Book Review: The Making of Global Capitalism: The Political Economy of American Empire and The Crisis of Neoliberalism

1. Marxian Theories of Crisis

Within Marxist scholarship on the crisis of 2008, some see it stemming from a falling rate of profits (Carchedi 2010; Kliman 2012; Harmon 2010; Brenner 2009). Others see it as a crisis of overproduction, underconsumption, and over-accumulation (Harvey 2011; McNally 2010; Wolff 2010). While the crisis had financial manifestations, both these groups argue the rise of financialization was ultimately due to crises in the real sector. The authors under review here, Panitch and Gindin, and Duménil and Lévy, disagree.

Panitch and Gindin question the falling rate of profits and underconsumption/overaccumulation explanations, and see the crisis originating in the sphere of finance, rather than the real sector. They state:

…the crisis that erupted in the US in 2007 was not caused by a profit squeeze or collapse of investment due to general overaccumulation in the economy. In the US, in particular, profits and investments had recovered strongly since the early 1980s…. Indeed, investment was growing significantly in the two years before the onset of the crisis, profits were at a peak, and capacity utilization in industry had just moved above the historic average. It was only after the financial meltdown in 2007-08 that profits and investment declined. (Panitch and Gindin 2012: 20)

Instead, the cause of the crisis was the volatility of capitalist finance, triggered in the mortgage sector and then spreading to other financial markets (Panitch and Gindin 2012: 311). However, the roots of financial instability stem from the late 1960s, when the hegemonic role of the U.S. dollar began to be undermined by threats of inflation, especially from the growing militancy of labor and rising wages (Panitch and Gindin 2012: 14, 141). In 1971, Nixon took the U.S. dollar off the fixed exchange system and ushered in floating exchange rates. The U.S. state then responded to the threat of inflation by introducing policies of neoliberalism, which helped to restore and strengthen U.S. financial hegemony. For Panitch and Gindin, neoliberalism “involved not only the restructuring of institutions to ensure that the anti-inflation parameter was enforced, but also the removal of barriers to competition in all markets, and especially in the labor market” (Panitch and Gindin 2012: 15). The U.S. labor movement went on to experience various setbacks, from the Volcker shock of high interest rates, to the breaking of the air-traffic control strike of 1981. They state: “The imposition of class discipline to break the great inflation and the wage militancy of US labor strongly confirmed the American state’s commitment to property, the value of the dollar, and the inviolability of its debt” (Panitch and Gindin 2012: 172). With labor defeated, low rates of inflation were restored from the 1980s onwards.

Duménil and Lévy concur that the origins of the 2008 crisis lay within the sphere of finance, or what they call the “financial hegemony” that emerged with neoliberalism (Duménil and Lévy 2011: 20). For them, the crisis:

…was not the effect of deficient profit rates. It was also not the consequence of a lack of demand, the expression of insufficient purchasing power of wages. If an overarching explanation must be sought, it lies in the objectives of neoliberalism…. (Duménil and Lévy 2011: 33-4)

They assert “it would be hard to overstate the importance of the financial-global roots of the crisis of neoliberalism” (Duménil and Lévy 2011: 141). The huge increases in capital flows that arose with neoliberalism helped create a fragile and unwieldy structure, with growing disequilibria and imbalances that ultimately resulted in the 2008 crisis.

One of the strengths of Duménil and Lévy’s work is their detailed investigation of the rate of profits. ¹ Was it was falling (as Kliman and others contend), or were profits restored and indeed rising in the 1980–2007 period (as Harvey, Wolff, and others maintain)? For Duménil and Lévy, it depends on how profits are measured. Their data show that when profits are measured by subtracting dividends, the profit rate indeed declined (Duménil and Lévy 2011: 58). But when interest and dividends are included in the measure of profits, the rate of profits increased over the post-1980 years, though not to the levels of the heyday of the 1950s and ‘60s (Duménil and Lévy 2011: 51). However when corporate taxes are subtracted, profits were restored even to levels of the 1950s-60s (Duménil and Lévy 2011: 58).

