Zombie Capitalism Global Crisis and the Relevance of Marx

There were, nevertheless, reasons for European-based capitalism to worry and to nag states to take action on its behalf. French and German based capitals faced the dilemma that although they were more productive in output per hour worked than capital based in the US11 they lost out in terms of overall productivity because of the few hours they got from each worker in a year.

European capital therefore found itself under pressure from at least three sides in global markets-from the US and Japan in high technology products and from China in lower technology products. Its response was to push for copying the US approach of imposing "flexible labour markets" so as to get longer working hours and more intensive production (in Marx's terms absolute and relative surplus value) and to try to cut back on welfare expenditure. This was the rationale behind "neoliberal" policies, with counter-reforms of welfare and the use of marketisation and privatisation measures to get workers competing with each other.

German capital followed a policy through the Bundesbank (and then the European Central Bank) in the 1990s of sacrificing economic growth to hold down wages (which rose cumulatively 10 percent less than the European average) and so increasing exports and the share of profits. The paradoxical outcome was that Germany had a big trade surplus and good profits, but a reduced share of world investment and production. This lay behind the pressure it applied successfully in the early 2000s to getting the then Social Democrat-Green government to push through counter-reforms in the Agenda 2010 Programme. Its main planks were a drastic reduction of unemployment benefits by a third, denying any benefits at all to 800,000 people, forcing the unemployed to accept jobs with below average pay, freezing pensions and charging for visits to doctors. Meanwhile, big firms threatened to move production to low wage sites in Eastern Europe if workers did not accept increased working hours. Such "internal modernisation", said Chancellor Schroeder, was "the prerequisite for Germany's assertion into global politics. "32 The overall result was that German real wages fell for the first time in half a century. The same logic lay behind the attempts of French governments to cut back on public sector pensions, to reduce the rights of young workers and to do away with the 35 hour week.

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But this was an economic strategy that raised big political problems. For half a century after the Second World War capital and the state sought to legitimise themselves through the ideology of national consensus while collaborating to various degrees with the trade union bureaucracy. This applied not only to social democracy in Germany and France, but also to the Christian Democrat and Gaullist variants of conservative politics. There had seemed no reason to disturb society by overturning this approach so long as their economies seemed to be advancing in comparison with their major competitors. Now the attempt to attack the reforms granted in the past threatened to tear apart the old ideological hegemonies, driving workers whose social democratic attitudes took for granted "partnership" with capital into an antagonistic relationship to it. Capitalists and states were caught between their economic priorities and maintaining their ideological hold on the mass of people.

Of course, there was also in operation a second option for them-that of physically moving production overseas. But this takes time with most sorts of industrial production (fully equipped factories are rarely easy to move, and even when they are there is then the question of energy supplies, transport facilities, a secure political environment, and so on). So it was that even in Britain 30 years of restructuring and factory closures, with a halving of the workforce, did not permanently cut overall manufacturing output.33

Even when they considered moving production in the long term, the giant European firms still depended in the interim on finding some way to increase the exploitation of their local workforces. In practice few firms envisaged, for the moment, moving all their production abroad (although the German car industry increasingly used cheap labour in Eastern Europe to solve some of its problems) and this made the need to raise the exploitation of the domestic workforce paramount.

Hope in the East?

When people like Samuel Brittan wrote of the future for capitalism lying in Asia in the early 1 990s they meant the small newly industrialising countries of the region-the "tigers" of South Korea, Singapore, Hong Kong and Taiwan, and the "tiger cubs" of Malaysia, Thailand and Indonesia. These had experienced very rapid rates of economic growth, leading the OECD to write of a South Korean "economic miracle" in 1996. By this time Korean living standards approximated to those of the poorer Western European countries; some of the country's firms established themselves as global giants. Posco, the world's third largest steel producer, boasted that its Kwangyang steel complex, opened in 1992, was "the most modern in the world".34 But much of the growth depended on each tiger holding wages down to compete with the others for Western markets. It was a classic case of blind competition between rival capitals (or in this case state monopoly capitals) and eventually led to output that was too great for the existing market to absorb. By June 1997 there was only 70 percent capacity utilisation in Korea and 72 percent in Taiwan,35 and all the countries depended on foreign borrowing to finance trade deficits. Yet when financiers suddenly reacted by withdrawing funds from Thailand, forcing the devaluation of its currency, those enamoured of the "miracle" tried at first to think nothing serious was happening. The Thai crisis, wrote Martin Wolf in the Financial Times, was "nothing more than a blip on the path of rapid East Asian growth" . Within weeks the crisis had spread to all the tigers and tiger cubs, causing economic contraction, reliance on IMF austerity packages, the sudden impoverishment of millions of people and growth rates in the 2000s much slower than in the 1 980s and 1990s. But this did not shatter the faith in many quarters that capitalism in East Asia could see off any problems that might be encountered in the West. Communist China became the new bearer of their hopes.

