Zombie Capitalism Global Crisis and the Relevance of Marx

The contradictions of the new Keynesianism

The way the crisis was rooted in the economic system as a whole was shown by the sheer difficulties governments had in reacting to it. This was a crisis that hurt big capitals and not just those who laboured for them. Humpty Dumpty had indeed fallen off the wall. Yet it seemed that all the king's horses and all the king's men could not put him together again.

The response of virtually all governments to the crisis that erupted in 2007-8 was to turn away from the free market policies they had proclaimed for three decades as the only ones that would work. Overnight they ditched Hayek for Keynes and kept only that bit of Friedman that urged increasing the money supply to ward off deflation.76

But the conditions for applying Keynesian policies with any hope of success were worse than they had been when they had been tried and abandoned 30 years before. The known scale of the losses made by the banks dwarfed those of the mid-1970s-and no one knew, as each bank went bust, which other banks were owed money by it and might go bust too.

The promised bail-outs were massively bigger than those attempted by Roosevelt's New Deal in the 1930s. US federal expenditure then peaked at just over 9 percent of national output in 1 936. This time round it was already 20 percent before the crisis began, and the Bush and then the Obama administrations raised it several percentages more. But the levels of debt in the system that somehow had to be covered were also much greater if the financial system was to begin to function again. George Soros calculated "total credit outstanding" at 1 60 percent of gross domestic product in 1 929, rising to 260 percent in 1 932; in 2008 it was 365 percent and "bound to rise to 500 percent".77 The Bank of England estimated in the autumn of 2008 the global losses of the financial system to be as high as \$2,800 billion.78 Nouriel Roubini estimated the losses of the American banks alone at \$1,800 billion early in 2009.79 As governments poured in the money, mainstream economists ofering advice debated with each other whether it would be enough to halt the transformation of recession into slump, whether governments would be able to raise the money without forcing up the interest rates they were trying to lower, whether they should turn to "quantitative easing"-that is, printing money-and whether any success with this might not risk bringing about a new inflationary spiral and an even greater slump.80

300

The New Age of Global Instability

The problem did not just lie with the size of the banks' losses. It also lay with the massive internationalisation of the system compared with either the 1930s or even the 1970s. The Keynesian remedies which were supposed to deal with the crisis were remedies to be applied by national governments, none of which had the resources to pay for all the losses of the global system of which they were part. The biggest states might conceivably be able to salvage a good part of their national financial system. But the problems even here were vast, and many of the smaller states had very little chance of coping.

The system in a noose

The crisis had revealed one of the great fault lines running through capitalism in the 21st century. The complex interaction of states and capitals which had been simplistically referred to as globalisation makes it much more difficult for national states to fulfil their function of aiding the gigantic capitals based within them just as the need for that aid becomes greatest. As Paul Krugman puts it, there are "major policy externalities", since "my fiscal stimulus helps your economy, by increasing your exports-but you don't share in my addition to government debt" and so "the bang per buck on stimulus for any one country is less than it is for the world as a whole".8¹

It was a contradiction that inevitably led to deep political fissures within national ruling classes and to bitter divisions between the states which were supposedly cooperating to deal with the crisis. Domestically, sections of capitals complained bitterly in 2007-9 at the potential cost of bailing out other sections of capital, and internationally governments quarrelled with each other as the concentration of each on efforts to prevent the collapse of its nationally based capitals led to accusations of "financial protectionism". As one observer told the Financial Times:

Financialisation and the Bubbles That Burst

301

There is a very strong law of unintended consequences taking place after all the bank bail-outs. We will see more and more activist government policies that distinguish economic activities according to the nationality of the actors. It should be a big concern to everybody. 82

At the time of the World Economic Forum in January 2009 Gordon Brown warned against "financial protectionism", and he was then denounced in turn for that very sin as he pressurised British banks to lend domestically and not abroad;83 the German government was criticised for not boosting its domestic economy but relying on exports to the countries that did; it in turn criticised the French and British rescue packages as a form of subsidy to their firms which would damage German interests; the new US government denounced China's government for "manipulating" its currency to aid its industries; the Chinese government retorted that US finance had caused the whole mess;84 and "less wealthy countries fretted" that the US would "use force majeure to soak up capital".85

The ideologists of free trade warned that protectionism risked deepening the recession as the Smoot-Hawley Act in the US supposedly did in the summer of 1930 by raising tariffs on certain imports. As Peter Temin has noted, "The idea that the Smoot-Hawley tariff was a major cause of the Depression is an enduring conviction . . . and has found its way into popular discussion and general histories" . 86 But he adds, " Despite its popularity, this argument fails on both theoretical and historical grounds." Exports only fell by 1.5 percent of US GNP between 1929 and 1931, while "real GNP fell 15 percent in the same years" .87 And the first real movement from the depths of the slump two and a half years later came after measures by Roosevelt which included putting national capitalist interests first with an effective devaluation of the dollar. Even more effective, as we have seen, were those measures taken by the Nazi state in Germany.