In helping to resolve the debate, Duménil and Lévy have made an important contribution to the Marxist scholarship on the 2008 crisis. The falling rate of profit theorists (such as Kliman) are correct in claiming that the rate of profits in the form of retained earnings for productive investment (in factories, machines, etc.) did indeed fall. However, it only fell because corporations (i.e. the boards of directors of corporations) decided to distribute an increasing share of their profits as dividends to shareholders. (Granted, they were under pressure from Wall Street to boost profits and drive share prices up, and the Enron-era scandals exposed to what lengths corporations would go to show high profits by falsely booking revenues and hiding costs.) The substantial decrease in corporate taxes from the 1950s levels further enabled increased payments to shareholders. From this perspective, a crisis of falling profits was not constraining capitalist corporations in the post-1980 period. Instead, that period was marked by a shift of profits away from productive investment in firms and away from taxes to the state, and instead into the hands of private shareholders.

Unlike the underconsumption/overaccumulation theorists, Duménil and Lévy see the crisis as one of over-consumption and under-accumulation (Duménil and Lévy 2011: 24). The over-consumption, mostly on housing, was mainly by high-income earners, but also by the mass of wage-earners whose consumption was financed by debt (which shored up stagnating incomes). The under-accumulation occurred when nonfinancial firms distributed profits to shareholders rather than for productive investment in their firms. To be fair, the underconsumptionist theorists do argue that the crisis of underconsumption was forestalled by debt-driven consumption, which reached its limit when the housing bubble burst in 2007 and households could no longer tap into their homes to finance consumption (Wolff 2010). And there was over-accumulation of capital in the sense of a glut of unsold goods, and a dearth of profitable investment opportunities, that led firms to reduce the level of productive investment in their firms (Harvey 2011). During the crisis capitalists intensified their search for new innovations, new markets (such as in the BRIC countries), new bubbles to drive consumption, and/or for new areas to commodify, such as household services or privatizing those provided by the public sector.

2. Role of the State

If profits flowed towards shareholders and speculative activities, and away from productive investment in firms and the state, should we not be surprised to see a demise of U.S. manufacturing and the shriveling of the state? Panitch and Gindin do not see a shriveled, weakened state, but a strong, autonomous state that has played a consistent role in helping keep whole regions of the world open for capital accumulation. Rather than positing a dichotomy between states versus markets (with neoliberalism marked by the rise of markets and the downsizing of the state), Panitch and Gindin see the state as ever-present in making markets and in shaping market relationships (Panitch and Gindin 2012: 105). They provide an exhaustive historical examination of how the state helped the growth of capitalism from the 20^th century until the crisis of 2008, and in particular the state’s role in the emergence of the United States as a global empire. Much of this is familiar territory for those with a background in U.S. economic history, but there are some discussions that may not be well-known to many readers, such as the way grassroots labor activists were pacified through their support of Roosevelt in the late 1930s (Panitch and Gindin 2012: 61), the radical platforms put forward by European left parties in the 1970s (Panitch and Gindin 2012: 145), or the ways liberal Democrats were just as active as conservative Republicans in fostering an environment conducive for capitalist corporations during the 1970s (Panitch and Gindin 2012: 166, 171).

In contrast, Duménil and Lévy view the state as contested between the interests of three groups: the capitalist class (the owners), the managerial class (upper wage earners), and the popular class (lower wage earners). During the period of the New Deal, the managerial class was allied with the popular class, was able to contain the interests of the capitalist class, and passed legislation in the interest of workers. During this period, corporations were more concerned with investment, accumulation, and technical change (Duménil and Lévy 2011: 79). However, with the rise of neoliberalism and global finance in the post-1980 period, a shift occurred whereby the state managerial class became allied with the capitalist class, and policies were enacted in the interests of capital. The managerial class shifted its alliance, due to the high wages and accumulation of financial wealth it was able to obtain (Duménil and Lévy 2011: 85). Corporations shifted away from productive investment and became more concerned with creating value for shareholders.

For Panitch and Gindin, power always lay in the hands of the capitalist class and the state was always hegemonic. The crisis of the 1970s was more about re-asserting discipline over the working class, consolidating state power, strengthening empire, and further integrating global capitalism. Every crisis, whether the inflation-induced crisis of the early 1970s, or the subprime mortgage-induced crisis of 2008, left the empire stronger. The latest crisis in 2008 “reinforced rather than undermined the role of American empire” (Panitch and Gindin 2012: 302). Duménil and Lévy, on the other hand, are more optimistic that the crisis may lead to another shift in alliance, possibly back to a managerial-popular class alliance like that of the 1950s-60s, or more likely in their view, a continued managerial-capitalist class alliance, but one in which now the managerial class takes leadership over the capitalist class (Duménil and Lévy 2011: 330, 334).

