January 2012        


The failure of capitalist production

Andrew Kliman, The Failure of Capitalist Production: Underlying Causes of the Great Recession, London: Pluto Press, 2011 (ISBN 978-0-745-33240-6; €78; paperback: ISBN 978-0-745-33239-0; £18).

The causes of the global financial crisis and the Great Recession have been the subject of much debate. This book, written by a leading American Marxist economist, Andrew Kliman, is the first to conclude, on the basis of detailed analyses of official US data, that Marx’s crisis theory can explain these events.

     The core thesis of Kliman’s book is that the rate of profit has a continual tendency to fall. However, this tendency is reversed by what Marx, and other scholars, refer to as the “destruction of capital.” This is essentially the losses generated by declining values of financial and physical capital assets or, in extreme instances, the obliteration of physical assets themselves. This dynamic re-establishes profitability, setting the conditions for a new growth.
     Kliman argues that during the global slumps of the mid-1970s and early 80s far less capital value was destroyed than during the Depression and the following world war. The extent of capital value destroyed during the Depression was much more than laissez-faire economists had expected, while the persistence of extreme depression in the 1930s led to the radicalisation of the working people, the strike wave throughout the Detroit car industry being an exemplar.
     The lessons of this were not lost on policy-makers, who have obviously sought to avoid a repeat of such crisis. This leads them now to intervene with monetary and fiscal policies in order to avoid full-scale destruction of capital value. This is why subsequent downturns in the economy have avoided the severity of the Great Depression.
     Historically, however, much less capital value was being destroyed during the crisis of the 1970s and early 80s in comparison with the Great Depression. As a result, the declining rate of profit was not entirely reversed. And because it was not reversed, profitability was too low to sustain a new boom. Not unpredictably, the lack of profit led to a progressive decline in the rate of capital accumulation.
     The decline in the rate of profit, together with reductions in corporate income tax rates that served to prop up corporations’ after-tax rate of profit, led to greatly reduced tax revenue and mounting government budget deficits and debt. Governments attempted to manage the relative stagnation of the economy by pursuing policies that encourage an excessive expansion of debt. These policies artificially boosted profitability and economic growth, but in an unsustainable manner that has led to burst bubbles and debt crises.
     Kliman outlines how an immense wave of business and personal bankruptcies, bank failures and write-downs of losses might solve the debt overhang. New owners could take over businesses without assuming their debts and purchase them at fire-sale prices. This would raise the potential rate of profit, and it would therefore set the stage for a new boom. If this does not happen, however, the economy will continue to be relatively stagnant and prone to crisis.
     The thesis presented in the book stands out in a number of ways from many contemporary radical interpretations (notably the financialised-underconsumptionist thesis advanced by the influential Monthly Review, which melds together a particular Marxian/post-Keynesian viewpoint and that of the Marxist political geographer David Harvey). A dominant interpretation at present is that, in the light of the stagflationary crisis of the 1970s and early 80s, economic policy became “neo-liberal,” leading to the increased exploitation of workers. Consequently, American workers are not being paid more, in real terms, than they were paid in the 1950s and 60s, leading to a declining share of income.
     The increase in exploitation led to a rebound in the rate of profit. Normally this would have caused the rate of accumulation to rise as well, but this time it did not. The contemporary account blames the “financialisation” of the economy for the failure of the rate of accumulation and holds that financialisation, another component of neo-liberalism, has induced companies to invest a larger share of their profits in financial instruments and a smaller share in the productive capital assets that make the “real” economy grow.
     As a result, economic growth has been weaker during the last several decades than it was in the first few decades that followed the Second World War; and this factor, along with additional borrowing, which enabled working people to maintain their standard of living despite the drop in their share of income, has led to long-term debt problems. These debt problems, and other phenomena that also stem from financialisation, are said to be the underlying causes of the latest economic crisis and slump.
     In contrast to this account, Kliman provides far more compelling empirical evidence that American corporations’ rate of profit did not recover in a sustained manner after the early 1980s. Their before-tax rate of profit has been trendless since the early 1980s, and a broader measure of the rate of profit appears to suggest a continued decline.
     A crucial finding undermining the financialisation thesis is that Kliman demonstrates how American corporations have not, as is often claimed, invested a smaller share of their profit in production. Between 1981 and 2001 American capital devoted a larger share of its profit to productive investment than it did between 1947 and 1980 (and the post-2001 drop in this share is a statistical fluke).
     What accounts for the decline in the rate of accumulation is instead the decline in the rate of profit. Further, American workers are not being paid less in real terms than they were paid decades ago: rather, real pay has risen. And their share of the country’s income has not fallen: it is higher now than it was in 1960, and it has been stable since 1970.
     Kliman’s conclusion to this important book is simple: short of socialist transformation, the only way to escape the “new normal” of a stagnant, crisis-prone economy is to restore profitability through full-scale destruction of the value of existing capital assets, something not seen since the Depression of the 1930s.

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