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Turbulence in the World Economy

David McNally teaches political science at York University in Toronto, and is the author of Against the Market: Political Economy, Market Socialism, and the Marxist Critique (1993).

“On July 2, 1997, the world changed. Bang. You had an earthquake in Thailand.”

Paul Summerville, chief economist, RBC Dominion Securities

Two years ago, the tectonic plates of the world economy shifted. Within a matter of months, the crisis in Thailand had engulfed East Asia. Global financial markets were rocked a year later when Russia defaulted on forty billion dollars in foreign loans. Just as markets were starting to shrug that one off, economic panic hit Brazil this January, sending stock markets crashing and knocking down the country’s currency, the real, more than 40 percent. Pundits are no longer asking if another country will be next, but who will be next.

Since the summer of 1997, “globalization” has increasingly connoted the spread of economic instability—not growth, investment, and prosperity. The cozy assumptions of free market economics have taken a thrashing. Despite loud opposition from the United States, governments across Asia and Europe are publicly discussing the need for capital controls and new mechanisms for regulating world finance. The International Monetary Fund (IMF), charged with preserving stability in the world economy, has gone in search of a new public relations firm. Billionaire speculator George Soros worries aloud that global capitalism “is coming apart at the seams.” Not surprisingly, alternatives to free market apologetics are once again getting a hearing. Indeed, as the editors of Monthly Review have noted, six months after the crisis broke in East Asia, a mainstream American magazine ran a lengthy article entitled “The Return of Karl Marx.”

Certainly the current round of turbulence in the world economy is an opportune moment for the renewal of the Marxist critique of mainstream economics. Yet radical analysis lags behind events. The specific dynamics of the new global instability are yet to be adequately explained. In significant measure, the lapses in socialist analysis in these areas have to do with an obvious conundrum: Marx’s theory of capitalism focuses our attention on the sphere of production—and on trends toward overaccumulation and overproduction—while the latest round of global turbulence seems to be driven by developments in the sphere of finance. Stock and bond market gyrations loom especially large, as do great fluctuations in national currencies.

Radical and Marxist commentators are confronted, therefore, with the problem of accounting for two radically different types of phenomena. On the one hand, problems of overaccumulation in the “real economy” are evident in huge overcapacity in everything from autos to aluminum, copper to computer chips. On the other hand, the economic crisis manifests itself most dramatically in currency meltdowns—be it that of the Thai baht or the Brazilian real.

The left needs, therefore, an explanation of capitalism’s crisis tendencies that brings such phenomena together into a single unified account. Fortunately, some key elements of Marx’s (still neglected and much misunderstood) analysis of the contradictions of capitalism point us in the right direction, as does some more recent work in radical economic analysis. In what follows, I review some key parts of these analyses with an eye to making sense of our present conjuncture. I begin by discussing a few crucial elements in Marx’s account, which remain as relevant as ever. Then I turn to Robert Brenner’s recent study of the world economy in the second half of the twentieth century, The Economics of Global Turbulence, to show some of the ways in which Marx’s analysis might be extended to account for the unique dynamics of world capitalism today.1

Contradictions of Capitalist Production and Finance

Marxian economic theory begins from the distinction between use-value and exchange-value that was familiar to classical political economy. But Marx gives this distinction a crucial dialectical twist in order to derive the more significant contrast between concrete and abstract labor. Let’s begin with the first distinction.

All economic goods are use-values, items that satisfy some human need. But only in capitalist society are we systematically compelled to acquire use-values by purchasing exchange-values (commodities on the market). In order to live, in other words, people in capitalist society must be able to survive in a system of market exchange (which means having the “universal equivalent”—money—that all sellers of commodities demand).

In principle, capital is indifferent to the specific use-values it produces and sells. It is dedicated only to profit and accumulation, not to wheat, cars, computers or steel. Indeed, the time spent in the sphere of use values—buying machinery and raw materials, purchasing labor, supervising production, shipping goods, and so on—is for capital a diversion from the moment when it transforms itself back into money. That’s why the formula M…C…M is the most basic expression for the circuit of capital. True, money (M) must exchange for commodities (C ), but the purpose of the operation is to emerge as money once again, an increased sum of money (M) to be precise.

