Prof. Ozlem Onaran (article excerpts)
Three dimensions to the current, unprecedented global crisis of
capitalism: economic, ecological, and political.
1. Economic: Capitalism is facing a major realization crisis—an
inability to sell the output produced, i.e., to realize, in the form of
profits, the surplus value extracted from workers’ labor.
How is Neoliberalism used to solve the stagflation crisis of the
1970s ?
1. Abandoned the “Keynesian consensus” of the “golden age”
of capitalism (relatively high social welfare spending, strong
unions, and labor management cooperation).
2. Reduced the power of labor.
It succeeded - profit rates eventually recovered in the major
capitalist economies by the 1990s.
Prof. Ozlem Onaran Dismisses Peter Schiff's 'Job Creator' BS With
Empirical Resea
http://www.youtube.com/watch?v=lTKQVSz4U6k
• System’s success, partially due to neoliberalism, in
reviving profits
• But engendered a potential realization crisis, due to
low wages and investment
• Dramatic deterioration in wages
• Limited consumption, forcing workers to resort to
increased borrowing.
• Growth of a casino economy
• Profits were funneled into speculation in financial
assets
US economy:
• Rapid financialization led to increased demand
through various wealth effects and debt-credit
stimuli, despite the weakening of the underlying
economy.
• Debt-led growth could not be sustained and led to
the systemic crisis
• Unprecedented state intervention moderating the
visible dimensions of the downturn.
• But, the financial mechanisms that created the debt
collapsed.
• Now, how can State policies overcome the
realization crisis (get profits by selling goods and
reaping labour’s surplus value) .
2. Ecological limits to growth ( scientifically proven)
•
Recovery efforts have been centered on maintaining
GDP growth and employment through high
consumption. It is assumed that we can go on
consuming as before, by means of magical
technological innovations
The Crisis of Accumulation under Neoliberalism:
World economy 1980s on:
• Deregulation in labor, goods, and financial markets.
• Communism in Soviet Union and Eastern Europe fall apart
Opened up new markets
• Unleashed a large reserve army of cheap labor
• This freed the Western capitalist welfare states from
maintaining decent living wages for labour
• Decline in labor union and bargaining power
• Crisis has disproven the usefulness of
neoliberalism.
• Unemployment and inequality rose after the
crisis in Western Europe (similar to the transition
crisis of 20 years ago in Eastern Europe)
• Political discontent in Europe is challenging the
system by questioning the validity of current
system of capitalism.
• Labour’s share of national income across the
globe has declined as has workers’ power
• Sharper differences between classes in income
• Profit rates and profit’s share of national
income increased.
• Neoliberal era generated higher global profits
for multinational firms(esp. in the financial
sector)
• Financial sector profits displaced profits from
actual production
Market Bias:
• Remuneration schemes, based on short-term
profitability, shifted the orientation of management
toward shareholders’ objectives.
• Unregulated financial markets and the pressure of
financial market investors created a bias in favor of
asset purchases, as opposed to asset creation.
• Financial innovations seemed to offer a short-term
solution to any realization crisis: debt-led
consumption growth.
• To avert a crisis for a while, the state did something
to moderate the growing inequality in income and
wealth that would eventually stifle aggregate demand
In emerging economies: China, S. Korea, Asia and L Am
• A policy of accumulation of foreign reserves as a hedge
against speculative capital outflows.
• Threatened by the free mobility and volatility of short-term
international financial flows, they invested their current
account surpluses in U.S. government bonds instead of
financing their domestic development plans.
• Western European countries to weather the shock better than
developing countries
US & Western Europe:
U.S. GDP fell by 2.6 % (2009)
Euro area by 4%
United Kingdom by 4.9% (because of the housing
bubble and household debt).
German and Italian GDP declined by 5 % (2009)
France GDP shrunk by 2.6%
Chronic balance of payment deficits in Greece,
Portugal, Spain, and Italy
Euro zone: Real wages began to turn down decisively in
2010
Alternative
1. Fiscal policy has to be centered around a public employment
program and a distributional policy.
• Public expenditures in labor-intensive services, e.g. education,
child care, etc.
• Public infrastructure and green investments, private-sector
employment
• Avoid “socialization of the costs” i.e., working people and the
unemployed should not have to pay the costs of the irresponsible
behavior of global capital.
• The stimulus, employment packages, and green recovery plans
should be financed from progressive income and wealth taxes,
higher corporate tax rates, inheritance taxes, and taxes on
financial transactions.
2. Redesign the financial sector - Regulation is
required but financial institutions have an amazing
capacity to avoid regulations through new innovations
3. Critical economic sectors must not be left to the
private sector. Energy, finance and housing must be in
public ownership
Real wages began to turn down decisively in
2010 in the United Kingdom, Ireland, Germany,
and Italy,
following wage cuts arising with the onset of
the crisis in practically all European countries.
Greece,
Portugal, and Spain, in particular, are under
the ax of the EU and financial markets, and are
being
compelled to increase their competitiveness
via deep real wage cuts, as part of a more
general shock
therapy in these countries. Sharp and longlasting increases in unemployment,
augmenting the
industrial reserve army, are likely to make the
wage losses much stronger
In Japan, for example, the wage share declined
by 8.9
percent between 1992 and in 2007.
Germany is suffering from the curse of its neomercantilist strategy—growth based on export
markets via stagnant or declining wages, which
had led to decades of stagnant domestic
demand. The
chronic current account deficits of Greece,
Portugal, Spain, and Italy—the outcome of the
historical
failure of the European Union and its single
currency to provide for regional convergence—
are now
proving to be detrimental, as financial
investors are asking for much higher interest
rates in return for
the government bonds of these deficit
countries
The Eastern European Slowdown
excessive dependence on foreign capital flows
severely affected by the credit crash, capital outflows, and the currency
crises accompanying the banking crisis
FDI is still more robust than other capital flows, but in the first quarter of 2009, FDI inflow
fell by 20-80 percent
FDI not only finances but also creates current account deficits; the average profit
repatriation rate has been 70 percent in the region, and FDI has been about equal or less
repatriated profits in Hungary, Slovakia, and the Czech Republic.
Overall, their greater fiscal capacity has helped
many Western European countries to
weather the shock better than developing
countries
The most important obstacle today to initiating
a progressive economic policy in Europe is the
speculation on public debt and the
governments’ commitment to satisfy the
financiers. Public finance
has to be unchained via debt default in both
the periphery and the core. Alternative policies
must
involve public investment programs with a
focus on regional development. EU-level public
investments,
financed by EU-level progressive taxes, must
play an active role in economic reconstruction
what is missing is any grasp of the underlying
causes of the crisis. There is an overemphasis
on low interest rates in the United States and
very little debate about the liberalization of
financial
markets.
Policies to address a major root of the crisis,
the dramatic pro-capital shift in income
distribution, are nowhere to be found. With
regard to global imbalances, much of the
emphasis is on
the overconsumption of the United States or
low wages and an undervalued currency of
China, rather
than wage dumping and stagnant domestic
consumption in Germany.