the region. Contrary to claims by some on the left, China’s BRI investments in Africa and elsewhere are driven by Beijing’s imperialist interests and will only exacerbate capitalism’s problem of overcapacity, particularly in the commodity-exporting sections of the Global South. To enforce its BRI investments in East Africa, China has established a new base in the small nation of Djibouti, stepping on the toes of the United States, whose Camp Lemonnier base is stationed nearby. All told, this new imperialist scramble for Africa—and the world—has made it a vastly more unstable and dangerous place.

The promises made by these imperialist powers about projected benefits of the commodities boom have failed to materialize. Despite unprecedented rates of GDP and wealth for the African 1 percent, the vast majority has faced worsening poverty. The World Bank reports that as of 2012, a stunning additional 100 million Africans live in poverty than two decades earlier. As Walter Rodney argued in his classic, How Europe Underdeveloped Africa, capitalism and its imperialist powers did not “neglect” the continent, but through the slave trade and colonialism systematically looted it. Today the United States and China are again engaged in the competitive plundering of Africa, reducing its economies to the export of a handful of primary commodities, thereby making it even more vulnerable to the ravages and volatility of the capitalist world market.

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Capitalism: Now and in the future

Michael Roberts

The development of capitalism has never been harmonious. Since the early nineteenth century, there have been regular and recurring booms and slumps. But we had a very big slump in 2008–2009 after the international banking crash. The Great Recession was the biggest since the 1930s.

As a result, all the major economies in the world saw a sharp decline in their national incomes. In response, governments introduced cuts in welfare and public services—so-called “austerity.” Tens of millions of people had their lives ruined, losing jobs and homes. There was a permanent loss to human welfare that can never be recovered.

The recovery from this Great Recession has been incredibly weak. Output, employment, and people’s incomes in most economies have not recovered to the 2007 level. According to a report by McKinsey management consultants, two-thirds of households in the twenty-six OECD economies had lower living standards in 2015 compared to 2005! So, this was not a “normal” recession, but a depression.

Great depressions

In a depression, recovery is so weak that economies do not return to the same growth rates, or even the level of output that previously existed, for a very long time. This does not happen very often. In the history of capitalism, there have been only three depressions—the late nineteenth century, the 1930s, and now.

The Great Depression of the 1930s began with the collapse of the stock market in the United States in 1929, similar to the collapse of the housing and credit markets in the United States in 2007. After the crash in 1929, there was a prolonged period of low growth and mass unemployment. This reversed when the United States entered World War II. Government investment took over, which eventually led to a “war economy.”

The brief period from 1945 to the mid-1960s was exceptional; it is called the “golden age” of capitalism. There was quite good growth, more or less full employment in the advanced capitalist economies; and many countries were able to concede a welfare state, free education and health services, state housing programs, proper pensions, etc.

Crises born of declining profitability

The health of the capitalist economy depends on what happens to the profitability of capital. In Europe, at the end of World War II, as the result of the physical destruction of most old machinery and plant and the creation of a massive amount of labor available at cheap rates, profitability rocketed. And Europe got cheap (even free) credit from the United States.

The same applied to Japan. In the United States, new technology combined with high profits and a returning labor force to achieve fast growth. With full employment, the labor movement was able to extract social concessions from the capitalist class, which could afford it.

But as capitalism accumulates capital, there is a tendency for profitability to fall. Crises develop more frequently and severely. This is Marx’s theory of crises. In the mid-1960s, profitability began to fall quite sharply up to the early 1980s.

Major recessions of the mid-1970s and early 1980s crushed manufacturing employment and the labor movement, which was shackled and defeated in struggles. Capitalism was then able to reverse much of the gains of the “golden age” with cuts in public spending, privatizations, removing all the protections for the labor force, and globalization. This was the so-called neoliberal period.

Neoliberal expansion and financialization

But profitability remained relatively low in the productive sectors in the advanced economies. So, capital was shifted more into the financial sector where higher profits could be made (even if they eventually proved fictitious). Productive investment as a percentage of output declined. “Financialization” was a symptom of the inability to raise the profitability of productive capital.

