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# Zombie Capitalism Global Crisis and the Relevance of Marx

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CHAPTER SEVEN

The Long Boom

The "Golden Age" of Western capitalism

Many economic forecasters expected the world economy to slip into crisis again after the war, after a brief period of boom as in 1919. It did not happen. What followed was the longest boom that capitalism had ever known-what is often now called "the golden age of capitalism", or in France, "the glorious thirty years". By the 1970s American economic output was three times the 1940 level; German economic output was five times the (depressed) level of 1947; French output up fourfold. A thirteen-fold increase in industrial output turned Japan, still thought of as a poor country in the 1940s, into the second largest Western1 economy after the US. And along with economic growth went rising real wages, virtually full employment and welfare provision on a scale people had only been able to dream of previously.

Conditions were very different in Asia, Africa and Latin America-what became known as the "Third World" after the Bandung conference of 1955. There massive poverty remained the lot of the vast mass of people. But the European powers were forced to relinquish their colonies, and increased per capita economic growth2 created the expectation that eventually the economically "less developed" countries would begin to catch up with the most advanced.

It became the orthodoxy on both the right and much of the left to proclaim that the contradictions in the system perceived by Marx had been overcome. The key change, it was argued, was that governments had learnt to intervene in the economy to counteract tendencies to crisis along the lines urged in the 1930s by John Maynard Keynes. All that was needed for the system to work was for the existing state to disregard old free market orthodoxies and to intervene in economic life to raise the level of spending on investment and consumption. This could be done either by changes in interest rates ( "monetary measures" ) to encourage private investment, or through increasing government expenditure above its tax revenues ("fiscal measures"). " Deficit financing" of the latter sort would increase the demand for goods and so the level of employment. It would also pay for itself eventually through a "multiplier effect" (discovered by Keynes's Cambridge colleague Richard Kahn). The extra workers who got jobs because of government expenditures would spend their wages, so providing a market for the output of other workers, who in turn would spend their wages and provide still bigger markets. And as the economy expanded closer to its full employment level, the government's revenue from taxes on incomes and spending would rise, until it was enough to pay for the previous increase in expenditure.

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These two measures were soon seen as the archetypal "Keynesian" tools3 for getting full employment and accepted as essential for economic management by both Conservative and social democratic politicians in the 1940s, 1950s, 1960s and early 1970s. Keynes had, as we saw in the last chapter, expressed more radical notions at points, notably the contention that the very process of expanding capital investment led to a decline in the return on it-"the marginal efficiency of capital" .4 He had even gone so far as to urge the gradual "euthanasia" of the "rentier" who lives off dividends5 and to argue that "a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment". 6 But Keynes himself shied away from these more radical insights-"in practice he was very cautious indeed" ,7 writes his ultra-moderate biographer Robert Skidelsky, and the version of Keynesianism8 that hegemonised mainstream economics for the 30 years after the Second World War purged Keynes's theory of its radical elements. For this reason, the radical Keynesian Joan Robinson denounced it as "bastard Keynesianism" .9

Mainstream economics believed in those years that it had the capacity to enable governments to do away with the crises that had plagued capitalism since the early 19th century. The capitalist system could now, the orthodoxy preached, deliver endless prosperity, rising living standards and a decline in the level of class struggle-providing governments accepted its diktats and avoided the "mistakes" of 1929-32.

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John Strachey had been by far the best known Marxist writer on economics in Britain in the 19 30s. His books, The Nature of Capitalist Crisis, The Coming Struggle for Power and The Theory and Practice of Socialism had taught Marxist economics to a whole generation of worker activists and young intellectuals, with the message that capitalism could not escape from recurring and ever deeper crises. Yet by 1956 he was arguing, in his book Contemporary Capitalism, that Keynes had been right and Marx wrong on the crucial question of whether the capitalist crisis could be reformed away.10 Keynes's only mistake, Strachey held, was that he failed to see that the capitalists would have to be pressurised into accepting his remedies: "The Keynesian remedies . . . will be opposed by the capitalists certainly: but experience shows they can be imposed by the electorate".1 1