Capital thus strives endlessly to overcome all the limits imposed upon it by actual use-values; it tries to reduce the time spent in the sphere of production (where it is “locked” into the forms of raw materials, plant and equipment, and concrete labor). If it were possible, capital would entirely take leave of the sphere of production of use-values in order to assume the “pure” form of money breeding money.

Now, the crucial use-value limit imposed upon capital is that represented by labor-power. Labor in the sphere of production is concrete; it involves unique physical-technical processes of production in which workers combine with raw materials, equipment, and facilities to produce specific use-values. Yet the market is indifferent to the concrete labor that went into producing specific commodities. All that matters is whether commodities can exchange at the average market price—which represents the standard level of labor productivity (“socially necessary labor time”). When commodities sell, the market determines how much socially necessary labor time is embodied in the concrete labor that went into their production. What matters in the sphere of exchange, in other words, is not hours of concrete labor, but hours of socially necessary labor—or abstract labor, labor time determined in abstraction from all the concrete processes that took place in the sphere of production. If concrete labor fails to produce goods that can return a profit by selling at market prices, then capital has entirely wasted its efforts.

There is, therefore, an inherent drive by capital in the sphere of production to speed up and intensify concrete labor, to insure that it can be translated into adequate amounts of abstract labor. Workers have interests, of course, in resisting this drive to exploit their labor ever more intensively. As a result, capital endlessly reorganizes itself to find ways of overcoming working-class resistance to speed-up and work intensification. The key to this is the introduction of new technologies that reduce workers’ control over the pace and process of production. Capital attempts to undermine workers’ resistance and intensify labor by having the pace and structure of work determined by the technical demands of machines themselves.

Here we encounter a contradiction, however. The drive to increase surplus value by means of mechanization (and more intensive exploitation of labor) means that one use-value limit (represented by labor) is overcome only by capital tying itself more and more to other use values that are relatively fixed and inflexible: factories and machines—what Marx called fixed capital—that have a fairly long life cycle. Capital’s drive to free itself from the constraints imposed by workers’ resistance thus has the paradoxical effect of locking it into ever-larger and more complex structures of fixed capital. As we shall see, this raises the threat of serious instabilities. Equally significantly, it makes industrial capital ever more reliant on money capital.

This is because the enormous investments required to reengineer production at various intervals (say every ten years or so) often cannot be self-financed. Capital has to go to the credit markets, therefore, to borrow investment funds with a promise to pay them back (with interest) out of future surplus value. This is the foundation of the credit system which “has its roots in the specific mode of realization, mode of turnover, mode of reproduction of fixed capital.”2 As capitalism develops, whole new markets are created that trade in “fictitious capitals,” effectively IOUs on future income. Corporate bonds and notes are joined by various forms of government paper, consumer loans, and the like. A whole financial superstructure evolves on ever more speculative foundations: investors are trading not in actual goods, but in papers that promise to deliver funds out of incomes that do not yet exist.

It appears here as if capital has found its pure form: money begetting money without passing through the mediation of labor and concrete use-values. Indeed, this is the form of capital that entrances both vulgar economics and postmodern theorists of the information economy.3 In fact, interest-bearing money capital cannot escape its ties to the mundane world of labor and production. After all, fixed capital and fictitious capital are two interconnected extremes that form the contradictory unity of capital as a whole. Just as the formation of fixed capital depends on fictitious capital, so fictitious capital relies upon the viability of fixed capital. Should industrial capitalists be unable to realize the value of their investments in fixed capital, fictitious capital will be plunged into crisis (since it will not receive repayment with interest). And this becomes dramatically clear whenever there is a serious decline in rates of return on productive capital. Whenever industrial capital encounters difficulties turning concrete labor and its products into money (the representative of abstract labor), a crisis in the credit system emerges, as paper assets are exposed as little more than that—paper. An emerging crisis in the sphere of productive capital sends shock waves through stock, bond, and money markets: “at first glance, therefore, the entire crisis presents itself as simply a credit and monetary crisis.”4 This analysis illuminates critical aspects of the current turbulence in the world economy.

Production and Finance in the Age of Globalization

Too often, the most recent phase in the international spread of capitalism has been interpreted largely, even exclusively, in terms of the globalization of financial flows. Images of money moving through electronic trading systems as bits of digitized information have often obscured the more mundane realities of labor, production, and fixed investment.

