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# Zombie Capitalism Global Crisis and the Relevance of Marx
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The enthusiasm had received a temporary setback when the Asian crisis of 1997 spread to about 40 percent of the world. The Financial Times had headlines about an "economic meltdown" and "a house of cards", while the BBC ran a special Newsnight programme, "Is Capitalism Collapsing?" But the panic did not last for long. Within months the new paradigm was rising high again: both Patrick Minford, former economic adviser to Margaret Thatcher, and Meghnad Desai, former economic adviser to Gordon Brown, insisted in debates late in 1998 that all that had occurred was a passing storm of no significance, and all problems had been solved by quick intervention by the US Federal Reserve. 4 There was brief panic again in the summer of 2001 as the US went into recession. "The world economy is starting to look remarkably, even dangerously, vulnerable" , stated the Economist. "Industrialists and bankers at their annual get together on banks of Lake Como did little to disguise their over-riding pessimism" ,5 reported the Financial Times. But again amnesia soon set in and financial commentators were describing the economic panic of a few months earlier as "the recession that was over before it began"6-despite, or perhaps because of, the loss of one in six manufacturing jobs in the US. Renewed economic growth in the US led to even greater optimism than before. The International Monetary Fund could declare year after year that the picture for the future was of fast economic growth. So in April 2007 a typical IMF press release about its most recent world survey read, "Global economy on track for continued strong growth" . There were a few mainstream doubters, but their worries were only ever discussed in order to be dismissed.
The overall message was that capitalism was going from strength to strength with supposedly record world growth figures. Even those sceptical about the claims for the advanced countries often accepted a modified version of the optimism when it came to the system as a whole. Hardly a day went past without media references to the "new giants", China and India, and soon compliments were being poured on the other countries included with them in the new "BRICS" rubric-Brazil, Russia and South Africa. Even if the old industrial states were to run into problems, these new centres of capitalist growth would maintain the stability of the world system. The faults that were recognised in the global system were regarded rather as Stalin's admirers used to speak of his "occasional errors", as " spots on the sun".
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Hidden problems
For those commentators prepared to look honestly and go a little deeper than immediate appearances, there were disturbing signs. While the IMF, for instance, was exuberant about prospects, research commissioned by the World Bank painted a rather different picture. Growth for the world as a whole was well down on the levels not only of the long boom, but also of the first decade and a half after its end:
Graph three: world GDP growth rate 1961-20067
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Marx saw restructuring through crisis as enabling capitalism to recoup the rate of profit, and the "Austrian School" of mainstream economics likewise saw crises as the only way to reinvigorate the system. Each crisis in the 1980s, 1990s and early 2000s did lead to widespread restructuring of industry. There were closures of factories, mines and docks in all the world's industrial heartlands. Industries which had characterised whole regions decamped; others saw their workforces shrink to half or a quarter of their former size, as with the heavy industries of northern China, Detroit's car plants, the Polish shipyards and the meat refrigeration plants of Greater Buenos Aires.
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But the restructuring through crises did not have the full effect it had had in the "free market" period of capitalism from the early 19th century until the First World War. It did not get rid of unprofitable capital on a sufficient scale to raise profit rates to the levels of the 1950s and 1960s. The neoliberal ideology may have embraced the notion of "creative destruction", with its implication that some giant firms must be allowed to go bust in the interests of the others. But the practice of states-and of the pressures which industry and finance put on states-was rather different. The fear of what the collapse of the really big corporations and banks might do to the rest of the system persisted.
