Zombie capitalism global crisis and the relevance of marx

CHRIS HARMAN /IIH >i of A Peoples History of t h e W o r l d W A S H E ; i; I» '_VJ lAthr^ii < I OBAL CRISIS AND m i RFLEVANCE OF MARX Faced with the financial crisis that began in 2007 some economic commentators began to talk of 'zombie banks', financial institutions that were in an 'undead' state incapable of fulfilling any positive function but representing a threat to everything else However 21st century capitalism as a whole is a zombie system dead to achieving human goals and responding to human feelings but capable of sudden spurts of activity that cause chaos all around Chris Harman shows how Marx's understanding of capitalism is essential for any explanation of how this world emerged and developed over the last century and a half He shows that the roots of the crisis today lie not in financial speculation but much deeper in a crisis of profitability which 30 years of the neoliberal offensive have failed to reverse The future of the system will not be a return to steady growth but repeated instability and upheaval, together with a rising ecological crisis Finally he looks the force in society capable of ending the rule of capital —the global working class "A powerful, comprehensive and accessible critique of capitalism from one of the world's pre-eminent Marxist economists This book needs to be read far and wide It is a clear, incisive warning of the massive dangers posed by a 'runaway system' and the threat it poses for the future of humanity." Graham Turner, author of Credit Crunch: Housing Globalisation and the Worldwide Economic Crisis Bubbles, "Both essential reading for anyone who wants to understand the present crisis and its place in the history of < ipiijlif.m and an important cont'lbution to Marxist politic si w onomy " Alex Callinicoi, I ' r o f n t t o r of F.uropoan Studies King'* College London Z o m b i e Capitalism: Global crisis and the relcvance of M a r x Chris Harmatt First published in July 2009 by Bookmarks Publications Copyright O Bookmarks Publications ISBN 9781905192533 Cover design by Noel Douglas Typeset bv Bookmarks Publications Printed by Information Press Contents Introduction Part O n e : U n d e r s t a n d i n g the system: M a r x a n d B e y o n d Marx's Concepts 21 M a r x a n d his Critics 41 T h e D y n a m i c s o f the System 55 B e y o n d M a r x : M o n o p o l y , W a r a n d the State 87 State S p e n d i n g a n d the System 121 P a n T w o : C a p i t a l i s m in the t h C e n t u r y The Great Slump 143 The Long B o o m 161 T h e end o f the g o l d e n age 191 Part Three: T h e N e w A g e o f G l o b a l Instability T h e Years o f D e l u s i o n 229 10 G l o b a l C a p i t a l in the N e w Age 255 11 F i n a n c i a l i s a t i o n a n d the Bubbles that Burst 277 Part F o u r : T h e R u n a w a y System 12 The N e w Limits o f Capital 307 13 T h e R u n a w a y System a n d the Future for H u m a n i t y 325 14 W h o Can Overcome? 329 Notes 353 Glossary 393 Index 403 A b o u t the A u t h o r C h r i s H a r m a n is a leading m e m b e r o f the Socialist W o r k e r s Party ( w w w s w p o r g u k ) H e is the a u t h o r o f n u m e r o u s h o o k s i n c l u d i n g A Peoples History 0 S ) , Revolution Fire Last Revolution: Time: of the World in the list 1968 Germany e d i t o r o f International and (Bookmarks Century After 1999 a n d Verso ( B o o k m a r k s 0 ) , The ( B o o k m a r k s 8 ) , The Lost 1918 to 1923 ( B o o k m a r k s 1982) H e is the Socialism, a quarterly journal o f M a r x i s t theory ( w w w i s j o r g u k ) The Socialist W o r k e r s Party is linked t o a n i n t e r n a t i o n a l n e t w o r k o f o r g a n i s a t i o n s , for further i n f o r m a t i o n g o t o w v w s w p o r g u k / international, p h p Introduction An unstable world W e live in a n unstable w o r l d , a n d the instability is g o i n g to increase It is a w o r l d w