In this period, the United States declined relatively as an economic power. It lost its share of world manufacturing output to first, Germany, then Japan, and finally, China. Even in services and technology, the United States is now losing ground. But it still has a massive financial sector, which controls money capital around the world. And it is by far the biggest military power.

This gives the United States its continued hegemony. But the Great Recession marked the end of the period of “free trade” and globalization of capital. Now the rivalries between the big economic powers are intensifying, particularly between the United States and China.

Capitalism will eventually escape this current depression. In the past, capitalism has always found a way out if it can restore a higher rate of profit, as it did after World War II and at the end of the nineteenth-century depression. But that means destroying more old capital that is no longer profitable. And the system needs to get rid of a lot of debt built up in the Long Depression. That means further slumps ahead, which will be at the expense of jobs and livelihoods.

Getting out of the Long Depression

If working people do not overthrow capitalism and replace it with socialism, the system could get a new lease of life. It could start to use new technologies—robots, AI, the internet of things, etc.—to raise profitability. Also, it could exploit new areas of the world, which still have large amounts of cheap labor.

But even if that happens, capitalism is not going to solve its problems indefinitely. Capitalism faces key challenges over the next twenty years. There is a secular slowdown in productivity growth: capitalism is increasingly failing to expand the productive forces to provide what people need.

Also, inequality in income and wealth globally has reached a level that we have not seen since Marx wrote Capital. This is already increasing social tensions, weakening mainstream capitalist political rule, breeding “populism.” Then there is climate change and global warming, which threatens the future of the human race and the planet within a generation.

It is getting more difficult for capital to have a new lease on life. There are fewer areas in the world to exploit that aren’t already part of the global capitalist system. And the agency for change and the gravedigger of capitalism, the working class, has never been larger globally in history. Capitalism is getting close to its use-by date.

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NOTES

The roots of crisis, stagnation, and financialization in the real economy

1. Cited in Jessica Corbett, “Sanders Slams US Inequality as Report Finds Nearly Half of Americans Can’t Afford Basic Necessities,” Common Dreams, May 18, 2018, https:// www.commondreams.org/news/2018/05/18/sanders-slams-us-inequality-report- finds-nearly-half-americans-cant-afford-basic.
2. Ibid.
3. John Bellamy Foster, “The Financialization of Capitalism,” Monthly Review 58, no. 11 (2007), https://monthlyreview.org/2007/04/01/the....
4. Gillian Tett, Fool’s Gold (New York: Free Press, 2010), 31.
5. Karl Marx, Capital, Volume 3 (New York: Penguin Classics, 1991), 621.

Tepid growth, social polarization, and openings to the left

1. Carmen M. Reinhart and Kenneth S. Rogoff, This Time is Different: Eight Centuries of Financial Folly (Princeton: Princeton University Press, 2009), 208.
2. Thomas Picketty blog, “WID World: New Data Series on Inequality and the Collapse of Bottom Incomes,” Le monde, January 11, 2017, http://piketty.blog.lemonde. fr/2017/01/11/wid-world-a-new-approach-to-inequality/. Note that incomes figures do not fully reflect the dimensions of inequality since they exclude the assets people own (“wealth”).
3. Lenny Bernstein, “U.S. Life Expectancy Declines for the First Time Since 1993,” Washington Post, December 8, 2016, https://www.washingtonpost.com/ national/health-science/us-life-expectancy-declines-for-the-first-time-since1993/2016/12/07/7dcdc7b4-bc93-11e6-91ee-1adddfe36cbe_story.html?utm_term=.79bd07cac434; Andrea Germanos, “100 CEOs Have as Much Retirement Savings as 116 Million Americans,” Common Dreams, December 16, 2016, https:// www.commondreams.org/news/2016/12/16/100-ceos-have-much-retirement- savings-116-million-americans.
4. Pan Pylas, “Eight Men as Rich as Half the World, Anti-Poverty Group Oxfam Says,” Associated Press, January 16, 2017; Oxfam, “An Economy for the 1 %,” January 18, 2016, https://www.oxfam.org/sites/www.oxfam.org/files/file_attachments/bp210- economy-one-percent-tax-havens-180116-en_0.pdf.
5. Among the most recent examples is the June 7, 2018 defeat of the Liberal government in the Canadian province of Ontario by hard-right Conservatives. See Todd Gordon, “Ontario’s Donald Trump,” June 18, 2018, Socialist Worker, https://socialistworker. org/2018/06/18/ontarios-donald-trump.

