Issue 82 of INTERNATIONAL SOCIALISM JOURNAL Published March 1999 Copyright © International Socialism
The mood prevailing among the world ruling class has swung between despair and euphoria since the July 1997 devaluation of the Thai baht began the current economic crisis. Until August 1998 the collapse of the Tiger economies was considered a local crisis that would ease inflationary pressures on the West. But after the devaluation of the rouble and the default on the Russian government's debts, Bill Clinton acknowledged that the world faced the most serious economic and financial crisis since the Second World War. Then the crisis seemed to pass and the ruling class breathed a sigh of relief. The financial markets recovered some of their nerve and began to chase the United States stock market up to ever dizzier levels. But just as they thought they were through the worst, the support operation for the Brazilian currency collapsed in the face of a further massive flight of capital out of the country. The financial markets, Western governments, central banks and the media have shown a schizophrenia which reveals the superficiality of their understanding of the dynamics of the economic system from which they benefit.
Robert Brenner's major history of the development of post-war Western capitalism, and particularly of the changing relationships between the three major Western economies, the US, West Germany (and later united Germany) and Japan, is therefore very timely.1 In an analysis clearly influenced by Marxism, Brenner has sought to provide an analysis of the transition from the long boom through to the period of instability ('the long downturn' as he calls it) which set in at the end of the 1960s. He also outlines an explanation for why this period of instability has persisted for so long. Whilst his explanation for the transition is flawed and inadequate, there is much empirical detail from which anyone seeking to develop an understanding of the crisis of world capitalism will benefit.
Brenner locates his explanation for the crisis ridden nature of the last 25 years in the fall of profitability in, above all, the manufacturing sector:
Brenner argues that the US (and to a lesser extent the UK) enjoyed a very considerable advantage over other advanced industrialised economies immediately after the war, both in productivity and productive capacity. West Germany and Japan had higher rates of capital accumulation but much lower productivity and productive capacity initially. However, their high rates of capital accumulation enabled them to begin to challenge the dominance of US capital in the world market by the 1960s, one indicator of which was a growing US balance of payments deficit.
The challenge posed by lower cost producers in West Germany and Japan to the higher cost producers in the US pushed down the rate of profit overall. As declining profitability heralded economic slowdown in the late 1960s and early 1970s, the US government sought to offset the pressure on US capital through a looser fiscal and monetary policy-—ie bigger budget deficits and lower interest rates.
The post-war economic settlement amongst the Western economies was based on the Bretton Woods agreement which included pegging exchange rates to the value of the US dollar. It was intended that this exchange rate regime would provide stability for international trade and prevent the competitive devaluations of currencies which was one aspect of the great economic crisis of the 1930s. The chronic balance of payments deficit (excess of imports over exports) that emerged in the US in the 1960s, combined with the reflationary policies of lower interest rates and bigger budget deficits, undermined confidence in the dollar. In 1971 the dollar was devalued and the Bretton Woods agreement then collapsed altogether with exchange rates beginning to float against one another. The devaluation of the dollar put pressure on West German and Japanese exports as US exports became relatively cheaper and West German and Japanese exports relatively more expensive. The West German and Japanese governments then also sought to alleviate the pressure on their industries through more accommodating fiscal and monetary policies. The result was much higher inflation as the bosses took advantage of increased demand by raising prices rather than increasing investment and output. The oil price hike in early 1974 then pushed up inflation further.
Western governments sought to cap and push down inflation by raising interest rates and by trying to reduce their budget deficits, precipitating recession. After a weak stagflationary recovery in the second half of the 1970s, in which economic growth was almost stagnant whilst general price levels still rose significantly, a further recession, starting in 1979, was followed by the adoption of much less accommodating policies, particularly on the monetary side with higher real interest rates, the purpose of which was to bear down on inflation. This put pressure on US industry to restructure production to raise productivity and improve competitiveness.
In 1985 the Plaza Accord saw the US and Japan agree to push down the value of the dollar and push up the value of the yen to improve the relative competitiveness of US capital. Japan also adopted a loose monetary policy which deliberately produced the 'bubble economy', the rapid inflation of property and stock exchange prices at the end of the 1980s, the intention of which was to stimulate domestic consumption to help rectify Japan's chronic trade surplus with the US.