h e r e a billion people feel h u n g r y every day, a n d the hunger is g o i n g t o increase It is a w o r l d w h i c h is destroying its o w n e n v i r o n m e n t , a n d the destruction is g o i n g t o increase It is a violent w o r l d , a n d the violence is g o i n g to increase It is a w o r l d w h e r e people are less h a p p y , even in the industrially a d v a n c e d countries, t h a n they used t o be,1 a n d the u n h a p p i n e s s is g o i n g t o increase Even the m o s t craven a p o l o g i s t s for c a p i t a l i s m find it h a r d t o deny this reality a n y longer, as the w o r s t e c o n o m i c crisis since the Second W o r l d W a r c o n t i n u e s t o deepen as write T h e world's best k n o w n b a n k s have o n l y been saved f r o m g o i n g bust by vast g o v e r n m e n t bail-outs T h o u s a n d s o f factories, stores and offices are c l o s i n g Unemployment across Europe and North America is s h o o t i n g u p w a r d s T w e n t y m i l l i o n Chinese workers have been t o l d they have to return t o the villages because there are n o jobs for t h e m in the cities A n I n d i a n employers' t h i n k t a n k w a r n s t h a t ten m i l l i o n o f their employees face the sack A h u n d r e d m i l l i o n o f the w o r l d ' s people in the G l o b a l S o u t h are still threatened w i t h h u n g e r because o f last year's d o u b l i n g o f grain prices, w h i l e in the richest c o u n t r y i n the w o r l d , the U n i t e d States, three m i l l i o n families have been dispossessed f r o m their h o m e s in 18 m o n t h s Yet just t w o years a g o , w h e n I began this b o o k , the message was very different: " R e c e n t high levels o f g r o w t h will c o n t i n u e , g l o b a l inflation w i l l stay q u i t e s u b d u e d , a n d g l o b a l current a c c o u n t imbalances will g r a d u a l l y m o d e r a t e , " w a s the " c o n s e n s u s " a m o n g mainstream economists, reported the Bank Settlements T h e p o l i t i c i a n s , industrialists, ot International financiers a n d com- m e n t a t o r s all agreed T h e y toasted the w o n d e r s o f free m a r k e t s a n d rejoiced that " e n t r e p r e n e u r i a l g e n i u s " h a d been liberated f r o m r e g u l a t i o n It w a s w o n d e r f u l , they told us, that the rich were getting richer because that p r o v i d e d the incentives w h i c h m a d e the system so b o u n t i f u l Trade w a s g o i n g to obliterate h u n g e r in A f r i c a Economic g r o w t h w a s d r a i n i n g the vast p o o l s ol poverty in Asia T h e crises o f the 1970s, SOs, 90s a n d 2001-2 were m e m o r i e s w e c o u l d put b e h i n d us There m i g h t be horrors in the w o r l d , w a r s in the M i d d l e East, civil w a r s in Africa, b u t these were to be b l a m e d on the shortsightedness o f essentially honest p o l i t i c i a n s in W a s h i n g t o n and L o n d o n w h o m a v have m a d e mistakes but whose h u m a n i t a r i a n in4 tervention was still needed to deal w i t h psychopathic maniacs The w o r d s of those w h o saw things differently were i g n o r e d , as the media p o u r e d o u t candyfloss layers o f celebrity culture, u p p e r m i d d l e class self-congratulation a n d senseless nationalist e u p h o r i a over sporting events T h e n in m i d - A u g u s t 0 s o m e t h i n g h a p p e n e d w h i c h began to sweep the candyfloss a w a y t o p r o v i d e a glimpse o f the u n d e r l y i n g reality A n u m b e r o f b a n k s suddenly discovered thev c o u l d n o t bal• 4 ance their b o o k s a n d s t o p p e d l e n d i n g t o each other T h e w o r l d ' s financial turned system began g r i n d i n g to a halt w i t h a credit c r u n c h t h a t i n t o a crash o f the w h o l e system in O c t o b e r 2008 Capitalist c o m p l a c e n c y t u r n e d to capitalist p a n i c , e u p h o r i a to desperation