For those firms that produced mainly for the national market (the great majority in early 1930s), it was better to be in a protectionist state than a non-protectionist one. That was the rationale for state capitalism and its ideological correlates: Keynesianism, dependency theory and Stalinism. If the state could get control of the most important investment decisions in the national economy, it could assure that the mass of surplus value was absorbed in new accumulation even if the rate of profit continued to fall. This, however, was a policy that could only work up to the point at which the drive to accumulate collided with the restrictions imposed by the narrowness of national boundaries. This limitation showed itself in the drive of Germany and Japan to expand their national boundaries through war in the mid to late 1930s, in the declining efectiveness of the US arms economy by the early 1970s and in the crisis that tore the USSR apart in 1 989-9 1 .

302

The New Age of Global Instability

Today the sheer scale of integration of national economies means that serious implementation of state capitalist solutions would cause enormous disruption to the system as a whole. Yet for national states simply to sit back and leave giant firms to go bust in the hope of crises liquidating themselves, as the Hayekians preach, would do even greater damage. The two long-term tendencies pointed to by Marx-for the rate of profit to fall on the one hand and for the concentration and centralisation of capital on the other-combine to put the whole system in a noose. The attempts of capitals and the states in which they are based to wriggle out of it can only increase the tensions between them-and the pain they inflict on those whose labour sustains them.

As states stepped in to intervene in the economy to cope with the crisis after October 2008, some sections of the left believed that the resurrection of Keynes meant the resurrection of the welfare policies of the long boom. In Britain, Ken Livingstone, former mayor of London, declared that the "economic assumptions of New Labour's thinking . . . have been abandoned". Polly Toynbee proclaimed, "At last, the party of social justice has woken up . . . The New Labour era is over." Derek Simpson, joint general secretary of the biggest UK trade union, Unite, saw the pre-budget report as "a welcome warm up exercise after 30 years of inaction and neoliberal economics". Yet reality soon proved otherwise. The government aimed to pay for a short-term economic boost with long-term cutbacks in expenditure on education, health and social services. The new Keynesianism for capital was combined with a continuation of neoliberalism for those who worked for it.

This was not a peculiarity of Britain. In every sector of the world system the attempt to deal with long-term downward pressures on profit rates continued to mean efforts to push through counter-reforms in working hours, welfare provision, wage rates and pensions. The push was intensified as global economic growth fell to zero and threatened to fall further. The turn to

Financialisation and the Bubbles That Burst

303

Keynesianism could neither restore the system to its old vigour nor serve the interests of the workers, the peasants and the poor.

The system was only able to recover from the crisis of the interwar years after a massive destruction of value through the worst slump capitalism had ever known followed by the worst war. The greater size and interconnectedness of capitals today means that the destruction of value would have to be proportionately greater to return the system to a new "golden age". After all, even the bankruptcy of the world's second biggest economy, that of the USSR, two decades ago had only marginal benefits for the rest of the system-a lower global price of oil than would otherwise have been the case and some cheap skilled labour power for West European firms.

It is necessary to repeat that this does not automatically mean endless slump. The limits on the degree to which some capitals can gain from the destruction of others do not mean that no gains at all are possible. The wiping out of many small and medium sized firms can provide some relief for the giant firms that states prop up. New bubbles and periods of rapid growth in one part of the world or another are not only possible but likely. But they will not involve the whole world economy moving forward uniformly and will only prepare the way for more burst bubbles and more crises. And the consequences will not only be economic.

304

The New Age of Global Instability

Part Four

THE RUNAWAY SYSTEM

The New Limits of Capital

A system that undermines itself

Capitalism became a global system in the 20th century in a way it had not been before. Not only were there global markets and global finance but capitalist industry and capitalist structures of consumption arose in every region of the globe, although unevenly. As that happened a tendency noted in its embryonic form by only the most far sighted thinkers of the 19th century, including Marx and Engels, developed until by the end of the century it was visible to everyone who cared to look. This was the tendency for the system to undermine the very process of interaction with nature on which it, like every other form of human society, depended.

The most dramatic expression of this has been the way the accumulation of certain gases in the atmosphere are raising the global temperature and producing climate change.

Capitalist industry and its products always had devastating environmental efects. Observers of all sorts bemoaned the pollution of the water and atmosphere in the industrial areas of Britain in the mid-1 9th century. Charles Dickens wrote in 1854 of his fictional (but all too real) Coketown, "where Nature was as strongly bricked out as killing airs and gases were bricked in";' Engels told of how, "Bradford lies upon the banks of a small, coal black, foulsmelling stream. On weekdays the town is enveloped in a grey cloud of coal smoke" .2 Epidemics of cholera and typhoid would sweep through cities; tuberculosis was a curse that most working class families were acquainted with.