A further recession then followed in 1990 as the Japanese state sought to deflate the bubble which had got out of control (and the deregulated US financial system, which had been on a mad lending splurge, suffered a credit crunch—-a fact not mentioned by Brenner who simply refers to the US suffering a 'cyclical downturn'). In the 1990s the profit rate of Japanese manufacturing failed to recover significantly and was further squeezed by the high value of the yen (until 1995 when it went into precipitous decline) and the general stagnation of the Japanese economy weighed down by the bad debt burden of the banks, which followed the bursting of the asset price bubble.
Brenner concludes his historic account (written in early 1998) by arguing that both the US manufacturing and non-manufacturing sectors had made very significant gains in profitability by 1996. This was the product of a rise in exploitation, significant restructuring of industry over the preceding decade, and the boost to exports from the devalued dollar. He speculates that US strength could be the basis of a worldwide recovery with increases in productivity and output not seen since the long post-war upturn. In addition he sees the possibility that the US's chief trading rivals, benefiting from the redundancies and restructuring brought about by the 1990s downturn, could provide cheaper goods for the US and world market, while soaking up ever greater quantities of US exports in a virtuous circle.
On the other hand, he believes it more probable that the attempt by the major industrialised countries to grow through an export led strategy whilst restricting their internal spending will lead to 'the perpetuation and exacerbation of longer term trends toward international over-capacity and overproduction',3 a trend that is even more likely to develop in the wake of the South East Asian crisis.
There is little in Brenner's account to disagree with. The principal problems with Brenner's account lie in its theoretical framework and its distorting effect on his historical framework.
Brenner explains the fall in profitability in the late 1960s as a consequence of capitalist competition and the uneven development that characterises capitalism. As capitalism has developed, more and more capital has been sunk into enormous quantities of fixed capital, ie factories, machines etc. This rise in what Marx called the technical composition of capital, a trend visible over the history of capitalism, has been the result of a process of competition for markets in which every capitalist is under pressure to raise productivity and thereby lower their costs of production in order to compete more effectively. Unlike Marx, Brenner sees no problem arising for the rate of profit from this fact alone. Indeed, according to Brenner, rising productivity in the economy should imply both a rising mass of profit and a rising, not falling, rate of profit.
The problem comes, according to Brenner, when new, lower cost producers 'enter the line' and begin to compete for markets with the older, higher cost producers. Were investment in fixed capital relatively low, the higher cost firms could simply replace their old machines with new ones or else abandon that area of production. But in the real world of huge investments in machinery etc, such scrapping or 'exiting' is not feasible. Existing higher cost producers will rather seek to compete with the lower cost producers by lowering prices. They will suffer a reduction in their profits but will survive as long as they firstly, continue to make a profit on what Brenner calls their circulating capital, ie their purchases of labour, raw materials etc, and secondly, are able to cover their interest payments on loans that may still be outstanding on their investment in fixed capital. However, the consequence will be a reduced overall rate of profit for the economy as a whole provided the savings to the rest of the economy from lower cost production in this area do not accrue entirely to the profits of other companies using this lower cost production as inputs.
Higher cost production may survive for an extended period of time, Brenner contends, provided that relatively high cost businesses have access to credit which will allow them to increase investment and therefore competitiveness or just to hold on in the hope that the market will improve. 'But, precisely by facilitating the survival of low-profit firms...it [credit] tends to exacerbate over-capacity and over-production, and to slow the restoration of profitability, increasing instability and vulnerability to economic disruption'.4
Why does Brenner reject Marx's law of the tendency of the rate of profit to fall? His own theory would, after all, appear to be a distant cousin.5 Brenner rejects profit squeeze/supply side theories which locate the decline in the rate of profit in the excessive growth or maintenance of wages and the declining growth of productivity due to worker resistance. Marx's theory too, according to Brenner, 'posits a decline in profitability as resulting from declining productivity'.6 This is an extraordinary argument. Marx's theory is the exact opposite-—the rate of profit falls because of measures taken by the capitalist class to increase productivity in order to compete more effectively against their rivals. 'The progressive tendency of the general rate of profit to fall is, therefore, just an expression peculiar to the capitalist mode of production of the progressive development of the social productivity of labour'.7
Competitive pressure forces capitalists to invest at least part of their profits back into improving productivity. Improving the productivity of the workforce enables bosses to cut the costs of production and thereby reap a larger profit by maintaining or expanding sales at the previously prevailing prices or by gaining additional market share and profit by undercutting less productive rivals. To raise productivity, more and more investment is put into plant and machinery and less into the employment of labour. So more and more sophisticated machines are introduced to displace labour. However, the exploitation of labour, paying workers less than the value of the goods they produce, is the source of surplus value, which in turn underpins profit. If more is being invested on constant capital or dead labour, as Marx called machines, and less on variable capital, the current workforce, then the rate of return on investment provided by the surplus value pumped out of the existing workforce will fall. What is rational and necessary for each capitalist to do in order to compete effectively has the consequence of undermining the rate of profit as a whole and thus creates the conditions for economic crisis.