Yesterday's heroes became t o d a y s swindlers F r o m those w h o h a d assured us of the w o n d e r s o f the system there n o w c a m e one message: " W e d o n ' t k n o w w h a t has g o n e w r o n g a n d we d o n ' t k n o w w h a t t o d o " The m a n w h o n o t l o n g before been treated as the s u p r e m e genius overseeing the US e c o n o m i c system, A l a n G r e e n s p a n , o f the Federal Reserve, a d m i t t e d to the US C o n g r e s s t h a t h e still d i d " n o t fully u n d e r s t a n d w h a t w e n t w r o n g in w h a t he t h o u g h t were self-governing m a r k e t s V G o v e r n m e n t s have been t h r o w i n g h u n d r e d s o f billions t o those w h o r u n the b a n k s — a n d tens o f b i l l i o n s t o those w h o run the m u l t i n a t i o n a l car firms—in the h o p e that this w i l l s o m e h o w stop the crisis But they c a n n o t agree a m o n g themselves h o w t o d o this a n d even w h e t h e r it will w o r k or n o t Yet o n e t h i n g is certain T h e m o m e n t a n y part o f the g l o b a l e c o n o m y begins to stabilise they will forget the h u n d r e d s o f millions of lives that have been shattered by the crisis A f e w m o n t h s w h e n b a n k s are n o t c o l l a p s i n g a n d profits are n o t falling t h r o u g h the floor a n d the apologists w i l l be p u m p i n g o u t candyfloss o n c e Introduction a g a i n T h e i r futures will seern better a n d rhey will generalise this to the w o r l d at large w i t h renewed talk a b o u t the w o n d e r s o f capitalism a n d the i m p o s s i b i l i t y o f a n y a l t e r n a t i v e — u n t i l crisis hits a g a i n a n d t h r o w s them i n t o a n o t h e r p a n i c Bur crises are n o t s o m e n e w feature o f the system They have occurred at longer or shorter intervals ever since the industrial r e v o l u t i o n established the m o d e r n f o r m o f c a p i t a l i s m in Britain fully at the b e g i n n i n g o f the 19th century T h e poverty o f e c o n o m i c s The m a i n s t r e a m e c o n o m i c s t h a t is t a u g h t in schools a n d universities has proved c o m p l e t e l y u n a b l e t o c o m e t o terms w i t h such things T h e Bank o f I n t e r n a t i o n a l Settlements recognises that: V i r t u a l l y n o o n e foresaw the G r e a t Depression o t the 1930s, or t h e crises w h i c h affected J a p a n a n d S o u t h Hast Asia in rhe early a n d late 1990s, respectively In fact, each d o w n t u r n w a s preceded by a period of non-inflationary growth exuberant e n o u g h t o lead m a n y c o m m e n t a t o r s to suggest t h a t a " n e w e r a " had arrived.' N o t h i n g s u m s u p the i n c o m p r e h e n s i o n o f those w h o defend capitalism as m u c h as their i n a b i l i t y t o e x p l a i n the m o s t significant e c o n o m i c episode in the t h c e n t u r y — t h e s l u m p of the 1930s Ben Bernanke, the present head o f the US Federal Reserve a n d supposedly o n e o f m a i n s t r e a m e c o n o m i c s ' m o s t respected experts o n e c o n o m i c crises, a d m i t s that " u n d e r s t a n d i n g the Great Depression is the H o l v G r a i l o f m a c r o e c o n o m i c s ' " — i n other w o r d s , he c a n find n o e x p l a n a t i o n for it N o b e l e c o n o m i c laureate F d w a r d C Frescort describes it as " a p a t h o l o g i c a l episode a n d it defies exp l a n a t i o n by s t a n d a r d e c o n o m i c s " For R o b e r t Lucas, a n o t h e r N o b e l L a u r e a t e " i t takes a real effort o f will t o a d m i t you d o n ' r k n o w w h a t the hell is g o i n g o n in s o m e areas"." These are n o t accidental failings They are built i n t o the very ass u m p t i o n s o f the " n e o c l a s s i c a l " or " m a r g i n a l i s t " school t h a t has d o m i n a t e d m a i n s t r e a m e c o n o m i c s for a century a n d a quarter Its founders