Yet, international financial markets grew principally out of the requirements of multinational corporations. It was the emergence of a more international manufacturing system that drove the growth of world financial markets. This has been true throughout the 1990s as well, even if financial flows have grown more quickly than direct investment. Between 1989 and 1994, for example, while private debt flows into “emerging markets” grew 337 percent, direct investment in those regions jumped over 200 percent.5 To be sure, financial flows ran well ahead of direct investment—a classic pattern in the late phases of a speculative boom—but financial capital largely followed the tracks of investors in manufacturing and construction. It’s no accident, then, that financial speculation was most pronounced in places like Thailand, Korea, Brazil, Mexico, and Malaysia, where private capital was engaged in building auto, computer, and electronic plants, airports, hotels, and communication systems. And, as we shall see, the financial crises that rocked these countries have their roots in real problems of overinvestment and overaccumulation.

Brenner’s The Economics of Global Turbulence

With these remarks in mind, I want to turn to Robert Brenner’s The Economics of Global Turbulence. More than twenty years ago, Brenner shook up the way historical materialists look at the epochal transition from feudalism to capitalism with a deeply original and innovative thesis.6 When so accomplished a radical historian turns his sights to analyzing the dynamics of the world economy today, we are well advised to take note. Moreover, appearing amid growing instability in the world economy, Brenner’s intervention comes at a propitious moment. After all, the development of socialist theory today depends in no small part upon its ability to make sense of a crisis that baffles mainstream economics.

Yet, Brenner’s text has encountered sharp criticism in several quarters. A number of commentators see him as ascribing capitalist crisis to competition per se.7 In fact, the editors of the New Left Review who published Brenner’s piece as a special issue of their journal see his as an account of crisis due to “over-competition.”

Clearly, such a theory of crisis will not do. After all, an abstract notion of competition is one of the central categories of vulgar economics for which the sphere of the market is the starting point and end point of all analysis. Competition-centered theories thus elide the questions of wage-labor, exploitation, fixed capital, and so on. That’s why Marx introduces competition into his analysis only after he has derived basic laws of motion from capital in general. This enables him to foreground the capital/wage-labor relation and the dynamics that flow from it before turning to competition between capitals. To start with competition is to confuse levels of analysis entirely. Like a number of commentators, I, too, am bothered by Brenner’s lack of clarity about the status of competition and its relation to Marx’s analysis as a whole.

Unlike the account I’ve offered above, Brenner does not seem to derive the growth of fixed capital from the capital-labor relation in general and labor’s resistance to work intensification in particular. This seems to be at least in part because, rather than building on Marx’s value categories, he proceeds from a fairly vague and fuzzy concept of competition.8 For this reason, I think, Brenner must assume much of the responsibility for the way his text is being read (he might say “misread”) in many quarters. Nevertheless, I believe crucial parts of his analysis deserve attention. Key elements of his account can be closely connected to some of the categories I have outlined above. Indeed, adequately reconstructed, they can contribute significantly to the socialist analysis of the current state of global capitalism.

Brenner’s point of departure is the “long downturn” in the world economy that began in the early 1970s. For the advanced capitalist economies, he points out, “average rates of growth of output, capital stock (investment), and real wages for the years 1973 to the present have been one-third to one-half of those for the years 1950-73, while the average unemployment rate has been more than double” (p. 6). It is this shift—the transition from boom to slowdown—that economic analysis must explain if it is to make sense of the world in which we live. Brenner organizes much of his explanation around a polemic against so-called “supply-side” accounts of the long downturn.

For supply-side theorists, economic decline was triggered by working-class pressure that pushed down capitalist profitability. In some of these accounts, it is the ability of workers to win higher wages and benefits that is crucial; for others, it is resistance to speed-up and workers’ attempts to assert power within the process of production. In either case, working class pressure is said to have produced a decline in profitability which, in turn, kick-started the crisis. Brenner’s criticisms of these explanations of the long downturn are devastating. He marshals such an overwhelming mass of evidence against the claims for growing working class power at the point of production and rising real wages as the key to crisis (p. 8-22) that it is hard to see how the supply-side accounts might have held on as long as they have.9 Having so effectively debunked these explanations, he then offers his own.