The belief that Keynes's ideas were responsible for the long boom persists today, with a widespread view on the left that the abandonment of those ideas is responsible for the crises of recent years. This is essentially the position put forward by the journalists Dan Atkinson and Larry Elliot in a series of books, 12 the Observer columnist Will Hutton 13 and the radical economic consultant Graham Turner. 14 A version of it is accepted by some Marxists. Gerard Dumenil and Dominique Levy ascribe the post-war growth to a "Keynesian" approach by industrial capital, in which accumulation was based on a "compromise" with working class organisations on the terrain of the welfare state.15 David Harvey presents a picture of capitalism expanding on the basis of "a class compromise between capital and labour" in which "the state could focus on full employment, economic growth and the welfare of its citizens", while "fiscal or monetary policies usually dubbed 'Keynesian' were widely deployed to dampen business cycles and to ensure reasonably full employment" .16

Yet the most amazing fact about the period in which Keynesianism reigned supreme as the official economic ideology was that the measures it proposed for warding off crises were not used. The economy expanded despite their absence until the 1960s in the US and the 1970s in Western Europe and Japan.

As R C 0 Matthews long ago pointed out, the economic expansion of the post-war years in Britain did not depend on the specific Keynesian "remedies" to recurrent crises of budget deficits or a higher level of government investment than in the pre-war years.17 Meghnad Desai has noted, "In the USA Keynesian policies were slow to be officially adopted . . . They finally triumphed with the Kennedy-Johnson tax cut of 1964" .18 That was after the Great Boom had already lasted 15 years (25 years if you exclude the shortlived recession of the late 1940s). The same point is made for Germany by Ton Notermans: "Countercyclical demand management policies were only pursued in Germany... during the 1 970s".19 In so far as government intervention was used to determine the speed of the economy, it was to slow down booms, not to avert recessions, as with the "stop go" policies of British governments faced with balance of payments problems in the 1950s and 1960s. Michael Bleaney, re-analysing the figures used by Matthews and others, concludes that Keynesianism played little role in the West European long boom, and only a limited one in the US. And he notes that it was the big increase in US levels of military expenditure compared with the pre-war years that provided most of the "fiscal stimulus": "Largely because of much higher defence spending, total government spending on goods and services increased by nearly 9 percent of potential GNP". 20

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The explanation of the boom as a result of Keynesian policies is often combined with references to a "Fordist" period in which the great capitalist corporations accepted a compromise with workers based on wages high enough to buy a continually increasing amount of output. The French economist Michel Aglietta, for instance, has argued that "Fordism" regulated "private working class consumption" by "generalising the wage relation" to guarantee "the maintenance cycle of labour power".21 So, for him and his "Regulation School" version of Marxism, Keynes is the prophet of Fordism, with Keynes's criticism of neoclassical economics and his notion of "effective demand" a partial recognition of the need for production and consumption to be integrated at a certain stage of capitalist development.

Certainly, one element in the dominant state interventionist ideology of the post-war decades was the contention that welfare provision could counterbalance cyclical ups and downs in the demand for consumer goods. The "supply side" need of capital to ensure the reproduction of labour power for it to exploit (which we have looked at in Chapter Five) seemed to coincide with "demand side" worries about keeping markets expanding. Promises to expand welfare provision also suited social democrat and Christian Democrat parties in Europe as a way of winning votes and luring workers away from the Communist parties to their left. Yet none of this is adequate to explain why the global economy should boom in the post-war years after slumping pre-war.

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What is more, there was no conscious policy by the "Fordist" managers of mass production industries to opt for such a supposed "Keynesian" policy of raising real wages and welfare provision. As Robert Brenner and Mark Glick say, US capital never:

resigned itself to the principle of maintaining labour's share or failed to fight tooth and nail to limit the degree to which wages kept up with the cost of living or with productivity. There was never anything resembling a generalised "social contract" on how revenue was to be divided between investment and consumption or between profits and wages. 22

The reality was that as capitalism expanded in the post-war decades, the full employment that resulted forced employers and the state to pay much more attention than previously to reproducing labour power and deflecting working class discontent. Both the conventional Keynesian account and "Regulation" theory confuse causes with effects. In the process they fail to account for the most significant feature of the post-war decades: the rate of profit in the US was between 50 and 100 percent higher than in the four decades before the Second World War. And it more or less sustained that higher level until the late 1960s.23 It was this which explained why capitalists kept investing on a scale sufficient to keep the economy booming without most states needing even to try using the "counter-cyclical measures" suggested by Keynes. But how were such high profit rates achieved and sustained alongside rapidly rising real wages?