Brenner ignores the labour theory of value and rejects the law of the tendency of the rate of profit to fall. His principal argument in doing so is to refer to the Okishio theorem. This purports to prove that any investment undertaken to improve productivity in the pursuit of higher profits will in fact lead to profits rising rather than falling. Indeed, capitalists would simply be acting irrationally to undertake investment that would lead to a lower rate of profit.
However, there have already been many convincing critiques of Okishio, most of which Brenner ignores.8 The most compelling response to Okishio is that of course no capitalist invests to raise productivity in order to see his rate of profit fall. The first capitalist to improve his technology and displace labour in the process will indeed attract into his hands a bigger share of the pool of surplus value available, thereby seeing his profits increase at the expense of his rivals. However, the increased profit of the first innovator will decline as more and more of his competitors follow suit. Each will in turn attract more surplus value as they introduce the more productive technology, compared to the profit they were making when they were less competitive. That is why they are forced to improve their technology. The end result, however, will be that the overall rate of profit will decline for all capitals once the new technology is in place across the industry because less surplus value is being created by the direct producers, the workforce, relative to the total investment that has been made.
This tendency for the rate of profit to fall does not mean that there has been a continuous and inexorable decline in the rate of profit as capitalism has developed the forces of production, the technological capacity of the economy. Marx clearly argued that the tendency for the rate of profit to fall had to be understood in the context of a number of countervailing factors whose operation can prevent the rate of profit actually falling or help to restore the rate of profit after it has fallen and a crisis has set in. One such factor is increasing the exploitation of the working class in order to try to squeeze out more surplus value from the workers. If the rate of exploitation could be raised sufficiently, there would be no fall in the rate of profit. A second counter-tendency is the lowering of the costs of constant capital itself through a rise in the productivity in the production of machines, etc. A third counter-tendency is any systemic leakage of investment out of the circuit of the production of the means of production and consumption. Arms spending can be such a leak and had a stabilising effect on the post-war Western economies at least up until the late 1960s.
How effective these counter-tendencies are in sustaining higher rates of profit and for how long depends on the circumstances. In a recession it may become easier to raise the rate of exploitation as increased unemployment reduces workers' confidence to fight. Recessions may also lead to the devaluation and even destruction of capital. When companies go bankrupt, their factories and machinery may be sold off at 'fire sale' prices to be picked up by those who are still making profits. Moreover, competitive pressures may be eased and market share and profits boosted as rivals are forced out of business.
But there will also be profound problems in the countervailing tendencies smoothly restoring health to the system. For example, resistance from the working class will limit how far the increase in exploitation can be taken, and anyway there are finite physical limits to how long and hard workers can work and for how little reward. And as the units of capital become ever bigger, it becomes more and more difficult for businesses and the state to accept the clearout of the excess capital in the system, a clearout needed to raise profit rates significantly.
Brenner is right when he says that such is the scale of investment that companies will prefer to take lower profits than seek wholesale rationalisation and restructuring of their businesses. The growth of the credit markets has been important, as Brenner emphasises, in both stimulating spending and allowing big businesses in particular to weather the storm by increasing, rolling over (renewing) and even renegotiating their debts. Brenner brings out well how the financial system, underwritten by the state, has played a very significant role in propping up heavily invested business enterprises even at the cost of lower profits, ultimately, both for the businesses and for the banks. The alternative appears to be a potentially devastating collapse. Such a collapse might destroy enough capital to bring down the organic composition of capital and restore the rate of profit, but in the meantime many of the government's most fervent and closest supporters within the ruling class may suffer economic catastrophe and the seeds of social disorder and even insurgency may have been sown.