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Certainly the emergence of China as an economic power was one of the most important developments within the world system at the beginning of the 21st century. The scale of Chinese economic advance was awesome. Its average growth rate for the period 1978 to 2008 was about 8 percent a year; its economic output was about nine times greater at the end of the period than at the beginning; its share of world trade had risen from less than 1 percent in 1979 to over 6 percent in 2007, until it was just behind Germany, the world's biggest single exporter; by 2005 it was "the leading producer in terms of output in more than 100 kinds of manufactured goods", including 50 percent of cameras,

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30 percent of air conditioners and televisions, 25 percent of washing machines and 20 percent of refrigerators.36 Chinese cities like Beijing, Shanghai, Guangzhou or even Xian in the interior no longer bore much resemblance to Third World stereotypes. The forests of skyscrapers in Beijing or Shanghai made London's much vaunted Docklands development look like Toytown, while the vast industrial developments around Shanghai had few comparisons in Western Europe. Dramatic changes were taking place in what was previously assumed to be a "backward" country of limited economic significance to the world system.

China, like most other industrialising Third World countries, had suffered a crisis just as the long boom was coming to an end in the West. A quarter of a century of what Marx had called primitive accumulation had transformed tens of millions of peasants into wage workers and built up some of the bases of modern industry-but this industry was no match in terms of efficiency for that in many other parts of the world system. The sheer scale of exploitation of the mass of the population led to all sorts of pressures building up from below, while the inability to keep up the pace of industrialisation led to repeated crises within the ruling group. These culminated in massive political upheavals in the years 1966-75 (from the "Cultural Revolution" to the rise and fall of the "Gang of Four") which were only finally resolved after Mao Zedong's death in 1976.

The resolution of the crisis consisted of ad hoc moves to a new structure of accumulation. A series of reforms pushed through in 1978-81 began with relief for peasants through a raising of the purchasing price paid by the state for their produce. The peasants were now free to decide how to use some of the surplus left after (just about) feeding themselves. There was a huge rise in agricultural production, and the increased incomes provided a market for some of the under-utilised industrial capacity. A loosening of state controls allowed it to satisfy this demand, and overall output soared ahead.

Increasing social diferentiation within the peasantry led some to accumulate a surplus and then to use the new freedoms from state control to invest in establishing locally based "village industries". Formally owned by village governments, in practice these provided a means of self-enrichment by those with connections to the local party apparatus. A new market capitalism grew up in the south east of the country alongside the old state capitalism centred mainly in the north, and the regime allowed the new industries to link up with overseas Chinese capitalist interests in Hong Kong and elsewhere.

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The surplus passing from the peasantry into the hands of three groups of capitalists (state, "village" and overseas) was still massive despite the reforms, while low peasant incomes meant a ready supply of workers for the new industries, which did not even have to provide the guaranteed minimum living standards and social protection (the so-called "iron rice bowl") of the old state-run heavy industries. In effect, there was a new model of capitalist accumulation, combining the high level of exploitation and repression of the old state capitalism with a turn towards catering for markets-and the markets came increasingly from exporting to the rest of the world system, while providing for the increasingly conspicuous consumption of the old state bureaucracy on the one hand and its children as they took over privatised industries on the other.

The new hybrid economy had contradictions of its own, with the ups and downs of market capitalism superimposed on the ups and downs of the old state capitalist accumulation model. There were wild fluctuations in growth rates. The scale on which the new industries competed with each other for resources created shortages and forced prices up, until the state tried to impose some order on the market by curtailing funds for further investment. So the growth rate could be above 20 percent in 1984, down to around 3 percent in 1985 and back up to close to 20 percent in 1988. There then followed a major economic, social and political crisis in 1989 as growth fell right back and prices soared. This was the economic background to tumultuous student and worker demonstrations in 1989 in most of the major cities, most famously in Tiananmen Square in Beijing.