Part of the answer lies in the impact of the slump and the war. Some firms had gone bankrupt in the slump. Much capital had been written off. Restructuring through crisis had begun to perform some of its old role of allowing capital to undertake renewed accumulation with a lower rate of profit. The destruction of the war provided further assistance. Vast amounts of investment which would otherwise have raised the ratio of investment to labour (and therefore profits) were instead used for military purposes. Shane Mage, for instance, estimated the combined effect of the crisis of the 1930s and the Second World War on the US economy: "Between 1930 and 1945 the capital stock of the US fell from 145 billion dollars to 120 billion dollars, a net disinvestment of some 20 percent" .24 Written off was an amount equal to a fifth of the pre-existing accumulated surplus value plus all the additional surplus value produced over those 15 years. Meanwhile, capitalists in the defeated states, Germany and Japan, emerged from the war with much of their capital destroyed. They had no choice but to write off much of the value of old investments as they began accumulation afresh, with a skilled labour force forced to accept low wages by the massive unemployment resulting from military devastation.

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But these factors are not, in themselves, a sufficient explanation for the length and continuity of the boom. They do not explain why profit rates did not resume their downward slope once new productive investment came into effect. Had capitalism continued on its pre-war trajectory there would have been crises at least every ten years or so. Yet, although there were periodic dips in growth rates, sometimes described as "growth recessions", there was only one brief spell of falling output in the US (in 1 949) and none in the other major industrial countries for more than a quarter of a century.

Attempts have been made to explain the boom as a result of rapid technological innovation, the waves of immigration of young workers in the 1950s and 1960s, or the cheapening of raw materials from the non-industrial countries. But such things had not been able to prevent cyclical crises previously. Technological innovation might have reduced the cost of each unit of new investment, but it would also have reduced the life span of old investments, so increasing deductions from profits due to depreciation costs; massive immigration to Britain from Ireland and to the US from Europe had characterised the 19th century without stopping pressures on profit rates; the cheapening of raw materials was in part caused by the way the boom itself encouraged capitalists to produce synthetic substitutes within the industrial economies (artificial fibres, plastics, etc).

There was, however, one new factor that could explain what was happening. There was an unprecedented level of peacetime arms spending. It had been only a little over 1 percent of GNP in the United States before the war. Yet post-war "disarmament" left it at 4 percent in 1948, and it then shot up with the onset of the Cold War to over 13 percent in 1950-53, remaining between five and seven times the level of the inter-war years throughout the 1950s and 1960s.

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The military consumed an enormous quantity of investible surplus value that would otherwise have gone into the productive economy-according to a calculation by Michael Kidron, an amount equal to 60 percent of US gross fixed capital formation. The immediate impact of such spending was to provide a market for the output of major industries:

More than nine-tenths of the final demand for aircraft and parts was on government account, most of it military; as was nearly three-fifths of the demand for non-ferrous metals; over half the demand for chemicals and electronic goods; over one-third the demand for communication equipment and scientific instruments; and so on down the list of eighteen major industries one-tenth or more of whose final demand stemmed from governmental procurement.25

The role of military expenditure has been ignored by most mainstream Keynesian accounts of the post-war boom and by many Marxists. On both sides there has been a tendency to identify capitalism with the pure "free market" form it took for a brief period in Britain in the 1 9th century and to see the state and the military as extraneous to it. Missing has been any sense of the changes that had already begun to be analysed by Hilferding, Bukharin and Lenin, let alone the further transformations brought about through slump, war and the Cold War.

Some Marxists and a few Keynesians did, however, grasp one important impact of arms spending. It provided a market for the rest of the economy that was not affected by the ups and downs of the wider economy-a buffer that limited the downward movement of the economic cycle. So the American Marxists Paul Baran and Paul Sweezy could see arms spending as an important mechanism for absorbing an ever growing "surplus" and overcoming overproduction.26 They could not, however, explain why taxation to pay for it did not have the effect of reducing demand elsewhere in the economy. And, as Michael Bleaney has pointed out, the military purchases of the US government could not have played a major direct role in boosting the European economies.27

The account of the impact of waste expenditure (see Chapter Five) on the dynamic of the wider economy provided by Kidron was able to deal with such problems, since its starting point was not "underconsumptionism" but the rate of profit. Arms expenditure, like "unproductive" expenditures, might be a deduction from profits in the short term, but in the long term it had the impact of reducing the funds available for further accumulation and so slowed the rise in the ratio of investment to the employed labour force (the "organic composition of capital").