set themselves rhe task of showing how markets " c l e a r " — t h a t is, h o w all the g o o d s in them will find buyers But that assumes in a d v a n c e t h a t crises are n o t possible Introduction T h e implausibility o f the neoclassical m o d e l in the face o f some o f the most o b v i o u s features o f capitalism has led to recurrent attempts w i t h i n the m a i n s t r e a m t o bolt extra elements o n t o it in an ad hoc way N o n e o f these a d d i t i o n s , however, alter the basic belief t h a t the system will return to e q u i l i b r i u m — p r o v i d i n g prices, a n d especially wages, adjust t o m a r k e t pressures w i t h o u t h i n d r a n c e Even J o h n M a y n a r d Keynes, w h o w e n t further t h a n a n y o n e else in the m a i n s t r e a m in q u e s t i o n i n g the e q u i l i b r i u m m o d e l , still assumed it c o u l d be m a d e to w o r k w i t h a degree o f g o v e r n m e n t intervention There were always challenges to such complacency The A u s t r i a n e c o n o m i s t Schumpeter derided any idea o f e q u i l i b r i u m as i n c o m p a t i b l e w i t h w h a t he s a w as the great positive virtue o f capi t a l i s m , its d y n a m i s m S o m e o f Keynes's disciples w e n t further t h a n he did in b r e a k i n g w i t h neoclassical much orthodoxy C a m b r i d g e e c o n o m i s t s tore a p a r t the theoretical basis o f the neoclassical school Yet the o r t h o d o x y is as strongly entrenched in the universities a n d schools as ever, p u m p i n g i n t o the heads o f each n e w generation a picture o f the e c o n o m i c system that bears little r e l a t i o n s h i p to reality T h e pressure o n students t o study the b o o k s p u t t i n g f o r w a r d such views as if they were scientific texts has led to Samuelson's Positive Economics Economics and Lipsey's An Introduction to selling m i l l i o n s o f copies It is h a r d l y surprising t h a t the e c o n o m i c s profession has difficulty c o m i n g t o terms w i t h those aspects o f the capitalist system t h a t have the greatest i m p a c t o n the mass o f people w h o live w i t h i n it T h e o b t u s e t h e o r e m s t h a t fill e c o n o m i c t e x t b o o k s a n d a c a d e m i c j o u r n a l s , w i t h their successive algebraic c a l c u l a t i o n s a n d g e o m e t r i c figures, assume stability a n d e q u i l i b r i u m , a n d so have little t o say t o people w o r r i e d by the system's p r o p e n s i t y t o crisis O n e o f the f o u n d e r s o f the neoclassical school, M a r s h a l l , observed nearly a century a g o that the e c o n o m i c theory he believed in w a s o f little use in practice a n d t h a t " a m a n is likely t o be a better economist if he trusts his c o m m o n sense a n d practical i n s t i n c t s " ' Yet w h a t is involved is n o t just abstract a c a d e m i c scholasticism T h e o r t h o d o x y is a n ideological p r o d u c t in the sense that it operates f r o m the s t a n d p o i n t o f those w h o p r o f i t f r o m the m a r k e t system It presents their profiteering as the s u p r e m e w a y o f cont r i b u t i n g t o the c o m m o n g o o d , w h i l e a b s o l v i n g them o f a n y t h i n g t h a t goes w r o n g A n d it rules o u r a n y f u n d a m e n t a l critique o f the present system, in a w a y t h a t suits those w i t h c o m m a n d i n g posit i o n s in e d u c a t i o n a l structures, c o n n e c t e d as they are to all the 10 Introduction other structures of capitalism The radical Keynesian Joan R o b i n s o n s u m m e d u p the situation: T h e radicals h a v e rhe easier case t o m a k e They h a v e o n l y t o p o i n t t o the discrepancies between the o p e r a t i o n o f the m o d e r n e c o n o m y a n d rhe ideas by w h i c h it is s u p p o s e d t o be j u d g e d , w h i l e the conservatives have the well nigh i m p o s s i