The regime found a way out of the crisis from 1992 onwards almost by accident. Unable to control things itself, it placed its hopes on unleashing a new round of accumulation based on uncontrolled competition between different industrial concerns. Those who ran village governments were able to turn the new industries into their private property and link up with foreign capital, as were the managers of the great state-owned enterprises. There was a massive rationalisation of old industries, with perhaps 30 million workers losing their jobs. These measures were acclaimed as "progressive" by pro-capitalist economists right across the world. What they meant for workers was portrayed graphically in the 2003 Chinese film Blind Shaft, in which the degrading conditions under which the miners work lead two of them to murder a co-worker in an attempt to blackmail corrupt managers. The closeness of reality to the fiction was shown in a mining disaster in Guangdong (supposedly China's most "advanced" province) in the summer of 2005. As more than 100 miners suffocated underground, the owner fled when it was revealed he had paid out millions of dollars in bribes to take over the previously shut down state-owned mine, and at the same time to buy himself a senior position in the local police force. In this way he had been able to ignore all safety precautions while parading himself as an exemplary "entrepreneur" for his role in supplying coal to satisfy the energy needs of a booming economy. 37

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Alongside the attack on the old working class was a renewed upping of the level of exploitation of the rural workforce, who still made up two thirds of the total. One (banned) Chinese study told of a fall of 6 percent in peasants' per capita farming incomes after 1997, and "given the rising costs of health and education, their real purchasing power has probably fallen still further" .38 But the average does not tell the whole story. Class diferentiation within the peasantry involved local officials using their powers to grab money (in the form of local taxes) and land off other peasants with the aim of enriching themselves as petty agrarian capitalists-the cause of many local near-uprisings.

Enthusiasts for capitalism claimed the turn to the market had led to an unprecedented lifting of hundreds of millions of people out of poverty. And the abandoning of the crude methods of primitive accumulation in the mid-1970s had permitted much of the industry built up through its methods to be used more productively, with the result that not only the new rural capitalists but also those from peasant families who moved to work in the cities could enjoy improved living standards. But for the great majority of the population, they were still low living standards. The World Bank admitted in the early 2000s that 204 million people, or one in six of the population, still lived on less than \$ 1 a day. Other estimates suggested that "the vast majority of the 800 million peasants" had incomes at this level. 39

The key to China's rapid growth rates was an unparalleled level of accumulation. The proportion of national output going into investment rose to 50 percent in 2006:40

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In recent years, no OECD or emerging market economy had a ratio greater than 30 percent (averaging over three years to smooth out cyclical efects) . . . Even compared to Korea and Japan during their boom years, the ratio in China today looks high.41

The rising investment was paid for out of total savings in the economy also rising to over 50 percent of output. Some of the saving was by workers and peasants, who needed it in order to pay for emergencies like medical care and for their old age. Effectively, they handed over a portion of their incomes to state-run banks which have then loaned it to state and privately owned enterprises. But in the early and mid-2000s an increasing proportion of saving came out of the profits made by companies, which rose by about 5 percent of GNP in the early 2000s.42 This was possible because household consumption as a share of output fell sharply, to only about 40 percent,43 with the share of wage income falling from 67 percent in the 1970s to around 56 percent in 2005 (see graph).44 ment or private American consumption (graph45), which then provided an outlet for further Chinese exports.

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Second, it leads to a growth of output that cannot be absorbed by a national economy in which wages constitute a diminishing share of output, except by still more accumulation-or by ever greater stress by firms on exports.

