Crisis of Capitalism?
rogressive, radical, and even a few “Bearish” Wall Street pundits have
been arguing for years about the coming collapse, decline, or demise of
U.S. capitalism. While the left preaches “the crisis and end” of U.S. capitalism,
most workers are complaining about the bigger take of their bosses, their
intensified exploitation leading to rising productivity, and their extended
work day and work year because of cuts in vacation, sick time, and holidays.
The Crisis of Capitalism (COC) has not taken place because business, banking,
and the government have shifted the burden of adapting U.S. capitalism
to the demands of the market onto the backs of the wage and salaried workers.
What is called the crisis of capitalism is really the crisis of labor,
by which I mean the relative and absolute decline in living standards—evident
(a) the elimination of corporate-funded pension plans and the increase
in worker payments to pension plans
(b) the elimination or reduction in payments to health plans and the increased
deductions from workers wages to pay for health; or the loss of any health
(c) the double-digit growth in the costs for energy, health, education,
and medicines, which are not calculated in the consumer price index, used
as a marker to estimate wage, social security, and pension payments
(d) the rising tide of give backs by sclerotic, over-paid (six-digit) trade
union executives, which decrease living standards and increase profits
Likewise, the deregulation of environmental, workplace, and consumer protection
agencies has led to health problems and loss of income for wage workers,
but greater profits for corporate beneficiaries.
Predictions of U.S. capital collapse are built on a specious set of arguments,
which are easily turned on their head and which misdirect our attention
from the real tasks of joining the struggle at the workplace, in the environment,
and at the sites of consumption.
Myths About the End of Capitalism
everal arguments have been circulating for over a decade pointing to the
coming collapse of U.S. capitalism. They include:
Budget deficit—annual and cumulative
Balance of trade deficit
Speculative nature of the U.S. economy
Weakness of the U.S. dollar
Unsustainability of the U.S. model
Export of skilled jobs overseas
Combined and separately, the proponents of the coming collapse theory have
cited one or more of these arguments. While not dismissing these problems
out of hand, there is reason to believe they are not as serious as their
proponents argue for a number of reasons. While the prophets of the COC
were breathlessly pointing to the ballooning budget deficits leading to
an economic implosion, the data for 2006 indicate a declining deficit from
3.2 percent of GDP predicted in February to 2.3 percent in July of this
year, according to the U.S. Office of Management and Budget. The reason
is that tax revenues are projected to rise by 11 percent over the year—largely
from owners of capital and high earners whose profits, salaries, rents,
and royalty payments extracted from labor are at record levels. Individual
income tax revenue has increased by 15 percent largely due to the profits
accruing to small business owners who file taxable profits under the individual
code, even with the big tax cuts.
While the deficit may increase after 2006, the point is that its financing
via intensifying labor exploitation is the key issue, not some self-induced
collapse. In the meantime, the concentration and centralization of capital
(and the robust fees of investment banks) proceed on their merry way: mergers
and acquisitions in the first half of 2006 hit $1,930 billion dollars,
a record number of billion-dollar deals. The driving force is the capacity
of capitalists to cut labor costs, relocate to low wage areas, and high
liquidity and low interest rates. Mergers and acquisitions also take place
because there is no resistance by the trade unions to any of management’s
plant closures and demands for increased productivity and higher profits.
No doubt in the next year or two there will be a sharp rise of bankruptcies
resulting from over-indebted firms engaged in speculative acquisitions.
This is likely to lead to another chorus about the imminent collapse of
capitalism when in fact it will merely serve to enrich the bankruptcy billionaires
who look to the process as an opportunity to invest in undervalued assets.
Budget deficits have traditionally been an argument raised by conservatives—especially
bankers and the IMF—because of their alleged tendency to stimulate inflation
and devaluate the currency. Keynesians and some leftists, on the other
hand, have not opposed deficits, particularly if they finance employment
and increase mass consumption. The real issue is not the deficit, but the
way the deficit is structured—i.e., based on tax cuts for the rich and
increased spending on high tech (but low employment) military programs.
The use of deficit spending to stimulate growth has its limits, as the
late 1930s prior to wartime deficit spending, demonstrated. The question
of the deficit is a political question in the first instance —what classes
will finance the budget and what classes will benefit from state expenditures—and
more generally, what social configuration will exercise control over the
budgetary process, taxes, and expenditures.