Contradictions of Accumulation and Profitability

Brenner’s explanation focuses on the contradictions built into capitalist accumulation. At the heart of his argument is the claim that the drive to accumulate, the central imperative of capitalism, has the paradoxical effect of undermining profitability. Since this may at first sound like traditional falling rate of profit theories of crisis, it may be useful to explicate what Brenner is up to by way of contrast.

The traditional argument begins from Marx’s claim that, in order to raise productivity and win the battle for market share, capitalists are driven to displace labor by machinery. Technological innovation is thus a central feature of capitalist investment and accumulation; over time, production becomes increasingly capital-intensive. Yet, since only living labor produces surplus value, a rising capital-labor ratio will inevitably translate into a lower rate of return on each unit of investment, since more and more investment goes into that component of capital (plant and equipment) which does not produce a surplus.

This argument has the merit of capturing a key dynamic of capitalism—the imperative to develop the forces of production. As a result, it makes sense of the numerous industrial or technological revolutions which have characterized the history of capitalism. Nevertheless, there are serious flaws in the traditional account of the tendency for the rate of profit to decline. Most significantly, the argument is constructed largely in physical, not value, terms. After all, the mere fact that the physical mass of machinery per worker rises tells us nothing about the value (and market prices) of these elements of constant capital. Indeed, the whole point of technological innovation under capitalism is that it is designed to help capitalists get a given good to market with smaller labor inputs (i.e., to produce more quickly) and, thus, at lower cost. “The battle of competition,” Marx argued, “is fought by the cheapening of commodities.”10 Yet, if this is so, then (everything else being equal) the elements of constant capital themselves will become cheaper over the course of time. Similarly, the cost of those goods consumed by capital and paid for by wages (variable capital) will fall. Moreover, new machinery will tend to increase the productivity of labor, enabling capitalists to get more output in a given period of time (and thus a rising rate of surplus value).11 Now, there may be limits to these two processes—the cheapening of constant and variable capital (or capital goods and consumer goods) and the increase in the rate of surplus value through the intensification of labor—but it is not at all clear why they cannot in principle counteract any downward pressure on the rate of profit brought on by a rising mass of plant and machinery.

The greatest shortcoming of the traditional falling rate of profit explanation is that it is constructed in essentially static terms, i.e., by abstracting from the tremendous changes in value relations (and market prices) brought about by technological change. Brenner is among a small number of commentators who recognize, however, that the very dynamism of capitalist investment and accumulation, the great volatility it produces in values and prices, may itself tend to depress the average rate of return on capital.12 The dynamics at work return us to our earlier discussion of fixed capital.

Breaking with the classical economists who conceived investment in annual terms (the economy reproducing itself every year), Marx saw that long-term investments in “fixed” elements of capital that are not reproduced and replaced annually—such as buildings and machinery—would give the capitalist economy both a great dynamism and an enormous volatility.

Put simply, the problem for capital is that, as a result of the constant tendency to cheapen commodities, the actual market value of these elements of fixed capital declines. Yet, these elements are meant to last many years; indeed capital can only recoup their costs over a life-cycle of perhaps ten years or more. However, as new machines come on stream that are equally or more efficient and cheaper (think of computers at the moment), the older machines cannot transfer as much value to each commodity. After all, the prices charged by those working with older means of production must conform to the average costs of production (which are falling as a consequence of new innovations coming on line). Consequently, market prices will not fully compensate less efficient producers for the original costs of their generally older means of production.13 In this way, competition effectivelydevalues the older capital stock. The downward pressure on prices (which are tending to fall toward the level appropriate to the newest, cheapest, and most efficient means of production) translates into lower profits for those producers who have relatively higher costs (especially for fixed capital that has already been purchased at previous prices). Marx put much of this quite succinctly in the manuscripts published as Theories of Surplus Value:

…since the circulation process of capital is not completed in one day but extends over a fairly long period until the capital returns to its original form, since…great upheavals and changes take place in the market in the course of this period, since great changes take place in the productivity of labor and therefore also in the real value of commodities, it is quite clear, that between the starting point, the prerequisite capital, and the time of its return at the end of one of these periods, great catastrophes must occur and elements of crisis must have gathered and develop…14