Brenner is also right that profits will be depressed by higher cost producers trying to compete with lower cost producers, rather than scrapping their higher cost plant. In effect their original investments are devalued by the introduction of lower cost technology by their competitors. This is a problem which in some areas of production, where technological innovation is occurring very rapidly, has worsened significantly. This devaluation might ultimately lower the organic composition but there will be no smooth transition here. Competition will be intensified and profitability undermined. Some sections of capital could take severe losses in the process, which in turn could precipitate severe crisis. This is all perfectly compatible with Brenner's theory and runs against Okishio's analysis, but Brenner's theory should be seen as a fragment of Marx's and makes better sense when integrated into the latter as we shall see below.
Brenner does not provide any new or compelling arguments to abandon Marx's theory of crisis in favour of his own theory, and his own theory has substantial weaknesses. Firstly, whilst it is true that older, higher cost businesses will lose out on profit to newer lower cost producers, why should this reduce the overall rate of profit rather than redistribute profit from the higher cost producers to the lower cost? Brenner's answer is this: 'Rather than merely replacing at the established price the output hitherto but no longer produced by a higher cost firm which has used up some of its means of production...real world cost-cutting firms, by virtue of their reduced costs, will reduce the price of their output and expand their output at the expense of the higher cost competitors, while still maintaining for themselves the established rate of profit'.9
This begs the question why the lower cost producers should only maintain the 'established rate of profit'. Brenner seems to be responding to this question in a footnote in which he says 'I assume here that the cost cutting firms compete amongst themselves, as well as with the higher cost firms, to drive down the rate of profit to its already established level.' But this will not do at all. Why should competition amongst the lower cost producers result in any particular rate of profit, as long as the rate of profit is higher than that of the higher cost producers? In other words, where does this 'already established level' come from? Brenner assumes that the rate of profit is established through competition but fails to explain what establishes one rate of profit rather than another.10
For Marxists there is an explanation for the rate of profit. The rate of profit certainly results from the process of competition but its level is determined by the amount of surplus value pumped out of the direct producers in relation to total investment on both machines and labour. The labour theory of value provides a quantitative explanation of what that rate of profit will be.11
Brenner also fails to explain why over time businesses cannot write down their older higher cost investments and then invest to update and restructure their production. There is after all some evidence of exactly this happening over the last ten to 15 years in the face of stiffer competition and a less supportive state and yet the world economy is even more unstable than at any time in the last 25 years. The fact is that despite this restructuring (and the increased exploitation that has gone along with it) profit levels remain well below the levels that prevailed during the long boom. The explanation for this is that effective competition at the international level in major areas of production requires a high organic composition of capital with the effect of continuing downward pressure on the overall rate of profit.
A major target of Brenner's account is the profit squeeze theory, which has been popular amongst some left economists over the last 25 years, and its cousin on the right, the supply side theory. These theories blame crises primarily on rising wages and falling productivity. Rising wages and falling productivity are themselves blamed on worker militancy and resistance to change. The policy prescription which follows from this profit squeeze/supply side analysis is for the ruling class to try to weaken trade union organisation to effect wage cuts, speed ups, redundancies and the rationalisation and restructuring of industry. Difficult though this might prove for the ruling class, if the profit squeeze theorists are right the contradictions of capitalism are not as fundamental as they would appear to be. It would not be unreasonable to assume that the last 25 years of sustained assaults on the working class ought to have restored the rate of profit to the levels of the 1950s and 1960s.
Brenner provides strong evidence in his historical account that the profit squeeze theory does not explain the onset of instability in the early 1970s or why this period of instability has continued for so long. However, his general theoretical arguments against profit squeeze theories seem to me less valid.
Brenner accepts that capital accumulation can produce a tight labour market (ie full employment or at least shortages of labour with the required skills) which will push up wages through competition between capitals to attract and retain labour and through the enhanced combativity of a more confident workforce. Excessive increases in wage costs cut into profits and falling profits then precipitate an economic downturn.