Finally, as long as the working and salaried classes are willing to suffer
cuts in state social expenditures, the privatization of pension and their
health plans, and the extra expenditures of energy and time to increase
capitalist productivity, profit, and growth, the deficit is manageable.
The deficit will become a problem for capitalism when the class struggle
from below reverses the distribution of taxes and distribution of expenditures
and lowers the rate of exploitation (productivity).
Balance Of Trade Deficit
or over a decade the U.S. has had a balance of trade deficit with no visible
ill-effects, despite yearly predictions that it’s coming. There are many
reasons for the failure of the prophecies. For one, the U.S. dollar remains
the principal currency of reserve, despite constant warnings of abandonment.
As long as the U.S. remains and is seen by governments and overseas investors
as the safest and most stable bastion of capitalist security, the dollar
and U.S. treasury bonds will remain the currency of last resort. Secondly,
the Asian countries with whom the U.S. has the greatest trade deficit are
dependent on sales to the U.S. market and have demonstrated for over 15
years a willingness to buy and hold dollars in order to continue their
dynamic export-based growth model. Despite the decline in the relative
value of the U.S. dollar to the euro, none of the Asian countries, least
of all China, has dumped its dollars. On the contrary, they increased their
holdings by over $300 billion throughout a 3-year slide (2004-2006).
The rationale for this behavior can be understood if we look at the class
dynamics of the Chinese growth model (CGM). The CGM is based on highly
unequal control of the principal export sectors. Local Chinese billionaires,
Western and Japanese multi-nationals, and overseas Chinese conglomerates
have concentrated the vast proportion of their wealth, capital, and profits
from the most savage exploitation and inequalities in the modern world.
The result is that China’s growth via perpetuation and expansion of the
ruling elites depends on securing export markets, since the domestic purchasing
power of 800 million Chinese peasants, workers, and unemployed is desperately
weak. To change the CGM would require a social revolution, which focuses
on vast shifts in political and social power necessary to collect progressive
taxation from the non-paying billionaires and millionaires, the wholesale
arrest of most of the corrupt leading public and private officials for
extortion and pillage of public property, and a redistribution of wealth,
budget expenditures, and property. The Chinese elite prefer to stay with
the export model and sit comfortably on an increasing pile of U.S. dollars.
The U.S. economy obviously has a strong and growing speculative sector
that has produced substantial commodity and stock market volatility which
could have and has had a negative (but not system-wide catastrophic) effect
on U.S. workers, retail investors, and would-be pensioners. Speculation
has spawned an entire class of high-end corporate kleptocrats from World
Com, ENRON, and beyond. However, there are several problems with the “speculative
roads to doomsday” theorists. First of all, the U.S. economy is not all
speculative. The U.S. is still a major manufacturer and exporter of high
tech products. It has led in productivity gains for the last six years
among the advanced capitalist countries. It still leads in innovations
measured by the number of patents incorporated each year. Moreover, there
is not a hard and fast distinction between speculative and productive capital—they
are intertwined, with capital moving between each sector depending on where
the risk is lower and profits higher.
The real crisis is not speculator capital per se, but how the movement
of capital affects workers’ social power and capacity to influence or control
investments in order to lower the rates of exploitation and to secure job
stability and security. Speculative activity has led to temporary crises
in a number of instances over the past 20 years without causing the collapse
of capitalism, in large part mainly prejudicing workers’ pension funds,
harming retail investors, and leading to bankruptcies and layoffs. But
the union CEOs (almost all top trade union officials receive over $200,000
salaries plus perks and other “benefits”) have played little or no role
in cushioning the effects on workers.
Another variant of COC theorizing focuses on the weakness of the dollar,
usually thrown in with the balance of trade deficit. The dollar over the
past 20 years has weakened and strengthened in accord with the ups and
downs of U.S. interest rates, political events, and the strengths and weaknesses
of the U.S. economy. The weak dollar has traditionally favored U.S. exporters
and produced trade surpluses or held down deficits. To call for a stronger
dollar while criticizing the trade deficit is voodoo economics promoted
by pot-shot critics. The weak dollar allows the U.S. to penetrate export
markets without affecting its capacity to import a whole host of low-priced
consumer imports (clothes, shoes, and electronics) from countries where
U.S. multinationals super-exploit local labor. The weak dollar is a result
of interest rates far below the historic levels, allowing U.S. consumers
to purchase homes, furnishings, and other essential and non-essential goods
on credit, which they otherwise could not afford. The weak dollar forces
U.S. tourists overseas to pay more, it increases the cost of imports, but
it also makes U.S. goods more competitive in the domestic market, especially
in industries that do not depend on imported inputs. The real problem with
the weak dollar is that local capitalists have not invested in large-scale,
long-term export industries or upgraded local plants to increase the U.S.