Brenner sees something like this happening as the postwar boom wound down.15 Arguing that “investment tends to takes place in waves and be embodied in large, technically interrelated developmental blocs” (p. 30), he suggests that high rates of German and Japanese investment from the mid-1950s through to the early 1970s brought new blocs of cheaper and more efficient fixed capital on stream which mounted a major challenge to the older blocs of capital owned by U.S. industry. The result was an intensifying battle for markets, downward pressures on prices, and lower returns on capital, especially for American manufacturers (in the first instance).16

Contrary to the fictions of neo-classical economics, the least efficient producers do not automatically vacate the industry once profits begin falling. Precisely because of the scale of existing investments (the use-value forms into which capital has become locked), they will tend to stay in the market, even at a much lower rate of return, if they can recoup costs. This, needless to say, contributes to overaccumulation and general declines in profitability, which are further exacerbated as all capitalists then undertake restructurings and new investments in order to stay alive. Throughout the 1970s, then, older and newer entrants all fought for market share, and all restructured and reinvested to preserve and improve their market position. Consequently, a general depression of the profit rate and generalized overproduction became the order of the day.

When we consider the historical contours of all this, it seems clear that Brenner’s argument has real explanatory power. In particular, he provides a persuasive account of the ability of German and Japanese manufacturing industries to make major inroads against American and British capital in the late 1960s and throughout the 1970s. Taking advantage of the latest technological breakthroughs, and not bound to older investments locked into less efficient industrial and technical forms, these “newcomers” were able to build market share and turn rising profits into new waves of investment. The result was an era of intensified intercapitalist competition, declining profits, and global overcapacity.

Brenner’s explanation thus locates a key contradiction at the heart of accumulation, one that tends to produce a decline in the average rate of profit. At the same time, unlike traditional accounts, he does so in a way that grasps, rather than abstracts from, the inherent dynamism of capitalist accumulation and the great revolutions in value relations and prices this entails. How can this explanation be connected to the issues of financial instability and fluctuations in currency values that I’ve raised?

Keynesianism, Monetarism, and World Capitalism Today

The wartime destruction of infrastructure and means of production in much of Europe and Japan gave an overwhelming weight to U.S. capitalism in the global postwar economy. By the 1970s, however, U.S. economic hegemony had significantly eroded. As a result, world capitalism was no longer insulated from crisis tendencies by the ability of a single national economy to dominate the global system. The more crisis-prone and internationally competitive capitalism of the last twenty-five years represents a return to form after the exceptional conjuncture following the Second World War.

With the beginning of the long downturn, the major capitalist states all attempted to work their way out of slump. While a variety of approaches were employed, it is useful to start with David Harvey’s distinction between two strategies of crisis prevention: temporal displacement and spatial displacement.17

Temporal displacement occurs when, rather than triggering a huge slump like that of the 1930s, a crisis of overaccumulation is offset by the mobilization of credit and fictitious capital to prop up existing enterprises, keep labor employed, and boost demand. As Brenner notes, the major capitalist nation-states responded to the slowdown of the mid-1970s and after by relaxing credit, i.e., by pumping liquidity into the system. Massive growth of public and private debt bolstered domestic demand and prevented a major deepening of recessionary tendencies.

But this strategy merely displaces the contradictions in time. It circumvents a crash today by building up an ever more precarious structure of debt, by inflating prices, and by devaluing money and monetary assets. This often produces opposition from money capital, which seeks both to purge inflation from the economy and to recover losses by raising interest rates. More than this, the expansion of debt concentrates elements of financial instability within the system. As some borrowers take on debt to make payments on earlier debt (an inevitable development where credit is easy), the chain linking loan to repayment grows ever more precarious, to the point where a single shock can often produce panic. As a result, a relatively stagnant world capitalism also becomes increasingly susceptible to great financial crises, be these on stock, real estate, or currency markets.

Furthermore, by boosting demand through the expansion of debt, a whole range of producers survive who would otherwise go under. This makes it difficult for the more efficient units of capital to expand to the degree necessary to launch a sustained investment boom. The result is a generalized sluggishness: the system does not relapse into depression, but neither can it undertake the purging that would be required for a new boom. Finally, by maintaining levels of demand, output, and employment, these strategies also undercut the “disciplining” effect that a severe downturn can have on workers by forcing them to accept lower wages in return for increasingly precarious employment.