But the disastrous environmental effects of capitals' blind selfexpansion were local effects. It was possible to escape from the smog filled cites, the rivers so polluted that fish could not survive in them, the slag heaps and the open sewers. The bigger scale of capitalist production and accumulation in the 20th century meant bigger environmental destruction-the transformation of agricultural land into a dust bowl in parts of the US in the 1930s, the horrendous escape of gases that killed thousands in Bhopal in India in 1984, the nuclear accidents at Three Mile Island in Pennsylvania and Chernobyl in Ukraine, the devastation of the lives of the people who lived around the Aerial Sea as they lost two thirds of their water to cotton production and salination set in, the collapse of cities built on earthquake fault lines. These were, however, still local disasters, despite the scale of the human toll. Supporters of capitalism-and of the state capitalism usually called "socialism"-ould dismiss their relevance as passing accidents. Critics of capitalism would denounce their horrors, but not see them as having a systemic impact.

CHAPTER TWELVE

307

It was not until the end of the 1 950s that scientists found the first evidence that man-made gases were beginning to create a global catastrophe by causing average temperatures to rise-and not until the late 1980s that definite proof emerged of how serious the situation was becoming.3

The scientific conclusions are well enough known for a mere summary here to suffice. The most important of these gases, as most people now know, is carbon dioxide, produced by burning carbon based substances such as oil and coal to obtain energyalthough gases such as methane and nitrous oxide also have to be taken into consideration. The concentration of these gases in the atmosphere is measured in terms of parts of carbon dioxide equivalent per million, or ppm. In pre-industrial times it was 280 ppm; it now stands at 385 ppm and is rising by about 2.1 ppm a year. So far the change has been sufficient to raise the average temperature of the Earth by about 0.8 degrees celsius, and if emissions continue at their present rate, there will be further temperature rises of about 0.2 degrees a decade. This is if other things remain as at present. But there are various feedback mechanisms produced by rising temperatures that would lead to accelerated change-the melting of ice caps, the release of carbon dioxide in the sea or of methane from arctic tundra, the desertification of forests. There is no final scientific consensus as to the temperatures (the "tipping points") that would cause these feedback mechanisms to take effect, but it was widely accepted in 2007 that some would be likely to set in if the temperature rose 2 degrees above the pre-industrial level-about 1 .2 degrees above that at present (that does not preclude some of these mechanisms setting in earlier, as, for instance NASA's James Hanson argued in April 2008).4 To avoid that point being reached, carbon concentrations have to be kept down-the IPCC argues to between 445 and 490 ppm but even 400 ppm might push the temperature up to the 2 degrees threshold. 5

308

The Runaway System

Over the last two decades governments have come to accept that global warming is a threat to much of humanity. The Stern report for the British government, for instance, concluded in 2006:

All countries will be affected by climate change, but the poorest countries will suffer earliest and most. Average temperatures could rise by $5 \textdegree C$ from pre-industrial levels if climate change goes unchecked. Warming of 3 or $4 \%$ will result in many millions more people being flooded. By the middle of the century 200 million may be permanently displaced due to rising sea levels, heavier floods and drought. Warming of $4 \%$ or more is likely to seriously affect global food production. Warming of ${ } ^ { 2 \circ } \mathbf { C }$ could leave 1 5 to 40 percent of species facing extinction.6

There was agreement as early as 1992 at the Rio Earth Summit on the need to start negotiations on measures to reduce emissions, and the Kyoto conference five years later produced a general framework for action. By 2007 even US president George W Bush backtracked and accepted the principle of global warming.

The significant thing, however, is that such verbal agreement has not been translated into the sort of action likely to prevent the 2 percent limit-or even higher figures-being reached. It took another four years after Kyoto before a conference in The Hague agreed on its implementation. The final agreement was "weak, unenforceable and full of market loopholes". 7 It was not only that the US and Australia had refused to sign up. The European powers, who were supposedly keen on the agreement, did not keep within their targets. There was no reduction in the speed at which climate change gases continued to build up in the atmosphere. The Global Carbon Project reported a record 7.9 billion tonnes of carbon passing into the atmosphere in 2005, compared with 6.8 billion tonnes in 2000; the growth rate of $\mathbf { C O _ { 2 } }$ emissions from 2000 to 2005 was more than 2.5 percent a year-in the 1990s it was less than 1 percent a year. 8

The G8 meeting in Rostock in the summer of 2007 was paraded as the occasion when more decisive action would be forthcoming.

The New Limits of Capital

309