Other costs, however, are also pushed up as a boom develops. Bosses confident about expanding markets and rising profits increase investment. But that investment is unplanned overall and not co-ordinated to stay in line with the expansion of the supply of raw materials and machinery, as well as the supply of suitably skilled labour. Costs are pushed up, but when the new production from that investment comes on stream, again unplanned overall to match the likely demand for those goods, overproduction for the market pushes prices down. Higher costs that cannot then be passed on in higher prices squeeze profits. This is one of the explanations for at least some of the boom/bust cycles which have afflicted capitalism throughout its history.12
Brenner makes two arguments against this analysis. Firstly, he argues that whilst profit squeezes may explain local crises, they cannot explain the onset of generalised system-wide crisis.
Now it has to be said that for all one's sympathies with Brenner's ultimate objective, his arguments here are weak. He states as fact the inevitably localised nature of workers' confidence and militancy. This is not an absolute truth but rather a pessimistic picture of class struggle and the contagious effects of victory. But even given that there was considerable unevenness in the combativity of the working class as we moved into the economic downturn 25 years ago, Brenner ignores the fact that a generalised investment boom can cause shortages of labour in many countries thereby forcing wages up. Moreover the late 1960s and early 1970s did see a generalised rise in class struggle which did exert an upward pressure on wages. This did not cause the crisis-—on the contrary, it was already existing pressures on profitability which led employers to mount the attacks which helped to spark these struggles-—but it did reflect the effect of full employment on workers' strength and confidence, and it presented a major obstacle to capital's ability to overcome the crisis.
Brenner's argument against the profit squeeze theory also ignores the way other costs will also rise and cause difficulties for profitability as overproduction sets in. Just because some capitalists may benefit hugely from sudden price rises in the commodities they own does not mean that huge transfers of wealth within the capitalist class cannot have highly disruptive effects on the world economy. This, after all, is surely the lesson of the oil price hikes in 1974 and again in 1979.
Finally his argument ignores the transmission mechanisms that lead to a localised fall in profitability and therefore economic downturn in one country or region, transferring to other countries and regions and ultimately across the world economy as a whole. International trade will mean a fall off in exports to countries in recession, profits on investments in those countries by multinationals may also be hit and, as the financial contagion from South East Asia has confirmed, the financial effects of a downturn in one part of the world economy can have dramatic repercussions in other parts. How dramatic the effects of such a downturn in a national or regional economy are will depend on such factors as the relative size of the economy, the proportion of world trade it accounts for, international financial exposure to the economy and the general rate of profit prevailing across the world economy. Brenner's argument against profit squeeze theories of the onset of crisis therefore dismisses some of the elements needed to provide an analysis of the boom/bust cycle.
The real point here is not that profit squeeze theories do not have some validity in the analysis of crises, but rather why in certain circumstances downturns are relatively mild and capitalism can recover from them relatively quickly and in other circumstances they are much more severe and it is much more difficult to restore high levels of profitability and growth to the system. In other words we need a theory of longer term and more ineradicable trends in the capitalist system and a theory of the boom/bust trade cycle.
Here Brenner's principal argument against the supply siders has more relevance. His argument is that the long downturn could not have been so severe and continued for so long if the profit squeeze/supply side theories provide the principal explanation for the crisis of profitability over the last 25 years. Workers 'price themselves out of jobs', weakening confidence of other workers to resist speed up, wage cuts, etc. States vary in their ability to secure such increased exploitation but sooner or later will succeed. For example, there has, as Brenner argues, undoubtedly been a significant rise in the rate of exploitation in the US as wages have stagnated and even fallen from the early 1980s through to the last couple of years. Capitalists can also shift production, at least over the medium term, to parts of the country or to other countries where wage costs are lower and the workforce more 'flexible'.
Brenner's argument clearly has some cogency, but profit squeeze theorists might reasonably retort that such is the scale of investment in plant and machinery (a fact Brenner himself uses in articulating his own theory), and such are the links between particular capitals and particular states that productive capital is much less mobile even in the medium term than Brenner suggests. Indeed, this is an important argument against the wilder flights of imagination of theorists of 'globalisation'.14 But if this is so, then the burden of reversing the decline in profits will fall solely on pushing down wages, downsizing workforces etc, within the social and historical constraints of the society in which the capital has been invested, and this could take much longer than Brenner allows for.