This brings us to the second strategy outlined by Harvey: spatial displacement.18 This involves attempts to shift capitalist production to new spaces within the world economy—sites where means of production, labor, and credit can be mobilized in order to produce more profitably. Many of the phenomena lumped under the rubric of “globalization” have to do with just such spatial displacement strategies. Yet these too, as the crisis in East Asia reminds us, will tend to heighten conflict between regionally-based capitals within the international economy.

The latter strategy has been particularly pronounced since the experiments with “monetarism” in the 1980s and 1990s. As Brenner notes, inflation and the buildup of debt provoked a shift away from Keynesian approaches. However, the first experiment with monetarism ushered in a deep slump in the early 1980s: as credit tightened, interest rates soared and, by 1982, the U.S. bankruptcy rate was triple its 1979 rate (p. 181-2, 197). Reagan’s “military Keynesianism” ended the worst slump since the 1930s, but at the cost of a new accumulation of debt. Only with Clinton’s administration in the 1990s have we seen a return to monetarism—but this time in a context where the worst effects have been imposed on rival economies.

The key to understanding the change in context is the Plaza Accord of September 1985, which devalued the U.S. dollar relative to the German mark and the Japanese yen in particular. Dollar devaluation continued a strategy pursued by the U.S. ruling class since Nixon broke the convertibility of the dollar with gold in 1971. And it represents a different sort of spatial displacement, one where currency revaluations are used to make other national economies bear the brunt of the contradictions of the world economy.

Currencies and Competitive Devaluations

To make sense of this, we need to begin by noting that capitalism operates without a genuine world money. From the standpoint of the world system as a whole, there is no true universal equivalent. Of course, various currencies can be relied upon to play that role in whole or in part. But, ultimately, these currencies—with the partial exception of the emerging euro in the European Union—are regulated by national central banks. As a result, political power relations among nation-states come into play in the competition between national economies.

In an important sense, the period since 1971 has seen repeated efforts by the U.S. ruling class to use the dominant position of the dollar to force other economies to absorb more of the impact of the long downturn. As vast quantities of U.S. dollars accumulated outside the United States in the 1970s (because of U.S. trade and payment deficits, themselves a product of a decline in competitiveness), it became only a matter of time before the dollar would be devalued. And such a devaluation had decided advantages for U.S. business. After all, a decline in the dollar relative to the German mark and the Japanese yen (which means an appreciation of those currencies), lowers relative U.S. costs while raising those of key competitors. U.S. goods, in other words, could now be bought with fewer yen or German marks; meanwhile, Japanese and German goods would now be relatively more expensive inside the U.S. market. This is precisely what happened with the Nixon devaluation of August 1971 and the Plaza Accord of September 1985. As dollar devaluation drove up costs in Germany and Japan, so it pushed down sales and profit rates.

These devaluations of the dollar generalized the decline in profitability experienced in the first instance by U.S. capital (along with other, less efficient national capitalisms). Through great disruptions in relations among national currencies, every major economy was sucked into the vortex of declining profitability and growing overaccumulation. What had begun as a U.S. crisis quickly became a world crisis. The German and Japanese economies, notes Brenner, “now began to shoulder the burden of the world crisis of profitability” (p. 124).

Brenner does not pursue a related development of great significance: as relations among currencies became more volatile, speculators soon found that shifting money in and out of various currencies could be enormously lucrative. But this meant that in addition to governments choosing the route of competitive currency devaluation, so world money markets could impose such devaluations on a particular economy—with often devastating consequences. We can see both these phenomena—competitive and imposed devaluations—interacting over the course of the crisis of the last two years.

Much of the investment boom in East Asia, as Brenner notes (p. 216-26), followed on the heels of the Plaza Accord as Japanese manufacturers found that an upwardly-revalued yen made foreign investment much cheaper (and domestic investment less viable). But then there occurred two currency devaluations which weakened the competitive position of countries like Indonesia, Thailand, Korea, and Malaysia: the devaluation of the Chinese renminbi in 1994 (in order to boost exports) and the devaluation of the yen in the “reverse Plaza accord” of 1995 (designed to boost the sagging Japanese economy). By making Thai, Indonesian, Korean, and other exports relatively more expensive, however, the Chinese and Japanese devaluations set the stage for the downturn in direct investment and private financial flows that triggered the crisis, which began in July 1997.