b l e task o f d e m o n s t r a t i n g that this is rhe best o f all possible w o r l d s For the s a m e reason, however, the conservatives are c o m p e n s a t e d by o c c u p y i n g positions o f power, w h i c h they can use to keep criticism in c h e c k T h e conservatives d o n o t feel obliged t o answer radical criticisms o n their merits a n d the a r g u m e n t is never fairly j o i n e d / But even m m t o f the " r a d i c a l s " usually start by t a k i n g the existing system for g r a n t e d T h e a r g u m e n t s o f the radical Keynesians like J o a n R o b i n s o n h a v e always been in terms o f a m e n d m e n t s t o the system, t h r o u g h greater state intervention t h a n t h a t envisaged by the m a i n s t r e a m T h e y h a v e n o t seen the system itself as driven by a n inner d y n a m i c w h o s e destructive effects are n o t restricted t o purely e c o n o m i c p h e n o m e n a In the 21st century it is p r o d u c i n g wars, h u n g e r a n d c l i m a t e c h a n g e as well as e c o n o m i c crises, a n d d o i n g so in w a y s w h i c h threatens the very basis o f h u m a n life C a p i t a l i s m t r a n s f o r m s society in its entirety as its sucks p e o p l e by rhe billions i n t o l a b o u r i n g for it It c h a n g e s the w h o l e pattern by w h i c h h u m a n i t y lives, r e m o u l d i n g h u m a n n a t u r e itself It gives a n e w character ro o l d oppressions a n d t h r o w s u p completely newones It creates drives t o w a r a n d ecological d e s t r u c t i o n It seems t o act like a force o f n a t u r e , creating c h a o s a n d d e v a s t a t i o n o n a scale m u c h greater t h a n a n y e a r t h q u a k e , h u r r i c a n e or t s u n a m i Yet the system is n o t a p r o d u c t o f n a t u r e , b u t o f h u m a n activity, h u m a n activity t h a t has s o m e h o w escaped f r o m h u m a n c o n t r o l a n d t a k e n o n a life o f its o w n E c o n o m i s t s write t h a t " t h e m a r k e t does t h i s " o r " t h e m a r k e t d e m a n d s t h a t " But the m a r k e t is o n l y the c o m i n g together o f the p r o d u c t s o f m a n y d i s p a r a t e acts o f h u m a n creative activity, l a b o u r W h a t the economists* talk disguises is that s o m e h o w these h a v e t u r n e d i n t o a m a c h i n e t h a t d o m i n a t e s the h u m a n s t h a t u n d e r t a k e such activity, h u r l i n g the w o r l d in a d i r e c t i o n t h a t few p e o p l e in their r i g h t m i n d w o u l d w a n t Faced w i t h the f i n a n c i a l crisis t h a t began in 0 " , s o m e e c o n o m i c c o m m e n t a t o r s d i d begin t o t a l k o f " z o m b i e b a n k s " — 10 Introduction Government expenditure, and class struggle 175 Gowan, Peter, on clashes between finance and productive capital 293 Gramsci, Antonio, on stare as "centaur" 111 Great Depression of l«S70s and 1880s 88: and imperialism 97 Great Depression of the 1930s 9; see also Slump of 1930s Great Leap Forward 188 Greece 218 Green revolution, and increased food output 321; benefits becoming exhausted 321-2 Greenhouse gases 308 Greenspan Alan, and new paradigm 2 % « Greenwash, not sufficient explanation for slow action over climate change 310 Grossman, Henryk, 204; and theory of breakdown based on rate ot profit 77-78; criticism of Rosa Luxemburg, Bauer and Bukharin 101; theory connecting imperialism and rate of profit 101-2; destruction of values through war 131; interpretation of Marx's theory 152 Grundrisse (Marx) 129 Guano 82 Gulf states 183 Gunder Frank, Andre 190; denies being a Marxist 186; version of dependency theory 187 Haber-Bosch process 82 Hamilton, Clivc, debate with George Monbiot 311 Hamilton, Lee 2~~4 landloom weavers, livelihoods destroyed by advance of capitalism 40 Hansen, Alvin 144, 146 Hanson, James 309 Hardt, Michael 331, 333; on capitalism not needing imperialism 93 see also Negri, Toni