Hardly any big firms had been allowed to go bust during the first two crises of the mid-1970s and early 1 980s. Governments had continued to step in to keep them afloat, most notably with the US state's support for the bail-out of the car giant Chrysler at the end of the 1970s, of the Continental Illinois bank in 1984 and of the Savings & Loans corporations (the US version of building societies) in the late 1980s. Things changed to some degree from the late 1980s onwards. As the Bankruptcy Year Book reports:
During the 1980s and early 1990s record numbers of bankruptcies, of all types, were filed. Many well known companies filed for bankruptcy . . . Included were LTV, Eastern Airlines, Texaco, Continental Airlines, Allied Stores, Federated Department Stores, Greyhound, R H Macy and Pan Am ... Maxwell Communication and Olympia & York.12
The same story was repeated on a bigger scale during the crisis of 2001-2. The collapse of Enron was, as Joseph Stiglitz writes, "the biggest corporate bankruptcy ever-until WorldCom came along" .13
This was not just a US phenomenon. It was a characteristic of Britain in the early 1 990s, as bankruptcies like those of the Maxwell Empire and Olympia & York showed, and, although Britain avoided a full recession in 2001 -2, two once dominant companies, Marconi/GEC and Rover, went down, as well as scores of recently established dotcom and hi-tech companies. The same phenomenon was beginning to be visible in continental Europe, with an added twist in Germany that most of the big enterprises of the former East Germany went bust or were sold off at bargain basement prices to West German firms, 14 and then in Asia with the crisis of 1 997-8. On top of this there was the bankruptcy of whole states-notably the USSR, with a GDP that was at one stage a third or even half that of the US.
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However, governments had certainly not completely given up intervening to limit the impact of crises on large capitals, nor had the most important capitalist sectors stopped demanding such intervention. This was shown by the way the US Federal Reserves stepped in to save the Long Term Capital Management hedge fund in 1998. A worldwide sample of "40 banking crisis episodes" in 2003 found that governments had spent "on average 13 percent of national GDP to clean up the financial system."15 Governments as varied as those of Scandinavia and Japan had rushed to prop up banks whose collapse might damage the rest of the national financial system-even if this involved nationalisation as a last resort.16 Governments took the costs of writing of losses away from particular individual capitals. But those costs had then to be covered from elsewhere in the system-either by taxation, hitting the real wages of workers or the profits of capital, or by borrowing which eventually had to be repaid somehow from the same sources. The benefits for those capitals which survived the crisis were limited as a result. The rising rate of bankruptcies only partially relieved the pressure on their profit rates.
Further relief came from a slower rise in investment compared to productive labour power (Marx's organic composition of capital). The slowdown in accumulation due to lower profitability played a role in this. So did continued waste expenditure, particularly military expenditure. This absorbed a considerably lower level of world output than in the 1950s and 1960s, let alone than during the Second World War. But it still absorbed a much higher amount than in the pre-1939 world. And there had been an increase in US military expenditure during the "Second Cold War" of the 1980s under Ronald Reagan, and again with the "war on terror" under Bush in the early and mid-2000s-and since US military expenditure was half the global total, this meant an overall increase across the system. One estimate is that by 2005 US military spending had risen to a figure equal to about 42 percent of gross non-residential private investment17-a big drain on resources that could otherwise have gone into accumulation. At the same time, unproductive expenditures in the financial sector soared, as we shall see later.
The effect of all of these forms of "waste" was much less beneficial to the system as a whole than half a century earlier. They could still reduce the downward pressures on the rate of profit from a rising organic composition of capital-it certainly does not rise as rapidly as it would have done if all surplus value had gone into accumulation: "The rate of growth of the capital/labour ratio fell in most countries" in the 1 990s.18 But the old industrial capitalist countries paid the price for a continued slowdown in productive accumulation and long-term growth rates.
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Changes in profit rates of six decades19
Evolution of capital intensity and capital stock20
(Average annual growth rate)
Two other factors can have some impact on the level of investment capitalists have to undertake to remain competitive. There is the increase in the speed at which capital produces and sells commodities (what Marx called the "turnover time" of capital) as a result of advances in transport technology and of the computerisation of warehousing and stock keeping (what are often called today "logistics"). An estimate is that "capital services" grew 2 to 3 percent faster than the capital stock in the late 1980s and 1990s for most countries.21 This would have reduced the costs to capitals of holding stocks of raw materials on the one hand and of goods awaiting sale (their "circulating capital"). But the second factor will have worked from the opposite direction-the reduced lifetime fixed capital had before it became outdated (what is known as "moral" depreciation). Computers and software become obsolescent because of technical advances much more quickly than other capital equipment-in perhaps two or three years rather than ten, 20 or even 30-and the increased depreciation costs cut into profits.2
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This was ignored by the argument of the late 1990s and early 2000s that the increase in productivity due to massive growth of cheap computing power was the basis of a new era of continuous growth. As we saw in Chapter Three, the more rapidly firms have to replace their fixed capital, the more it cuts into any increase in profits they got from installing it in the first place. What is more, once a new technology has spread beyond the firms that first introduce it, its efect is to reduce the value of each unit of output: the late 1990s and the early 2000s were a period in which the prices of goods produced by the new technology tumbled, leading to increased competitive pressure on all the firms in these industries. A wave of innovation could no more create an endless boom in the late 1990s and early 2000s than it could in the "new era" of the 1920s.
