After 5 Years: Report Card on Crisis Capitalism
After 5 years of crisis - with no end in sight - it’s time to evaluate what happened, why, and what needs to be done. One key cause of this crisis, missed by most mainstream analyses, is the class structure of capitalist enterprises. By that I mean enterprises’ internal organization pitting workers against corporate boards of directors and major shareholders. Those boards seek first to maximize corporate profits and growth. That means maximizing the difference between the value added by workers’ labor and the value paid to workers in wages. Those boards also decide how to use that difference (“surplus value”) to secure the corporation’s reproduction and growth. The major shareholders and the directors they select make all basic corporate decisions: what, how, and where to produce and how to spend the surplus value (on executive pay hikes and bonuses, outsourcing production, buying politicians, etc.) Workers (the majority) live with the results of decisions made by a tiny minority (shareholders and directors). Workers are excluded from participating in those decisions: a lesson in capitalist democracy.
US capitalism changed in the 1970s. The prior century of labor shortages had required real wage increases every decade (to bring immigrant workers). In the 1970s, capitalists installed labor-saving computers and/or relocated production to lower-wage countries. Demand for laborers fell. Simultaneously, women moved massively into wage work as did new immigrants from Latin America. The supply of laborers rose. Capitalists no longer needed to raise real wages. Since the 1970s, they paid workers the same while computers raised labor productivity: what workers produced for capitalists to sell kept increasing. Surplus value (and profits) soared (stock market boom, rising financial sector, etc.) while the wage share of national product/income fell.
By making these changes, US capitalism confronted a classic contradiction. It paid insufficient wages to enable workers to purchase growing output. The solution, led by the fast-growing financial sector, was two-fold. First, it cycled rising corporate profits and individual executives’ wealth partly into major new consumer lending (mortgages, car loans, credit cards, and later student loans). That sustained growing mass consumption despite stagnant wages and so postponed an otherwise certain economic downturn. Second, financiers promoted profitable new investments for corporations and the rich (securities based on consumer debts and credit default swaps that insured such securities). Financial corporations displaced non-financial corporations as dominant in the US economy. Financial transactions based on consumer debts were in turn built on stagnant wages (the ultimate means to service that debt). By 2007 these capitalist decisions yielded a cyclical downturn coupled to long-run decline in workers’ purchasing power.
As the crisis deepened, capitalism’s apologists insisted that it was “only a financial problem” – credit froze because banks no longer trusted nor lent to one another. The freeze would be “easily managed” by federal bailouts of major financial and other corporations (e.g. GM) deemed “too big to fail.” Dutiful politicians funded those bailouts with massive federal borrowing from (rather than taxing) the large cash hoards accumulating in those corporations and among the rich. They hoarded because lending to or investing in the economy they had crashed was “too risky.” So instead they lent their hoards to the government that was bailing them out: a lesson in capitalist efficiency.
As government debts soared, financial capitalists began to worry about over-indebted governments. Especially where traditions of anti-capitalist criticism were strong, as in Greece – citizens might balk at servicing government debts that resulted from capitalism’s failures, not theirs. Financial capitalists thus demanded ever-higher interest for loans to such governments. They also demanded austerity programs. Public employment and services were to be slashed. The money thereby saved would instead guarantee those governments’ debts. Major leaders pretended that the alternative - raising significant taxes on corporations and the rich – did not exist.
The costs of economic crisis and bailouts were thus shifted onto national populations via unemployment, home foreclosures, and austerity: a lesson in capitalist justice.
To summarize: (1) capitalists decided in the 1970s to computerize and increasingly relocate production overseas, (2) that enabled them to impose wage stagnation and greatly increase surpluses and profits, (3) financial capitalists lent to consumers and built a speculative bubble based on consumer debt, (4) when rising consumer debts exceeded what stagnant wages could afford, the system crashed, (5) capitalists got trillion dollar bailouts while lending government the money for those bailouts, and (6) now capitalists get government austerity programs to socialize the costs of the crisis and bailouts. Capitalism not only fails to “deliver the goods,” it dumps ever-more-outrageous bads.
Nor are solutions available in New Deal-type regulations and Keynesian deficit spending a la Krugman and Reich. While the New Deal constrained capitalists and eased mass suffering (neither happens now), it never overcame the 1930s depression (World War 2 did). Capitalism’s costly cycles were never stopped (eleven downturns occurred after 1941 and before the 2007 crash). Moreover, the New Deal’s regulations and taxes on corporations and the rich were undone after 1945 as capitalists funded the politicians, parties, lobbyists and think tanks that shaped legislation and public opinion. Another New Deal now (green or not) would have poorer and shorter-lived economic results. Capitalists have greater financial resources and decades of experience in blocking and undoing.
Any real solution must change the class structure of capitalist enterprises and thereby their directors’ decisions: twin obstacles to ending capitalism’s repeated crises and their immense social costs. The change must reorganize the production of goods and services. Instead of undemocratic, hierarchical capitalist corporations, workers collectively would become their own board of directors and make all the key decisions. Had such workers’ self-directed enterprises (WSDEs) prevailed in the 1970s, real wages would have kept rising, jobs would have stayed in the US, no consumer credit explosion would not have happened, and so on. WSDE’s would have their problems too. However, America can do better than capitalism. We can dare to think so, say so, make the needed changes, and move forward.
This piece was written for URPE-Occupy Summer Conference 2012. The Union for Radical Political Economy (URPE) is an interdisciplinary association devoted to the study, development and application of radical political economic analysis to social problems. Founded in 1968, URPE presents a continuing critique of the capitalist system and all forms of exploitation and oppression while helping to construct a progressive social policy and create socialist alternatives. URPE members, often in cooperation with other organizations, organize local study groups, speaking and writing projects, and political events. URPE’s international members in Latin America are involved in discussions, visits, and exchanges.
Visit Professor Wolff's social movement project, democracyatwork.info.
Permission to reprint Professor Wolff's writing and videos is granted on an individual basis. Please contact email@example.com to request permission. We reserve the right to refuse or rescind permission at any time.