Harris, Nigel, I 10; on capitalism and peace 92; misinterpretation of Bolshevik position 187; Index "weakening of the drive to war" 258 Harvey, David 112; on '"class compromise" during long boom 163 Hayashi, Fumio 215 Hayek, Friedrich von, 149, 300; explanation for slump of 1930s 145, 151; "roundabout processes" and declining profit margins 151: guarded praise for Marx on crises 67; on inadequacies of BdhmBawerk's theory of capital 67 Health and education workers, in US 334 Health provision 334; and variable capital 135 Hedge funds, massive growth 284 Hegel, George Wilhelm Friedrich 13 Hierarchy of states, cannot be stable 270-71 Hilferding, Rudolf, 165, 279, 298; critique of neoclassical economics 44; analysis of early 20th century capitalism 89-91; and tendency of rate of profit to fall 77; ambiguities in Finance Capital 90; on finance capital and war 90; on division of functions within capitalist class 114; minister under Weimar Republic 91 see also Organised capitalism Hitnmelweit, Susan Hindu rate of growth 189 Hobsbawm, trie, on falling profit rates in 19th cenrury 69 Hobson, J A 292; finance capital and imperialism 92; his alternative to imperialism 184 Hodgson, Geoff 48 Holloway, John, on instant mobility of capital 258 Ioly Grail of economics 9, 145 Hong Kong 242 Hong Kong and Shanghai Banking Corporation 255 Hoover, Herbert 144 Horvat, Branko, quoted P Howe, Geoffrey, budget of 1979 193 H u m a n capital 128 Hungary, revolution of 1956 20"7 Husson Michel 299 411 Hutton, Will 163; and short-termism 294; 7; as proportion of G D P in different countries 1975 9S (table) 238 Welfare provision, early development in Britain 134; development in 20th century 135; during long boom 423 164; cosrs in Western Europe and US 174: cuts 137 Welfare state and needs of capital 135 Wen Jiabao, quoted on instability of Chinese economy 249 Wolf, Martin 1V7; on Thai crisis of 1997 as a " b l i p " ; quoted on financial crises 280; quoted on "delever aging" 290; on role of US household borrowing in keeping global economy going 288 Wolff, Edwin 195-6, 195, 197 Women, married, entry into employed workforce during long boom 173 Wood, Ellen 112: on imperialism as caused by politics, not capitalist economics 93; state not instrument of appropriation under capitalism 104 Woolworths in UK goes bust 291 Work measurement and payment m schemes 137 Workers, number in world according to Dcon study 331; as proportion of workforce in US 334 Working class, in classical Marxism 329-30; theories of decline 330-31; global size 331; global distribution 33"7; unevenness within 330; relation of the formal and informal 424 sectors 338-344 Working day, legal limits on 33, shortening in 20th century 33; lengthening of 33 Working hours, decline in first part of 20th century 89 Working year, different countries, 2004 239; United States, 1973-1998 236 Workplace and community 343 World accumulation, 1970-2004 232 World Bank, endorsement of state planning in 1950s and 1960s 186 World growth 1961-2003 231 World Trade Organisation, negotiations, states and corporate interests 266 World Trade Organisation I WorldCom, bankruptcy 233 Wright Mills, C 331 / X-efficiency 169, in West and in USSR 204 Yeltsin, Boris, and dissolution of USSR 210 Zapatistas 346, 348 Zeilig, Leo and Ceruti, Claire, on South African township 343 Zombie banks 11 Index Chapter Title ... shows how Marx' s understanding of capitalism is essential for any explanation of how this world emerged and developed over the last century and a half He shows that the roots of the crisis today... deeper in a crisis of profitability which 30 years of the neoliberal offensive have failed to reverse The future of the system will not be a return to steady growth but repeated instability and upheaval,... together with a rising ecological crisis Finally he looks the force in society capable of ending the rule of capital the global working class "A powerful, comprehensive and accessible critique of