Dollar devaluation in 1985 thus displaced much of the pressure of world overaccumulation onto the Japanese economy. But Japanese and Chinese devaluations further shifted some of that burden onto the economies of East Asia. And in each case, the ensuing crises have involved imposed currency devaluations. The Russian ruble and the Brazilian real are just the latest currencies to suffer the fate.

It is important to recognize that currency devaluations are merely an abstracted form in which the crisis of overaccumulation manifests itself. They effectively represent the devaluation of the capital stock of a national economy, as well as its labor-power. Moreover, they have a domino effect: by devaluing means of production, raw materials and labor-power in a given nation (often with devastating human consequences),19 currency devaluations force other nations to devalue or risk losing markets—as is happening across Latin America right now as a result of the Brazilian devaluation. Rather than separate phenomena in a specialized domain of international finance, currency movements are very much connected to deeper trends in the “real economy.”

Where We Are Now

These deeper trends set significant limits to the “recovery” of the 1990s. As Brenner points out, the U.S. expansion of the past eight years or so has been, in the words of Business Week, “the most sluggish recovery in modern times” (July 14, 1997). A crucial reason for this is the overaccumulation of capital which has not been “cleared” by a massive recession. If we take the case of the world auto industry, for example, we find that overcapacity is at least 30 percent—which equals a potential output of twenty-three million cars per year. Huge levels of overcapacity also exist in computer chips, steel, ship-building, metals, and many other industries.20

While competitive devaluation of the U.S. dollar shifted much of the burden of overaccumulation onto the Japanese economy throughout the first half of the 1990s, the “reverse Plaza accord” of 1995 (designed, as Brenner notes, to prevent a Japanese collapse) now sets limits to the U.S. expansion. What’s more, as I’ve argued above, the effective devaluation of the yen was central to the ensuing crisis in East Asia. That crisis, now extended to Russia and Brazil, is hitting corporate profits in the United States and elsewhere, as falling demand from these parts of the world takes its toll on the bottom line (“Profit picture darkens for multinationals,” Wall Street Journal, January 14, 1999). While spatial displacement may have delayed the impact of the recessionary wave on the U.S. economy, it cannot do so indefinitely.

In fact, as U.S. exports fall while upper-income U.S. consumers (buoyed by an inflated stock market) continue to spend freely and run down their savings, another huge global imbalance is building up: the U.S. current account deficit, now running at nearly 3 percent of gross domestic product. Figures for 1998 show a record current account deficit in excess of 233 billion dollars; and the deficit has continued to grow, hitting new records in both January and February of this year. This is an ominous development, since financing that deficit (in the context of a low rate of domestic saving) will certainly require foreign funds. And the latter are likely to be enticed only by raising U.S. interest rates—a move that could well pull funds out of the stock market, triggering a significant collapse that might send high-end consumers scurrying for cover and which would, in turn, dramatically drive down corporate earnings.

All the signs, then, point to continued instability in the world economy. Already, the fluctuations in currencies, exports, and trade balances have stimulated a new round of protectionism and trade disputes. And these pressures are likely to accelerate moves by Europe and Japan to increase the weight of their currencies—the euro and the yen—in the world economy, while reducing the role of the dollar (Henry Sender, “Japan wants yen to go global,” Wall Street Journal, January 7, 1999). Fin de siècle capitalism thus looks a lot less stable than mainstream pundits have suggested in recent years.

Already the deepening instability has provoked political responses, with new rounds of mass protest against globalization and market-imposed austerity in places as varied as Indonesia, Venezuela, France, Puerto Rico, and South Korea. One of the merits of Robert Brenner’s recent study is that it locates the roots of economic turbulence not in the machinations of financial speculators, but in the basic dynamics of capitalist accumulation. And that carries, at least implicitly, a crucial political message: that the solution lies in overturning the domination of capital, not simply in regulating markets. Now more than ever, we need to develop the theoretical and political thrusts of just that kind of radical socialist analysis.