share of world markets. They have instead transferred capital returns to
overseas investments to realize even higher profits while still lowering
labor costs at home. In other words, the question is not the weak dollar
per se, but how the virtues of a weak dollar are not taken advantage of
and the absence of any leftist or progressive strategy which could envision
The energy crisis is generally seen in partial terms. The high prices charged
by Big Oil, the lack of government investment in public transport and alternative
non-fossil fuels, the influence of the automobile industry, the greed of
Arab sheiks, and so on. The balance of trade deficit is in part attributed
to energy imports, when the finger is not pointed at the exploitation of
cheap labor in Asia. Obviously energy prices have adversely affected household
budgets and a depletion of fossil fuel reserves in the coming decades is
quite likely. But to predict the collapse of capitalism from energy cost
increases is a real stretch. First, over half of petrol earnings in the
Middle East, Africa, and most of Latin America are recycled to U.S. or
European banks, leading to greater liquidity (for local lending) and greater
profits. Secondly, most petrol and gas foreign exchange reserves are held
in U.S. dollars or euros in U.S. or European banks. Most of the marketing
and retail sales of the oil is through European or U.S. companies.
The balance of trade deficit, then, is countered by the positive balances
(or inflows) of recycled profits to the U.S. and EU. The real problem is,
how are the prices determined and profits from oil production distributed?
Supply and demand is only part of the story—as is a potential for administered
prices based on government priorities, oil company investment policies,
and oil-producing state power configurations. In Venezuela oil prices are
a fraction of world market prices, while profits of overseas sales are
re-invested in social programs for the poor. Prices of overseas sales are
adjusted to buyer country and poor peoples’ needs. In Iran the government
is investing in alternative sources of energy (nuclear). If we see the
oil crisis as a political/class issue instead of a precipitant to a collapse
of capitalism, we can begin to pursue strategies to lower the costs of
energy to consumers and to invest in alternative sources of energy.
U.S. Capitalism in Crisis?
he “un-sustainability of U.S. capitalism” adds up all of the above arguments
in favor of collapsist theorizing. Apart from underplaying the potentialities
of new technologies, and the possibility of social-political action in
sustaining capitalism for the near to middle future, all the elements cited
as undermining “sustainability” are premised on one factor: that the current
configuration of socio-political power is forever sustainable. This implies
that the current capitalist ruling class can sustain and/or expand the
current budgetary injustices, that U.S. capital can successfully count
on the Asian export elites (who recycle U.S. dollars) to rule unhindered
by super-exploitation, and that the Middle East ruling rentiers will not
be affected by the popular resistance to Western wars and Israeli ethnocide.
Capitalism, especially U.S. capitalism, will not simply collapse because
it causes harm to the majority of Americans. In fact stock valuations rise
with massive lay-offs and salary and benefit reductions. Nor will it decline
by academic fiat deduced from general theory; nor will it inevitably decline
because knowledgeable historians point to previous empires. Capitalism
or any other mode of production can survive numerous crises unless a new
class is able to overthrow it and replace it with another, presumably socialist
system. In the meantime, in the present period, neither the internal mechanisms
of capitalism are in disrepair, nor are the supporting cast of workers,
consumers, and taxpayers showing any signs of rebellion, let alone organization.
“Currently U.S. companies remain on track to achieve the longest ever stretch
of double digit profit growth” reads the
(July 5, 2006).