The problem here is that Brenner is again vulnerable to those statistical studies which have purported to show that the profit squeeze theory is correct. These studies have looked at national income statistics broken down in two ways: firstly to provide a picture of capital/output ratios (taken by some to represent the organic composition of capital) and secondly, the profit share (the distribution of income between labour and capital, taken as a measure of the rate of exploitation). Such studies claim that it is changes in the latter and not the former which are correlated with a decline in profit rates.15 Brenner provides no serious challenge to them. Challenges do, however, exist in, for example, work by Fred Moseley, Anwar Shaikh and E Ahmet Tonak, and Tom Weisskopf.16 The work of Moseley, and Shaikh and Tonak in particular, use the labour theory of value to recalculate the raw statistics that profit squeeze theorists content themselves with. This reinterpretation shows that the fall in the rate of profit in the US has been due largely to the rise in the organic composition of capital (and to the growth of unproductive, non-surplus value producing labour).
Brenner accepts that arms spending had a stabilising effect on the US and the world economy for a period of time after the war.
It is a virtue of Brenner's argument here that he sees arms spending not only as a Keynesian style demand boost to the economy, counteracting declines in the rate of private capital accumulation, but also as having a special role to play in alleviating downward pressures on the rate of profit arising out of the process of competitive accumulation itself, because armaments are not in general thrown back onto the market.
However, the analysis would be strengthened in two ways if he were to accept the analysis established by Cliff, Kidron and Harman. Firstly, arms spending offset the tendency of the rate of profit to fall in the long boom because it represented a diversion of investment away from the production of the means of production and of consumption. Arms spending failed to feed back into the productive circuit of capital. It therefore did not depress the rate of profit by raising the organic composition of capital.
Secondly, although Brenner is right to see that the erosion of US competitiveness by German and Japanese capital put downward pressure on the rate of profit, he ignores the fact that the concentration of arms spending in the US and the UK allowed Germany and Japan, limited in their arms investment as a result of the post-war settlement, to gain that competitive advantage which in turn forced the US and UK to reduce arms investment. This fits so neatly into Brenner's uneven development account of the crisis that it is surprising he does not see its pertinence.
The fall in arms spending did release funds for productive investment, encouraged by the need of US and UK capital to fight off German and Japanese competition. And this began to push down the rate of profit as the organic composition of capital began to rise on a world scale.
The great strength of the theory of the permanent arms economy was that it provided a theory of why capitalism had entered the long boom and also identified why that long boom could not persist forever. It is a theory that was crucially connected to a certain view of how the concentration and centralisation of capital had changed the role of the state, ushering in an era of state capitalism in which economic competition was increasingly accompanied and even displaced by military competition. This change in the nature of world capitalism in the 20th century provides an explanation for the two massively destructive world wars and the unprecedented levels of peacetime arms spending that took place during the Cold War.18
Brenner does not provide any of this framework and, although he has an analysis of why the long boom came to an end, there is no indication in his general theory, or his empirical description, of how the theory of crisis would apply in different periods. For example, is the Great Depression of the 1930s explicable in terms of Brenner's theory and if so how did capitalism get out of it and bring about the long boom? And what of the crises of the 19th century?
Brenner's historical account concentrates on three blocs of capital, the US, West Germany and Japan, and their interrelations. He does not provide a broader theorisation of the changing relationship of capital and state and fails to theorise the growing internationalisation of trade, production and finance.19 This internationalisation has meant greater limits being placed on individual states' room for manoeuvre; limits on the ability to reflate the economy, to manipulate its exchange rate and to control its interest rates. This is not to say that states have lost all power and we now live in a completely laissez faire world. However, Brenner's account excessively concentrates on the three blocs as though they constituted cohesive units of capital, where states have relative freedom of action in relation to the other blocs.