  1. Robert Brenner, “The Economics of Global Turbulence,” New Left Review 229 (May-June 1998). Further references to Brenner’s study will be given in the body of the text and indicated with page numbers.
  2. Karl Marx, Grundrisse, trans. Martin Nicolaus (Harmondsworth: Penguin, 1973), p. 732, Marx’s emphasis.
  3. See my article “Marxism in the Age of Information,” New Politics, vol. 6, no. 4 (Winter 1998), pp. 99-106.
  4. Karl Marx, Capital, vol. 3, trans. David Fernbach (Harmondworth: Penguin, 1981), p. 621.
  5. Doug Henwood, Wall Street, updated edition (London: Verso, 1998), p. 110.
  6. T. H. Aston and C. H. E. Philpin, eds., The Brenner Debate (Cambridge: Cambridge University Press, 1985).
  7. See, for example, Andy Kilmister, “Marxists and economics,“International Viewpoint 307 (January 1999), pp. 34-35, and Michael Lebowitz’s forthcoming piece, “In Brenner, Everything is Reversed,” in Historical Materialism.
  8. It is beyond the bounds of this article to work through how Brenner’s concept of competition works at cross purposes to other aspects of his analysis. While largely agreeing with the methodological criticisms made by Lebowitz (see note 7 above), I also see some important arguments in Brenner re: accumulation and profitability that deserve to be taken seriously (even if this requires a critical recasting). A recasting of Brenner’s analysis requires, however, its translation into the terms of Marx’s theory of value. In this regard, I can only agree with the claim by Ben Fine, Costas Lapavitsas, and Dimitris Milonakis that “It is the lack of a value-theoretic approach that lies behind the weaknesses in Brenner’s approach.” See their article “Addressing the World Economy: Two Steps Back,” Capital & Class 67 (Spring 1999), p. 81. Unfortunately, these authors fail to acknowledge or build upon some of the interesting moves Brenner makes despite the theoretical problems that run through his piece.
  9. Brenner also rejects “demand side” explanations that locate the roots of the crisis in insufficiency of demand by workers and/or capitalists, but he does not deal with these in any detail.
  10. Karl Marx, Capital, vol. 1, trans. Ben Fowkes (Harmondworth: Penguin Books, 1976), p. 777.
  11. The same results can also be achieved by cheapening the elements of variable capital (those things consumed by workers).
  12. One of the most sophisticated of these explanations, which Brenner cites, is John Weeks, Capital and Exploitation (Princeton: Princeton University Press, 1981). Also important in this regard is David Harvey, The Limits to Capital (Chicago: University of Chicago Press, 1982).
  13. It is important to note that the same process works in terms of downward pressures during periods of inflation although it is relative—not absolute—prices which are the issue.
  14. Karl Marx, Theories of Surplus Value, Part II (Moscow: Progress Publishers, 1968), p. 495.
  15. I should note again that Brenner does not cast his argument in Marx’s value terms. In my view, however, his analysis can be “translated” into these terms—a translation (or theoretical remapping) which would help overcome some of its shortcomings.
  16. Brenner’s focus on national blocs of capital is important, but undertheorized. Clearly it requires that we understand the continuing importance of the nation-state in the world economy. Fine, Lapitsas and Milonakis are right to point out that Brenner underplays the importance of the internationalization of production and finance over the past twenty-five years, but they fail to come to terms with the national frameworks that continue to define many of the dynamics of the world economy—especially when it comes to relations between national currencies on the world market.
  17. David Harvey, The Condition of Postmodernity (Cambridge, MA; Blackwell, 1989), pp. 182-85. While Harvey itemizes other strategies, he rightly sees these as having dominated the recent period.
  18. I should emphasize that these are not mutually exclusive strategies.
  19. See, for example, my “Globalization on Trial: Crisis and Class Struggle in East Asia,” Monthly Review, vol. 50, no. 4 (September 1998), esp. pp. 7-9.
  20. On the sluggishness of the U.S. recovery, see Peter Brimelow, “Our underachieving economy,” Forbes, October 7, 1996, pp. 120-27. For recent data on overcapacity in autos see “The Car Industry,” The Economist, February 13, 1999, pp. 23-25.
1999, Volume 51, Issue 02 (June)
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