The most important factor in reviving profit rates was not computerisation, or the reorganisation of capital as such, but the increased pressure capital was able to put on those who worked for it as successive waves of restructuring disrupted old patterns of working class resistance. Capitals took advantage of the redundancies and dislocations caused by restructuring to put relentless pressure on workers to work harder while wages were held down.
There was a decrease in the share of national income going to labour in all of the major Western economies. In the United States, "productivity grew 46.5 percent between 1973 and 1998", while the median wage fell by about 8 percent24 and that for production workers by 20 percent25 (with workers only able to protect their living standards by an increase in average working hours from 1,883 hours in 1980 to 1,966 in 1 99726). Western Europe did not see the same increase in hours (apart from in Britain, where unpaid overtime soared) or a reduction in real wages as in the US in the 1980s and 1990s, but governments and firms began to push
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It was not only wages and working conditions that had to be put under pressure. So too did the various services provided by the state (and in some case by private firms) that make up the "social wage": healthcare, pensions, education. During the long boom these had been, as we have seen in Chapter Seven, by and large, paid for out of the taxes on the working class, as is shown by figures by Anwar Shaikh for what he calls "the net social wage"-the difference between what workers pay in and what they get out (see Graph A below).28 But the impact of recurrent crises, rising unemployment and an ageing population had been to push welfare expenditures upwards (Table B), until even in the US the cost could no longer always be covered by the taxation on workers and therefore tended to hit capital. The figures show enormous unevenness between the degree to which different states-and firms operating in those states-were hit by both the overall level of the "net social wage" and the rise in the welfare expenditures in the 1970s and 1980s. They responded by a series of "reforms" (in reality counter-reforms) which, under the label of "modernisation", aimed at reversing this trend.
OECD Employment Outlook, 2007, p 11723
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Uneven competitiveness
Each success any one government had in doing this put pressure on other governments to do likewise. But real wages could not be cut, working hours prolonged, or welfare benefits curtailed without causing popular resentment with the potential to explode into all out resistance. The level of resistance varied from country to country, depending on established levels of working class organisation and the outcome of key attacks on it (like the defeat of the long 1980s strikes of air trafic controllers in the US and of miners and print workers in Britain). The most visible result was that the proportion of national output going to welfare in the mid-1990s in France and Germany was about 14 percent higher than in the US and over 6 percent higher than in Britain. The same contrast between the success of the capitalist offensive in the US and Britain and its effects in Europe was shown by the figures for working hours. In these trends lay the supposed advantage of the "Anglo-Saxon" model over the European model for the capitals based within each.
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Annual hours worked per worker, 200430
European capital found itself facing problems it had not faced in the years of the boom or even in the decade and a half after it collapsed. Output per head in what is now the Eurozone had grown from 40 percent of the US figure in 1950 to 75 percent in 1975, and German growth, like that of Japan, exceeded that of the US in the 1980s. In 1990 German unification was expected to provide a further massive boost. The mood by the beginning of the new millennium was very different. Overall productivity levels had long since stopped catching up with the US. Those challenging the US auto industry on its home ground were Japanese transplant plants, not Volkswagen and Fiat. Japan may have lost out to the US in computers, but at least it had a computer industry while Europe did not. And coming up on the outside in the inter-capitalist race was China. "Europe needs to wake up" was the message pumped out by scores of Euro think tanks, endorsed by centre-left and centre-right politicians alike and inscribed in the Lisbon Declaration of European leaders in 2002.
The picture for European capitalism was not as dire as that message sometimes made out. Germany, not China, was still the world's biggest exporter in 2006 and its manufacturing industry's output had grown rapidly, even if its employment had not. The EADS airbus consortium was able to compete with Boeing in a way that the Japanese aerospace industry could not. Spanish and French firms had gobbled up many of Latin America's banks, and the European Union sold and invested slightly more in the Mercosur region of that continent than did the US. And for the moment Chinese imports only amounted to 1 percent of European GDP.
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