Brenner's failure to theorise these complex and contradictory relationships is most in evidence in his failure to give an adequate account of the growth and the internationalisation of the financial system. Naturally, we should not fall into the illusion that the travails of world capitalism are the product of an ideologically driven deregulation of the financial system which has turned world capitalism into a casino. We are on Brenner's side in emphasising how the fall in the rate of profit in the productive sector has been fundamental to the instability of the last 25 years. However, the financial system is an integral part of any capitalist system and developments in recent years have brought into existence far greater forces of instability. Although Brenner makes limited reference to the financial system, particularly in relation to exchange rates between the three major blocs, his account suffers from analysing exchange rates only in terms of state management. More fundamentally, he does not provide an adequate explanation of the globalisation of financial capital and the implications of it for the instability of world capitalism. No analysis of the current crisis can afford to omit an account of the destabilising effects of the international financial system, of the power of the state to prop the system up and the limits on that power posed by internationalisation and deregulation.20
Finishing his account in early 1998, Brenner left open the question of whether there would be a new boom or the continuation of the instability brought on by overproduction and overcapacity and the attendant depressed profit rates. In his 'optimistic' scenario of a new boom Brenner ends up by implying that, now the US has restructured so successfully, there may be sunny uplands ahead if only major states abandoned policies which were depressing domestic spending, originally necessary to effect restructuring, and now adopted more expansionary policies to boost domestic consumption. Such policies could produce once again a virtuous circle of higher profits and higher growth.
But this is the most naive Keynesianism which ignores the ongoing contradictions in the process of competition and the production of an adequate rate of profit. Firstly, Brenner exaggerates the recovery of profitability in the US. Joel Geier and Ahmed Shawki have demonstrated that profit rates in manufacturing industry in the US in the 1990s have only risen to levels comparable to those prevailing just before the onset of the serious recession of 1974.21
Secondly, he provides little evidence that the unevenness in the development of capitalist productivity, which is at the heart of his theory of crisis, has in any way diminished in the last few years. There would appear to have been significant shifts in the balance of advantage between Japan, Germany and the US over the last few years, but Brenner provides no evidence that this has diminished the imbalance between higher and lower cost producers which he believes is the primary cause of lower profit rates. Brenner may have been misled here by his excessively nationally oriented analysis. Even though the balance of advantage may have shifted between national economies and may have changed on an aggregate basis, this does not mean that in particular industries both within and between countries, the imbalance between higher and lower cost producers does not persist. Difference in investment rates constantly renew such imbalances. Japan's rate of productive investment in export oriented industries has held up at relatively high rates at least until the last couple of years. And the enormous investment boom in South East Asia in the 1990s, only some of which spilled over into speculation, has meant a very significant growth of lower cost production in areas of internationally tradable goods, putting pressure on the profitability of producers in the advanced industrialised countries. Moreover, the speed with which costs have fallen in particular industries in recent years as a result of technological innovation can give even greater advantages to 'late' entry producers.
Brenner fails to identify a further element which should counter the idea that any such uplands are around the corner. The US may have had some success in both restructuring capital to raise productivity and the pressures of recession and stagnation in the German and Japanese economies may have produced some similar if even more limited successes there. We should therefore avoid the idea that world capitalism is simply stuck in stagnation as states seek to avoid the potentially cataclysmic consequences of clearing out the excess capital which is holding profit rates down. Capitalism is not a static system. The instability of the last 25 years has been a history of sharp crises and recessions followed by some recovery in growth and profit rates.
Those recoveries have, however, been limited and contradictory demonstrating the limited success the ruling class has had in restoring profit rates on a sustainable basis. Moreover, the revival of investment in the last three or four years in the US, the high levels of productive investment in Japan even up until 1996, despite domestic stagnation and an incipient banking crisis, and the very high levels of productive investment in the Tigers at least until their collapse, are all indicators of strong potential upward pressure on the organic composition of capital worldwide, and therefore downward pressure on the rate of profit, despite higher rates of exploitation and restructuring.22
With profit rates still relatively low worldwide, with financial markets continuing to show high levels of volatility, which lower interest rates may not be sufficient, in the short term anyway, to counter, the prospects are not for a new boom but rather for an unfolding crisis which it will be very difficult for the ruling class to contain. This conclusion, which was foreshadowed in this journal in spring 199823 and which has grown out of Marx's theory of crisis applied to the contemporary world, seems much closer to the mark than Brenner's.
The labour theory of value is fundamental in identifying that exploitation is the source of profit in the system, that there is a fundamental conflict of interest between the capital and labour and in providing the framework in which Marx's law of the tendency of the rate of profit to fall makes sense. And the falling rate of profit theory is vital in understanding why crises occur under capitalism, why they have become so intractable and why there is no alternative to the needless destruction and barbarism of capitalism short of socialism—-a socialism in which those who produce the wealth in society, the working class, collectively plan that production to meet need rather than profit.