From stagnation to boom?

1. “World Economic Outlook, April 2018: Cyclical Upswing, Structural Change,” IMF, March 20, 2018, https://www.imf.org/en/Publications/WEO/Issues/2018/03/20/ world-economic-outlook-april-2018.2018, https://www.imf.org/en/Publications/ WEO/Issues/2018/03/20/world-economic-outlook-april-2018.
2. “Economic Bulletin,” European Central Bank, https://www.ecb.europa.eu/pub/ economic-bulletin/html/eb201602.en.html.
3. Karen Liu, “China’s Debt Pile Raises Concern,” Capitalwatch.Com, February 25, 2018, http://www.capitalwatch.com/article-1782-1.html.
4. Alexandre Tanzi, “Global Debt Jumped to Record $237 Trillion Last Year,” Bloomberg, April 10, 2018, https://www.bloomberg.com/news/articles/2018-04-10/global-debt-jumped-to-record-237-trillion-last-year.

5. “China Export Surge Highlights Trump’s Cause as Tariffs Readied,” Bloomberg News, March 8, 2018, https://www.bloomberg.com/news/articles/2018-03-08/china- export-growth-surged-in-february-as-imports-moderated.
6. “Chart Book: The Legacy of the Great Recession,” Center on Budget and Policy Priorities, August 5, 2010, https://www.cbpp.org/research/economy/chart-book- the-legacy-of-the-great-recession.
7. CNBC, “Final Reading on US Q4 GDP Is up 2.9%, vs 2.7% Growth Expected,” March 28, 2018, https://www.cnbc.com/2018/03/28/final-reading-on-us-q4-gdp-is-up-2- point-9-percent-vs-2-point-7-percent-growth-expected.html.
8. “China Export Surge Highlights Trump’s Cause as Tariffs Readied.”
9. “Is the China-US Trade War for Real? (Part 2 of 3-Part Series),” Jack Rasmus (blog), May 9, 2018, https://jackrasmus.com/2018/05/08/is-the....
10. Ken Bredemeier, “Trump Wants Separate Trade Talks with Canada, Mexico,” VOA, June 5, 2018, https://www.voanews.com/a/trump-wants-separate-trade-talks-with- canada-mexico/4425527.html.
11. Ana Swanson, “The Little-Known Trade Adviser Who Wields Enormous Power in Washington,” New York Times, March 9, 2018, https://www.nytimes. com/2018/03/09/us/politics/robert-lighthizer-trade.html.
12. Jane Perlez, “China, Feeling Left Out, Has Plenty to Worry About in North Korea-US Talks” New York Times, April 22, 2018, https://www.nytimes.com/2018/04/22/ world/asia/china-north-korea-nuclear-talks.html.
13. Jon Swaine, “US Threatens European Companies with Sanctions after Iran Deal Pullout,” The Guardian, May 13, 2018, https://www.theguardian.com/world/2018/ may/13/us-sanctions-european-countries-iran-deal-donald-trump.

Sub-Saharan Africa and the crisis

1. Patrick Bond, Looting Africa: The Economics of Exploitation, cited in Lee Wengraf, Extracting Profit: Imperialism, Neoliberalism and the New Scramble for Africa (Chicago: Haymarket Books, 2018), 70.
2. Dani Rodrick, “Premature Deindustrialization,” November 2015, http://drodrik. scholar.harvard.edu/files/dani-rodrik/files/premature_deindustrialization_revised2. pdf.
3. World Bank, “The World Bank in South Sudan,” May 3, 2018, http://www.worldbank. org/en/country/southsudan/overview.
4. “Oil and Trouble: Tumbling Resource Prices Suggest the World Economy is Slowing,” Economist, October 4, 2014, https://www.economist.com/finance-and- economics/2014/10/04/oil-and-trouble.