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Kidron's logic found empirical confirmation in what actually happened to the organic composition of capital. Its rise in the post-war decades in the US was much slower than in the pre-slump decades.28 It was also much lower than that which occurred in post-war Europe, where the proportion of national output going into arms spending was considerably lower than in the US.29

Arms, accumulation and planning

The arms economies were not a result of a conscious strategy aimed at warding off slumps. They followed from the logic of imperialist competition in the Cold War era. But sections of capital certainly appreciated their effects in keeping the boom going. "Military-industrial complexes" emerged, drawing together the military and those in charge of the arms industries, which had a direct interest in pushing forward the inter-imperialist conflicts. They were able to unite the ruling class as a whole behind their policies not only because of fear of the rival power, but also because of the effect of arms budgets in sustaining accumulation.

John Kenneth Galbraith described in the 1960s the inter-relation between government expenditure and what he termed the "planning system" by which each large corporation planned its investments many years in advance:

Although there is a widespread supposition to the contrary, this increase [in state expenditures] . . . has the strong approval of the businessmen of the planning system. The executive of the great corporation routinely opposes prodigality in government expenditure. But from his pleas for public economy defence expenditures are meticulously excluded.30

One effect of such expenditures was to allow the great corporations to undertake long-term planning of their own investments with the assurance that they would be able to make a profit on them and turn it into cash by selling their goods ("realising their surplus value", to use Marx's terminology). This changed their internal operations in ways which seemed to contradict the usual assumption about capitalist behaviour being motivated by shortterm profit requirement and price competition for markets.

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Galbraith painted a picture of how the situation appeared:

The market is superseded by vertical integration. The planning unit takes over the source of supply or the outlet; a transaction that is subject to bargaining over prices and amounts is thus replaced with a transfer within the planning unit . . . As viewed by the firm, elimination of a market converts an external negotiation and hence a partially or wholly uncontrollable decision to a matter for purely internal decision. Nothing, we shall see, better explains modern industrial policy-capital supply is the extreme case-than the desire to make highly strategic cost factors subject to wholly internal decisions. Markets can also be controlled. This consists in reducing or eliminating the independence of action of those to whom the planning unit sells or from whom it buys . . . At the same time the outward form of the market, including the process of buying and selling, remains formally intact.31

At a time when "the largest 200 manufacturing enterprises had two thirds of all assets used in manufacturing and more than three fifths of all sales, employment and net income" ,32 this represented a huge section of the US economy in which most economic operations were not subject to the immediate vagaries of the market. There was competition between the giants, but it was to a large extent undertaken by means diferent to the old competition to sell goods more cheaply than one another. The giant firms learnt that they could ward off potential competitors by resorting to non-productive methods-the use of their wealth to get a tight grip over distribution outlets; the use of advertising to hype up their own products, regardless of their intrinsic merits; the systematic cultivation of well greased contacts with buyers from governmental bodies.

Galbraith thought this represented a fundamental change in the nature of capitalism itself. And Marxists who defined capitalism simply in terms of the "free market" competition between rival private capitalists could easily come to the same conclusion, since the huge area of production internal to the great corporations was not directly subject to the law of value. Extreme variations in the degree of "x-efficiency"-the internal efficiency of companies-showed how far many differed from the capitalist ideal. And capital did not automatically move under the impact of market forces out of sectors with big fixed investments, a high organic composition of capital and a low rate of profit, as a simplistic reading of Capital might suggest. Whether it did so or not depended on the decisions of managers who might decide to sacrifice short-term profitability for long-term growth within markets over which they already had a stranglehold. If the law of value continued to operate it was in the long term, since eventually corporations would not be able to grow and to keep rivals and newcomers to the industry at bay unless they continued to get enough surplus value to make massive new investments. But often they would only discover whether they had done so once the long boom itself came to an abrupt end.

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