For 12 consecutive quarters, profits at U.S. companies have grown by at
least 10 percent. The projection is for this profit rate to continue through
2007. Profits are what sustain, not collapse, capital. Double-digit profits
over several years are not indicators of declining capitalism. What they
do strongly suggest is that the corporate slash and burn policies toward
worker pay and benefits turn up record profit runs. It also means that
impotent and ineffectual trade union bureaucrats facilitating give backs
have established a pattern of exploitation that consolidates high returns
Between 2004 and 2005, the number of millionaires (including billionaires)
in Africa increased by nearly 12 percent, in the Middle East and Latin
America by nearly 10 percent, and Asia-Pacific by 7 percent (
are now 8.7 million millionaires in the capitalist system, an increase
of 6.5 percent since 2004. The super rich are becoming richer with their
total assets rising 8.5 percent in 2005 to an estimated $33 trillion
Over 80 percent of these million-billionaires are from North America, Europe,
and Asia. Their rising wealth is the result of capitalist growth—based
on rising rates of exploitation of labor, raw materials, and the environment.
The inequalities in pay between the U.S. capitalist ruling class and workers
increased four-fold between 1990 and 2004. In 1990 the average CEO pay
at 367 large corporations was 100 times that of a worker; by 2004 the ratio
was approximately 430 times. If speculation is leading to the eventual
collapse of the U.S. economy, it is difficult to understand the enormous
and sustained number of record-setting transactions mainly consummated
and funded by U.S. investment banks. Between May 2005 to May 2006, all
five of the top financial advisers engaged in mergers and acquisitions
were U.S.-based (Goldman Sachs, JP Morgan, Citigroup, Morgan Stanley, and
Merill Lynch), the same investment banks that predominated in 2004-2005.
A similar pattern of increasing U.S. financial dominance is evident from
examining the top ten investment banks in relation to global debt capital
markets and global equity markets. While some refer to this type of economic
activity as casino capitalism, they forget that the House never or rarely
loses, it’s the players, not the banks, that lose. What this means is that
as the world’s banker, U.S. finance capital is in a position to skim off
lucrative fees throughout the world, highly parasitical in one sense, but
hardly indicative of a coming collapse.
The dynamic expansion of the U.S. financial sector is not a sign of decline,
but of a highly effective form of direct and indirect exploitation. For
example, multi-national corporations frequently consult the banks on strategies
for acquisitions, mergers, and sell-offs. The banks advise cuts in labor
costs to make the firm more profitable and raise stock valuations. Then
the banks arrange loans to finance the transaction, leading to indebtedness
and further cuts in wages and benefits. The banks collect hundreds of millions
of dollars in fees up front for their advice and deal making, putting constant
pressure on the corporations to squeeze labor to pay the dealmakers.
Luxury goods industries are booming as profits of the ruling classes of
five continents are expanding. In the U.S. alone, sales of luxury goods
enjoy a compound annual growth of 12 percent. In contrast, the numbers
of workers covered by company-financed health plans and pensions decline
by the same percentage or greater every year.
Rising profits are clearly a sign that capitalism is expanding and that
consolidation is the defining reality. The conservative financial press
has it right. “The rise and rise of U.S. corporate profits” reads a
editorial (June 10, 2006) in an “historically unprecedented share of profits
as a proportion of U.S. gross domestic product…from 7 percent of GDP…in
mid 2001 to 12.2 percent at the start of this year” (January 2006). In
direct contrast and a direct cause of rising profits, “the median U.S.
household income is 3 percent lower in 2006 than in 2000, according to
the U.S. census bureau.”
he real issues are the declining living standards of U.S. wage and salaried
workers, the collapse of the welfare state, the extended working hours,
job speed ups, the frequent firing and hiring of workers, the tension and
insecurity of working families that accompany the unprecedented rates of
corporate revenue growth. While 91 percent of U.S. private sector workers
are unorganized and subject to the commands of their employers, while 9
percent of U.S. private sector workers are organized into trade unions
led by 6digit salaried bureaucrats who specialize in giving back workers’
rights to employers and who remain captives of the pro-business Democratic
Party, there is little reason to expect any serious challenge to the status
Only if new social and political movements, leaders, and activists start
engaging in a deeper and more profound analysis of the “dirty secret” (Marx)
and the source of
Wealth of All Nations
(Adam Smith), can a beginning
be made toward denotating the foundations of capitalism and bringing about
its real collapse and replacement.
James Petras is a retired Bartle professor (emeritus) of sociology at SUNY
Binghamton. He is an activist and writer who has worked with the landless
workers’ movement in Brazil and the unemployed workers’ movement in Argentina.
He is a member of the editorial collective of
is also the author of numerous books and articles.