By Lisbeth Latham.
The central driver of the capitalist system is the drive for capitalists to constantly increase profits – failure to do so can be a trigger for a crisis within the capitalist system.
Since the end of the long boom in the early 1970s, capitalism, particularly in the advanced capitalist countries, has entered a period of long-run crisis under which individual capitalists have sought to find ways to continue to expand profits during a period of chronic over-accumulation.
This crisis has prompted the search for new avenues for profitable investment and the attempt to maximise returns on the existing capital in circulation. Despite sporadic periods of temporary growth, the past 50 years have been punctuated by regular national, regional, and global crises.
This protracted period of low growth, instability and crisis has seen capital and its representatives in government seek to adopt a range of strategies aimed re-establishing and stabilising growth. This strategy has at times been successful in the short term but ultimately has served to exacerbate capitalism’s crisis tendencies.
Capitalism’s over-accumulation crisis
Capitalism has an unquenchable thirst for the growth of profits. During the early period of industrial capitalism, this was easily achieved through the expansion of production. Its higher levels of productivity meant that capitalists could simply outcompete non-industrial producers, absorbing their markets and expanding profits.
As capitalism expanded, however, markets began to be saturated. While investing in better and more efficient machines made individual workers more productive, this expansion in productive capacity became more expensive to achieve and risked companies producing more goods than could be profitably sold (known as a crisis of overproduction).
This problem could be addressed by finding new goods to be produced and generating corresponding new consumer demand. Over time there becomes a limit on the extent to which such new areas for profitable investment in production can be made, and capitalists begin to have far more money than they can reinvest profitably in the production of goods (known as a crisis of over-accumulation).
Such a crisis becomes generalised, and the capitalist economy can enter a profound period of crisis. Historically these crises have only been overcome either through massive recessions that result in the destruction of sections of capital, or through wars that also consume and destroy vast amounts of production and productive capacity, opening up the possibility for new periods of capitalist growth.
A long-run decline in growth
In the period coming out of the second world war, capitalist economies experienced protracted periods of high growth. This growth was in part a consequence of the rebuilding of Europe and Japan after the destruction of the Great Depression and the war. But it was also a result of the continued high levels of arms spending, particularly by the US, during the Vietnam and Cold Wars.
Entering the 1970s, this extended period of growth came to an end, a development that was exacerbated by the 1973 Oil Crisis. This began a prolonged period of substantially lower growth in the economies of the advanced capitalist countries (see Figure 1). This prolonged period of low growth has been punctuated by short booms and regular economic crises.
Figure 1: Average GDP Growth, World Bank National Accounts Data.
Penetration of capitalist relations into everyday life
An important aspect of the capitalist response to the over-accumulation crisis has been an attempt to find new avenues for investment and the extraction of profits. The focus for this drive started, and has continued, with the push for corporatising, and then privatising, government-owned corporations.
In the past 30 years, this has expanded to efforts to commodify substantial areas of what had previously been the private domestic domain, with the mass expansion of the services industry. This drive has resulted in the opening up of new aspects of social life for profit-making, as well as the intensification of working life – particularly for working women, who bear double and triple shifts as workers while continuing to carry out the central role in social reproduction.
The process of expanding commodification has been further intensified by the development of the gig economy. This has generated new technologies that have enabled capital to regularise social exchanges for profit. At the same time, capital has shifted substantial costs onto the gig workers themselves, in exchange for providing a platform linking workers with consumers – a platform that has intensified the capacity of capital to monitor and exploit labour.
The growth of the gig economy has also intensified crises in other parts of the economy, as previously dominant market players are forced to compete with numerous individual operators linked via platforms.
As the expansion of profits through the real economy became more difficult with the saturation of markets and problems of over-accumulation, capital shifted its focus towards investments in financial markets and the creation of new and novel financial instruments, expanding interest-bearing capital in both intensive and extensive forms.
This has resulted in a massive expansion in the volume of financial transactions and in the relative weight of the finance industry in economies. This process of increasing complexity and weight is called financialisation.
It can create the impression of a decoupling of the ‘real economy’ and ‘financial services’; however, in reality they remain intimately connected with the speculation in the financial markets essentially being a series of bets and counter bets on the real economy.
The immediate catalyst of the 2007-2008 global financial crisis was the failure of US sub-prime mortgages and its ripple effect through the bond market, which rapidly spread through other vulnerable sectors within both the ‘real economy’ and the ‘financial services’ sector.
Decline in wage growth
In 2019, in response to widespread public concern regarding record low wage growth, Australian finance minister Mathias Cormann described (downward) flexibility in the rate of wage growth as “a deliberate design feature of our economic architecture”.
This statement reflects not just the determination of individual capitalists to drive down wages, but the active efforts to transform the industrial relations environment in advanced capitalist countries to undermine the ability of workers and their unions to fight to defend wages and conditions, let alone advance them.
This process of undermining organised labour – central to the neoliberal project – is also based on a race to the bottom between jurisdictions. Employer groups, neoliberal thought leaders and governments point to efforts that have been made in other jurisdictions to erode workplace rights and be internationally “competitive”.
Lapavistas et al argue that in response to the global financial crisis and sovereign debt crisis in the European Union’s Economic and Monetary Union (EMU) there has been a renewed pressure to increase labour productivity within all economies of the EMU.
This has placed downward pressure on wage growth, with German capital being the most successful in achieving this within the EMU. As a result, Germany has been best placed to sell goods and services to other member states and to markets outside the common market.
The impact of these dynamics can be seen in the ongoing low wage growth across the OECD, which demonstrate that the burden of low economic growth since the end of the global financial crisis has primarily been shifted onto working people (see Figure 2).
Figure 2: Wage Growth, OECD (2020), “Average annual wages”, OECD Employment and Labour Market Statistics (database).
This combined pressure to increase labour productivity while at the same time limiting wage growth has resulted in a decoupling of labour productivity and wages, which had historically been correlated (see Figure 3).
Figure 3: Decoupling of wages and productivity. Source: OECD (2018), OECD Economic Outlook, Volume 2018 Issue 2, OECD Publishing, Paris.
This decoupling has meant that while capital continues to experience growth – albeit at a rate insufficient to quell its insatiable hunger for growing profits – working people are failing to see any real benefit for their increased productivity.
As a result, in order to maintain spending power, working people became increasingly reliant on borrowing, whether in the form of credit cards or payday loans, to meet day-to-day spending costs (see Figure 4).
Rising household debt ultimately exacerbates the problems of the declining purchasing power of the working class. This decline in purchasing power also negatively impacts on the capacity of economies to grow, deepening the crisis tendencies.
Figure 4: Household Debt as Percentage of Household Income, OECD (2020), Household debt (indicator).
The long-run capitalist economic crisis that started with the end of the long boom, and which is now intensifying with the current COVID-19 pandemic, is prompting a more aggressive orientation by both state actors and individual capitalists.
This aggressive posture means that collective bargaining more readily lays bare the class struggle. For working people and their unions to be able to effectively respond to this environment will necessitate being prepared for direct challenges to capitalist power.
Failure to do so effectively and adequately will see a deepening of the shift of more and more of the product of workers’ labour into profits, leading to the further inequality not only within societies but within the working class itself.
Lisbeth Latham is a contributing editor of Irish Broad Left. Follow her on Twitter @grumenprol.
Top image by Bill Rebholz.