But there is enormous competition in export markets-not just from enterprises abroad, but with other enterprises operating in China. The increasing pattern has been one of Chinese factories assembling components produced elsewhere in East and South East Asia, with the final output then being exported. This ties Chinese based exporting firms into competing multinational supply lines: "The percentage of exports produced by foreignbased corporations grew from 17.4 percent in 1990 to 50.8 percent in 2001".46 By the early 2000s the result of such competition was a level of output that could not always be absorbed completely by the world market any more than by the domestic market. The National Statistics Bureau reported that "of all Chinese manufactured products, 90 percent are in oversupply" ,47 despite massive price cutting: "Among Chinese companies the price war is particularly intense because competitors often chase market share rather than trying to increase short term profitability," a Financial Times correspondent could report: "Relentless competition among local suppliers keeps profit margins almost invisible for many firms" ,48

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It was not only the output of export-directed consumer goods that tended to get out of hand. "Investment in many sectorsincluding property, cement, steel, cars and aluminum" was "being overdone", Chinese government officials complained.49 In a system constructed around the goal of accumulation for the sake of accumulation and then left to run itself, top managers measured their success by the speed at which their firms grewand the government-run banks then rewarded those that grew fastest by allowing them to accumulate debts.50

A third problem, which exacerbated the previous two, was that the ratio of investment to workers employed-and to output-was rising, despite the abundance of labour. While investment was increasing by about 20 percent a year, employment growth throughout the economy as a whole was only about 1 percent-and even in urban areas it was only about 3.5 percent. Total manufacturing employment fell from 98 million in 1997 to 83.1 million in 2001,51 despite the massive rate of accumulation. The fall was due to large-scale redundancies in the old state-owned heavy industries, but it was not compensated for by the increased employment in the newer manufacturing enterprises-and employment in the "secondary sector"52 as a whole remained more or less static at round 157 million. In other words, the organic composition of capital rose. Researchers for the IMF reported, "The increase in investment" from the mid-1990s to the mid-2000s had led to "a rise in the capital output ratio and a fall in the marginal product of capital" .53

The effect was bound to be downward pressure on profitability. Phillip O'Hara calculates the rate for the economy as a whole as declining from 47 percent in 1978 to 32 percent in 2000.54 Jesus Felipe, Editha Lavina and Emma Xiaoqin Fan point to the same trend, but with different absolute figures, from 1 3.5 percent in the 1980s to 8.5 percent in 2003. They quote results from Lardy and from Lin which show the same trend-with some of Lin's figures showing very small profit rates indeed for some industries (0.2 percent for bicycles, -0.3 percent for buses, 2.9 percent for washing machines, 2.5 percent for beer).55 A Chinese study by Zhang Yu and Zhao Feng seems to contradict these conclusions, showing the overall rate for manufacturing as falling continually for the 20 years up to 1 999, but rising considerably after that.56 The discrepancy could be explained by the way the massive onslaught on jobs in the state enterprise sector cut into its operating costs. The great counteracting factor preventing a catastrophic fall in profit rates was the continual fall in the share of output going to wages. But this necessarily prevented domestic consumption from absorbing the growing industrial output, further increasing the dependence of accumulation on further accumulation and on exports.

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At the same time, there was considerable evidence that the willingness of the banks to lend to enterprises at low rates of interest compensated for the low profit rates of many enterprises-and that parallel with this went a willingness not to push loss-making enterprises into bankruptcy, so loading the banking system with vast, probably unrepayable debts.57

As with any capitalist boom, there was a burgeoning of all sorts of speculation as enterprises and rich individuals sought to find quick and apparently effortless sources of profitability: "Investment in real estate grew by almost 20 percent a year over the past four years [to 2005] and reached 1 1 percent of GDP in 2005" .58 Everywhere in China's major cities there was apparently endless building and rebuilding of luxury apartment blocks, relatively expensive (by Chinese standards) fast food outlets, high class hotels, and shopping malls dedicated to selling designer products (even though such stores often seemed virtually empty of shoppers). And there was the lure of international speculation to add to the lure of local profiteering. In March 2008 executives of the CITIC Group in Beijing were on the verge of signing a deal to buy a one billion dollar stake in the US bank Bear Stearns when news came through that it had gone bust.59

This combination of contradictions meant that a smooth upward path of growth was a most unlikely scenario for Chinese capitalism. Certainly those charged with managing its economy were by no means confident that they could control the tempo of competitive accumulation in a way that could avoid unexpected catastrophes as managers of enterprises, both private and state owned, sought to outdo each other. Or, as Premier Wen Jiabao told the National People's Congress in March 2007, "the biggest problem with China's economy is that the growth is unstable, unbalanced, uncoordinated, and unsustainable". 60

The unpredictability of the Chinese economy had important implications for the rest of the world. It had replaced the US as

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