3. Neoliberalism, Empire, and a Class Analysis of the State

Both books could have benefited from a more nuanced class analysis of the state. Panitch and Gindin’s conceptualization of the state, as a strong, dominating presence at the helm of the U.S. capitalist empire, needs to be unpacked. “The state” is not a singular entity, but an institution involved in an array of activities serving various constituencies. While the state retained its power in supporting corporate capitalist interests during the neoliberal era, other areas of the state were indeed weakened and downsized, such as social welfare, environmental protections, public education, and infrastructure. Furthermore, Panitch and Gindin see the state as relatively autonomous from capitalist corporations. For example, in discussing the Dodd-Frank financial reform legislation, they state: “it cannot, however, be said that the state was literally ‘captured’.…In fact, the Treasury and Fed were genuinely concerned with strengthening their own capacities to manage the effects of systemic financial volatility….Offering a remarkable, clear example of the relative autonomy of the state, Geithner addressed the issue head on…” (Panitch and Gindin 2011: 324). They underestimate, I think, the role of corporate lobbying, corporate campaign contributions, corporate funding of think-tanks, and the revolving door between corporate America and the state, in capturing the state.

Nor do they provide much scope for contradictions that can undermine and lead to the possible collapse of empire, or for revolutionary workers’ movements to take power out of the hands of the capitalist class. Sometimes U.S. empire loses its battles, such as the failed coup against Chavez in Venezuela in 2002, its failure to keep military bases in Iraq (even though it does retain a humongous embassy and private security contractors), its inability to prevent leaks divulged by whistle-blowers, or its inability to prevent the mass uprisings in client states during the 2011 Arab Spring revolutions.

Duménil and Lévy provide more room for the possibility of shifts in power in the state. In the earlier 1945-70 period workers had significantly more power, in part due to their alliance with the managerial class, and it was this loss of hegemony that the capitalist class sought to restore through neoliberalism. But in Duménil and Lévy’s conceptualization of a contested state, how was it that the managerial classes were so easily bought off, whereby the managerial classes lost their sense of social responsibility for the larger community (the working class)? Was it merely their quest for high income, or were there other forces at play, such as transformations of culture, ideology, and values?

In the class analysis developed by Resnick and Wolff (1987), capitalists distribute portions of their surplus value to the state and politicians (in the form of taxes, or campaign donations and lobbying), in order to obtain various services (e.g. capitalist-friendly policies and legislation) to secure their conditions of existence. Workers also finance state activities (mainly through income, payroll, and sales taxes), but in the neoliberal period, capitalists shifted the burden of financing the state away from corporations towards workers. Meanwhile, capitalists were able to downsize state activities supporting workers, while strengthening state activities supporting corporate interests. Surplus value is also distributed to non-state institutions, such as through media, educational, cultural, and religious institutions, to shape public opinion and thereby secure capitalist conditions of existence. In this way, the transformation of culture, ideology, and values may also have contributed to the pivot of the managerial classes towards the capitalist class, and the erosion of responsibility for the larger community among the managerial classes.

Free from the restraints from the managerial class, capitalists were able to repress workers’ wages and reduce their corporate tax burdens, thereby increasing the surplus value (profits) that corporations had at their disposal. They could then distribute increasing shares of the surplus value to shareholders in the form of dividends, and pay their CEOs huge compensation packages. They could also distribute more surplus value in the form of lobbying and campaign contributions, to elect and influence politicians (or the managerial class) and its governing state and non-state institutions. These institutions then dutifully implemented the policies of neoliberalism, policies that served the interests of U.S. global capitalism.

In short, a more meticulous class analysis can lift the veil of explanations based on “neoliberalism” and “the imperial state” to reveal what underlies them: the workings of the capitalist system. From this perspective, it is not enough to return to a managerial-popular class alliance that merely keeps capitalists’ interests in check, but to replace the system. Capitalism is full of contradictions, riddled with crises that erupt with greater frequency. In contrast with Panitch and Gindin’s view that crisis has merely made U.S. empire stronger, it is also possible that, like other systems of exploitation (whether slave or feudal), the U.S. capitalist system may eventually crumble after reaching one crisis too many.