The aggregate economic indicators of the rise and fall of the world capitalist system are of limited value in understanding the causes, trajectory and impact of the world depression. At best, they describe the economic carnage; at worst, they obfuscate the leading (ruling) social classes, with their complex networks and transformations, which directed the expansion and economic collapse and the wage and salaried (working) classes, which produced the wealth to fuel the expansive phase and now pay the cost of the economic collapse.
It is a well-known truism that those who caused the crisis are also the greatest beneficiaries of government largesse. The crude and simple everyday observations that the ruling class ‘made’ the crisis and the working class ‘pays’ the cost, at a minimum, is a recognition of the utility of class analyses in deciphering the social reality behind the aggregate economic data. Following the recession of the early 1970s, the Western industrial capitalist class secured financing to launch a period of extensive and deep growth covering the entire globe. German, Japanese and Southeast Asian capitalists flourished, competed and collaborated with their US counterpart. Throughout this period the social power, organization and political influence of the working class witnessed a relative and absolute decline in their share of material income. Technological innovations, including the re-organization of work, compensated for wage increases by reducing the ‘mass of workers’ and in, particular, their capacity to pressure the prerogatives of management. The capitalist strategic position in production was strengthened: they were able to exercise near absolute control over the location and movements of capital.
The established capitalist powers – especially in England and the US -- with large accumulations of capital and facing increasing competition from the fully recovered German and Japanese capitalists, sought to expand their rates of return by moving capital investments into finance and services. At first, this move was linked and directed towards promoting the sale of their manufactured products by providing credit and financing toward the purchases of automobiles or ‘white goods’. Less dynamic industrial capitalists relocated their assembly plants to low-wage regions and countries. The results were that industrial capitalists took on more the appearance of ‘financiers’ in the US even as they retained their industrial character in the operation of their overseas manufacturing subsidiaries and satellite suppliers. Both overseas manufacturing and local financial returns swelled the aggregate profits of the capitalist class. While capital accumulation expanded in the ‘home country’, domestic wages and social costs were under pressure as capitalists imposed the costs of competition on the backs of wage earners via the collaboration of the trade unions in the US and social democratic political parties in Europe. Wage constraints, tying wages to productivity in an asymmetrical way and labor-capital pacts increased profits. US workers were ‘compensated’ by the cheap consumer imports produced by the low-wage labor force in the newly industrializing countries and access to easy credit at home.
The Western pillage of the former-USSR, with the collaboration of gangster-oligarchs, led to the massive flow of looted capital into Western banks throughout the 1990s. The Chinese transition to capitalism in the 1980s, which accelerated in the 1990s, expanded the accumulation of industrial profits via the intensive exploitation of tens of millions of wageworkers employed at subsistence levels. While the trillion-dollar pillage of Russia and the entire former Soviet Union bloated the West European and US financial sector, the massive growth of billions of dollars in illegal transfers and money laundering toward US and UK banks added to the overdevelopment of the financial sector. The rise in oil prices and ‘rents’ among ‘rentier’ capitalists added a vast new source of financial profits and liquidity. Pillage, rents, and contraband capital provided a vast accumulation of financial wealth disconnected from industrial production. On the other hand, the rapid industrialization of China and other Asian countries provided a vast market for German and Japanese high-end manufacturers: they supplied the high quality machines and technology to the Chinese and Vietnamese factories.
US capitalists did not ‘de-industrialize’ – the country did. By relocating production overseas and importing finished products and focusing on credit and financing, the US capitalist class and its members became diversified and multi-sectoral. They multiplied their profits and intensified the accumulation of capital.
On the other hand, workers were subject to multiple forms of exploitation: wages stagnated, creditors squeezed interest, and the conversion from high wage/high skill manufacturing jobs to lower-paid service jobs steadily reduced living standards.
The basic process leading up to the breakdown was clearly present: the dynamic growth of western capitalist wealth was based, in part, on the brutal pillage of the USSR and Latin America, which profoundly lowered living standards throughout the 1990s. The intensified and savage exploitation of hundreds of millions of low-paid Chinese, Mexican, Indonesian and Indochinese workers, and the forced exodus of former peasants as migrant laborers to manufacturing centers led to high rates of accumulation. The relative decline of wages in the US and Western Europe also added to the accumulation of capital. The German, Chinese, Japanese, Latin American and Eastern European emphasis on export-driven growth added to the mounting ‘imbalance’ or contradiction between concentrated capitalist wealth and ownership and the growing mass of low-paid workers. Inequalities on a world scale grew geometrically. The dynamic accumulation process exceeded the capacity of the highly polarized capitalist system to absorb capital in productive activity at existing high rates of profit. This led to the large scale and multiform growth of speculator capital inflating prices and investing in real estate, commodities, hedge funds, securities, debt-financing, mergers and acquisitions -- all divorced from real value-producing activity. The industrial boom and the class constraints imposed on workers wages undermined domestic demand and intensified competition in world markets. Speculator-financial activity with massive liquidity offered a ‘short-term solution’: profits based on debt financing. Competition among lenders fueled the availability of cheap credit. Real estate speculation was extended into the working class, as wage and salaried workers, without personal savings or assets, took advantage of their access to easy loans to join the speculator-induced frenzy - based on an ideology of irreversible rising home values. The inevitable collapse reverberated throughout the system – detonated at the bottom of the speculative chain. From the latest entrants to the real estate sub-prime mortgage holders, the crisis moved up the ladder affecting the biggest banks and corporations, who engaged in leveraged buyouts and acquisitions. All ‘sectors’, which had ‘diversified’ from manufacturing to finance, trade and commodities speculation, were downgraded. The entire panoply of capitalists faced bankruptcy. German, Japanese and Chinese industrial exporters who exploited labor witnessed the collapse of their export markets.
The ‘bursting’ financial bubble was the product of the ‘over-accumulation’ of industrial capital and the pillage of wealth on a world scale. Over-accumulation is rooted in the most fundamental capitalist relation: the contradictions between private ownership and social production, the simultaneous concentration of capital and sharp decline of living standards.
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